1978 (9) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Validity of orders refusing firm registration.
2. Requirement of accompanying documents with registration application.
3. Interpretation of Section 185(2) of the Income Tax Act, 1961.
4. Applicability of previous legal precedents under the Income Tax Act, 1922.

Detailed Analysis:

1. Validity of Orders Refusing Firm Registration:
The petitioner challenged the validity of the orders dated February 28, 1973, and January 30, 1975, where the Income Tax Officer (ITO) and the Commissioner refused to grant registration to the firm. The key issue was whether the ITO was required to inform the firm of the defect in their application under Section 185(2) of the Income Tax Act, 1961.

2. Requirement of Accompanying Documents with Registration Application:
The petitioner applied for registration for the assessment year 1971-72 under Section 184(1) of the Income Tax Act, 1961, using Forms 11 and 11A. The application, filed on September 30, 1970, was signed by all partners but was not accompanied by the original partnership deed or a certified copy. The ITO refused registration on this ground.

3. Interpretation of Section 185(2) of the Income Tax Act, 1961:
Section 185(2) mandates that if an application for registration is not in order, the ITO must intimate the defect to the firm and provide an opportunity to rectify it within one month. The court emphasized that it is mandatory for the ITO to notify the firm of any defects in the application. The court held that the term "application" in Section 185(2) includes the documents required to be enclosed, such as the partnership deed. This interpretation was supported by the decision in Ganga Motor Service v. CIT [1977] 106 ITR 132 (Pat).

4. Applicability of Previous Legal Precedents under the Income Tax Act, 1922:
The ITO relied on the decision in Abdul Shakoor & Co. v. CIT [1968] 69 ITR 467 (All), which was under the Income Tax Act, 1922, where the non-accompaniment of the partnership deed justified refusal of registration. However, the court noted that the 1961 Act is different, as Section 185(2) provides an opportunity to rectify defects, which was not present in the 1922 Act. The court concluded that the ITO erred in law by not issuing a notice under Section 185(2).

Conclusion:
The court quashed the orders of the ITO and the Commissioner and directed the ITO to reconsider the application for registration afresh, in light of the observations made. The firm had already filed the original partnership deed, and if any defects remained, the ITO should intimate them to the petitioner as required under Section 185(2).

Separate Judgment Analysis:

S. K. JHA J.:
S. K. JHA J. agreed with the decision to allow the application and quash the orders of the ITO and the Commissioner. He highlighted the divergence of judicial opinion, noting that the 1961 Act's provisions for registration are more liberal than those of the 1922 Act. He emphasized that the matter of registration has shifted from being a privilege to a right under the 1961 Act, and the ITO must consider the substance of the application rather than technicalities. He agreed that the matter should be remanded to the ITO for reconsideration in accordance with the principles enunciated by the courts.

Final Order:
The orders contained in annexures 2 and 3 were quashed, and the case was remanded for fresh consideration to the ITO in accordance with the law and the observations made. The writ application was allowed, with each party bearing its own costs.