1970 (6) TMI 4 - HC - Income Tax

Whether the Income-tax Officer was justified in refusing the renewal of registration of the firm under section 26A while exercising the discretion vested in him under section 23(4) of the Act of which a reference was made in the order under section 26A

Summary

Issues Involved:
1. Justification of the Income-tax Officer's refusal to renew the firm's registration under section 26A while exercising discretion under section 23(4) of the Income-tax Act, 1922.

Detailed Analysis:

1. Justification of the Income-tax Officer's Refusal to Renew Registration:
The primary issue revolves around whether the Income-tax Officer (ITO) was justified in refusing the renewal of the firm's registration under section 26A of the Income-tax Act, 1922, by exercising the discretion vested in him under section 23(4) of the Act.

Background:
The assessee, a partnership firm engaged in the grain business, had been registered under section 26A in previous years and applied for renewal for the year 1958-59. During an inspection, it was discovered that certain books of accounts had been seized by sales tax authorities. Despite being served a notice under section 22(4) to produce these books, the firm failed to comply. Summonses were issued under section 37, and a partner claimed that the books were burnt, which the ITO did not accept. Consequently, a best judgment assessment under section 23(4) was made, and the renewal of registration was refused.

Appellate Assistant Commissioner's Decision:
The assessee appealed, and the Appellate Assistant Commissioner (AAC) held that the genuineness of the firm and allocation of shares were not in doubt. Therefore, it was unreasonable to reject the registration. The AAC opined that the ITO should not have been influenced by the assessment under section 23(4) and emphasized the need for statutory notice before cancellation. Consequently, the AAC allowed the renewal of registration.

Income-tax Appellate Tribunal's Decision:
Upon the department's appeal, the Tribunal reversed the AAC's order, restoring the ITO's decision. The Tribunal noted that the ITO properly exercised his discretion under section 23(4) in refusing registration, despite the order appearing to be under section 26A.

Legal Arguments:
The assessee's counsel argued that the ITO's discretion under section 23(4) should be exercised judicially and that section 23(4) was not applicable in this case as the books were claimed to be burnt. The counsel contended that the refusal was effectively under section 26A, making it illegal.

Court's Analysis:
The court analyzed sections 26A and 23(4) of the Act. Section 26A provides for the registration of a partnership firm, while section 23(4) allows the ITO to refuse or cancel registration for non-compliance with notices under sections 22(2), 22(3), 22(4), or 23(2). The court highlighted that the refusal of registration under section 23(4) is a penalty for defaults, not questioning the firm's genuineness.

Supreme Court Precedent:
The court referred to the Supreme Court's decision in Y. Narayana Chetty v. Income-tax Officer, Nellore, which clarified that cancellation under section 23(4) is a penalty for defaults, not due to the firm being fictitious. The ITO has inherent power to cancel registration if the firm was non-existent or registration was obtained through misrepresentation.

Assessment of Evidence:
The court noted that the assessee was given multiple opportunities to produce the books but failed to do so. The ITO rejected the explanation that the books were destroyed, citing deliberate non-compliance. The Tribunal affirmed the ITO's reasoning and upheld the best judgment assessment and refusal of registration.

Distinguishing Other Cases:
The court distinguished the present case from other cited cases (e.g., Commissioner of Income-tax v. Krishnamma & Co., Trivandrum Tobacco Combines v. Commissioner of Income-tax), where refusals were based solely on best judgment assessments without judicial discretion.

Conclusion:
The court concluded that the ITO was justified in refusing the renewal of registration under section 26A while exercising discretion under section 23(4) due to non-compliance with statutory notices and deliberate non-production of books. The question was answered in the affirmative and against the assessee, with costs awarded to the department.

Separate Judgment:
MISRA C. J. concurred with the judgment.

Summary:
The High Court of Patna held that the Income-tax Officer was justified in refusing the renewal of the firm's registration under section 26A of the Income-tax Act, 1922, while exercising discretion under section 23(4) due to the firm's non-compliance with statutory notices and deliberate non-production of books. The decision of the Appellate Tribunal to uphold the ITO's order was affirmed, and the question referred was answered in the affirmative against the assessee.