1982 (4) TMI 145 - AT - Income Tax

Capital Receipt, Concessional Rate, Contribution Towards Capital, Industrial Undertaking, Trading Liability

Summary

Issues:
- Appeal against orders granting registration to assessee-firm for assessment years 1976-77 and 1977-78.
- Competency of the Income Tax Officer (ITO) to pass orders refusing registration.
- Validity of subsequent orders declining registration.

Analysis:
1. The appeals before the Appellate Tribunal ITAT Hyderabad-A concerned the orders of the Assistant Commissioner of Income Tax (AAC) directing the grant of registration to the assessee-firm for the assessment years 1976-77 and 1977-78. The Income Tax Officer (ITO) had initially refused registration for both years, alleging that the firm engaged in a sham transaction without real business activity.

2. The AAC found that the firm was established under a deed with four partners to provide managerial services to two theaters owned by another firm. The AAC concluded that the firm indeed carried on a business and was eligible for registration, despite the ITO's refusal based on lack of genuine business activity.

3. The issue of the ITO's competency to pass the impugned orders arose when the assessee claimed that the ITO had previously issued orders granting registration on 27-2-1979, which were not communicated. The AAC considered these orders as draft orders since they were not communicated to the assessee, but the Appellate Tribunal disagreed, emphasizing that communication to the assessee is not a prerequisite for an order to be final.

4. The Appellate Tribunal examined the provisions of the Income-tax Act, noting that once the ITO passes an order granting registration under section 185(1)(a), he can only cancel it under section 186 after following due process. In this case, the ITO had not followed the prescribed procedure to cancel the initial orders granting registration dated 27-2-1979. Therefore, the subsequent orders by the ITO refusing registration were deemed invalid and non est in the eyes of the law.

5. Citing legal precedents, including the Supreme Court's observations on the finality of assessment orders, the Appellate Tribunal held that the ITO could not decline registration for the assessment years 1976-77 and 1977-78 without validly revoking the initial orders granting registration. Consequently, the appeals by the revenue were dismissed as the assessee-firm was entitled to registration as per the original orders dated 27-2-1979. The Appellate Tribunal did not address other contentions raised by the revenue due to the lack of a valid order from the ITO.