1997 (7) TMI 3 - SC - Income Tax

Registration of Firm - jurisdiction of Commissioner under section 263 - held that Commissioner in exercise of his powers under section 263 of the Act, had the jurisdiction to cancel the renewal of registration granted to the assessee firm

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, to cancel the benefit of continuance of registration granted under section 184(7).
2. Validity of the renewal of registration in light of discrepancies in the profit-sharing ratio between Form No. 11A and the partnership deed.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263:

The primary issue was whether the Commissioner had the jurisdiction under section 263 of the Income-tax Act, 1961, to cancel the continuance of registration granted under section 184(7). The Tribunal had held that the Commissioner did not have such jurisdiction because no specific order under section 184(7) was passed, and the registration continued automatically upon fulfilling certain conditions. The High Court agreed with the Tribunal, stating that no order was passed by the Income-tax Officer which could be revised under section 263.

The Supreme Court, however, disagreed with this view. It analyzed sections 184(7) and 185(3) and (4), noting that the continuation of registration required the Income-tax Officer to apply his mind to the declaration furnished by the firm and to record a certificate on the instrument of partnership. This process involved decision-making and, therefore, constituted an order. The Supreme Court concluded that such an order is subject to the revisional jurisdiction of the Commissioner under section 263, as it affects the tax liability of the firm and could be prejudicial to the interests of the Revenue.

2. Validity of Renewal of Registration:

Given the Supreme Court's answer to the first issue, the second issue regarding the validity of the renewal of registration due to discrepancies in the profit-sharing ratio became relevant. The Tribunal had previously ruled that the profits were divided according to the partnership deed, and the discrepancy in Form No. 11A was a mistake. The High Court did not address this issue as it had become academic after answering the first question in favor of the assessee.

The Supreme Court remitted the matter to the High Court for consideration of this second question, as it had not been addressed earlier.

Conclusion:

The Supreme Court allowed the appeals, set aside the judgment of the High Court, and answered the first question in the negative, i.e., in favor of the Revenue and against the assessee. The matter was remitted to the High Court for consideration of the second question regarding the discrepancy in the profit-sharing ratio. No orders as to costs were issued.