1971 (12) TMI 5 - HC - Income Tax

Appealable order - Income-tax Officer s order refusing registration or continuation of registration without giving an opportunity to rectify the defect in impugned order - Under section 246(j), an order refusing to register a firm under clause (b) of sub-section (1) or under sub-section (1) of section 185 is an Appealable order before the Appellate Assistant Commissioner

Summary

Issues Involved:
1. Whether an appeal lay to the Appellate Assistant Commissioner against the order of the Income-tax Officer dated July 19, 1963.

Detailed Analysis:

Issue 1: Appeal to Appellate Assistant Commissioner

Background and Facts:
The judgment addresses two references involving partnership firms, each with a deceased partner, Kashmiri Lal, whose death led to the reconstitution of the firms. The firms filed returns for the assessment year 1962-63, but the Income-tax Officer (ITO) noted discrepancies and refused to grant continued registration under section 184(7) of the Income-tax Act, 1961. The ITO's order was challenged before the Appellate Assistant Commissioner (AAC).

Income-tax Officer's Order:
The ITO observed that the declarations filed by the firms were false as they did not reflect the death of Kashmiri Lal and the subsequent reconstitution of the firms. The ITO held that since the old partnerships ended during the assessment period and no new registration was claimed, the firms could not be granted continued registration.

Appellate Assistant Commissioner's Decision:
The AAC held that the ITO's order should be treated as one under section 186(1) for cancellation of registration, not under section 184(7). The AAC set aside the ITO's order for a de novo trial, arguing that the ITO should have provided an opportunity to rectify the defect in the application under section 185(2).

Income-tax Appellate Tribunal's Decision:
The Tribunal reversed the AAC's decision, holding that the ITO's order was indeed under section 184(7). It stated that the AAC erred in treating it as an order under section 186(1) and that no appeal lay against an order under section 184(7).

High Court's Analysis:
The High Court examined the relevant sections of the Income-tax Act, 1961, and the 1922 Act. It noted that section 184(7) provides for continued registration if there is no change in the firm's constitution or the partners' shares. Section 185 outlines the procedure for registration, including the requirement to rectify defects in the application. Section 186(1) pertains to the cancellation of registration if no genuine firm existed during the previous year.

The High Court found that the ITO should have given the firms an opportunity to rectify the defect under section 185(2). The letters sent by the firms before the ITO's order clarified the death of Kashmiri Lal and the reconstitution of the firms, indicating that the ITO had sufficient information to allow the firms to rectify the defect.

Conclusion:
The High Court concluded that the ITO's order was made under section 185(1)(b) and that the ITO failed to follow the procedure outlined in section 185(2). Therefore, an appeal lay to the AAC under section 246(j), which allows for an appeal against an order refusing to register a firm under section 185(1)(b).

Judgment:
The High Court answered the question in favor of the assessee, holding that an appeal lay to the AAC against the ITO's order dated July 19, 1963. The AAC's error in treating the order as one under section 186(1) was acknowledged, but the appeal was still valid. No order as to costs was made.