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TMI Blog1986 (10) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated October 28, 1976, passed under section 185(1)(a) was erroneous and also prejudicial to the Revenue ? 4. Whether, in view of section 186(1) of the Income-tax Act, 1961, the Commissioner's order dated October 5, 1976, cancelling the registration of the firm already granted by the Income-tax Officer was valid in law ? and 5. Whether registration could be allowed to the assessee-firm at least for the period up to September 16, 1973, for which period all the formalities for grant of registration had been complied with ? " The facts of the case giving rise to this reference are as under On November 8, 1972, three persons, viz., Shankerlal, Ashok Kumar and Jagdish Prasad, entered into a partnership business and executed the partnership deed. The business was in the name and style of M/s. Udaipur Soap Factory, Udaipur. On July 20, 1973, an application in Form No. 1 along with the aforesaid partnership deed was filed for the registration of the firm. On September 16, 1973, partner Shankerlal died, In pursuance of the provision of clause 17 of the partnership deed dated November 8, 1972, the firm continued and the deceased Shankerlal's heirs, Smt. Gangaben and Shri As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer being erroneous and prejudicial to the interests of the Revenue for the reason that the application filed on July 20, 1973, had become infructuous and purposeless after the change in the constitution of the firm and the application in Form No. II A had not been filed as required by law. The argument regarding the prayer for granting registration up to September 16, 1973, the date of death of a partner, Shankerlal, also did not find favour with the Tribunal on the ground that it is not permissible to break the period of accounting and allow piece-meal registration. The appeal of the assessee was dismissed. The assessee filed an application under section 256(1) of the Act before the Tribunal making a request that as certain questions of law arose out of the order of the Tribunal, reference may be made to the High Court. The Tribunal allowed the application and referred the above-mentioned five questions for the opinion of this court. The first question relates to the requirement of application for registration in Form No. 11 A after the change in the constitution of the firm. It has been strenuously contended by Mr. L. M. Lodha, learned counsel for the assessee, that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the partnership deed and was entitled to registration on the basis of an application dated September 20, 1973, filed during the lifetime of Shankerlal; and 3. Whether in case the firm is taken to continue, a fresh application for registration was required because of the change in the constitution of the firm and whether the note dated October 27, 1976, could be treated as a fresh application for registration in Form No. 11A. Shankerlal died on September 16, 1973. To meet such a contingency, clause 17 of the deed of the partnership contained the following provision : " Clause 17. That in case of death of any partner, the remaining partners shall not dissolve the firm necessarily, till the end of the accounting year and the legal heirs or executors or representatives of the dying partner may step in his shoes. " The accounting year ended on Diwali, 1973. As there was an option with the legal heirs of the deceased partner to join the partnership and on their agreeing to be inducted as partners, an agreement dated September 20, 1973, was executed and signed by all the partners. This is, therefore, not a case of a dissolution of the partnership. The original partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11A; and (b) it shall be accompanied by the original instrument or instruments evidencing the partnership as in existence from time to time during the previous year up to the date of the application together with copies thereof. A certified copy of the instrument or instruments together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument or instruments cannot be produced. " The change in the constitution of the firm which in the instant case was on account of the death of Shankerlal, the original partner, and his legal representatives being substituted by virtue of clause 17 of the deed of partnership and the agreement dated September 20, 1973, brings the case within the ambit of rule 22(2)(ii) and, therefore, an application was required to be made in Form No. 11A. Mr. Lodha, learned counsel for the assessee, vehemently emphasised that the non-compliance with this rule will not create any hurdle for registration because the firm continued and an application in Form No. 11 had already been filed during the lifetime of Shankerlal. In this connection, reference has been made to the principles enunciated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Lodha emphatically contended that when there was no dissolution of the firm and the firm continued by virtue of clause 17 of the partnership deed, it should be taken as such for the purpose of section 185 of the Act and no fresh application was required. The argument of Mr. Lodha finds a reply in the case of Girdharilal Nannelal v. CIT [1984] 147 ITR 529 (MP) [FB], wherein it was observed that in sections 187, 188 and 189, the Legislature has made special provisions applicable to firms relating to changes in their constitution, succession and dissolution. According to their Lordships, this exercise was unnecessary, if these expressions were to be construed only according to the existing general law and that it cannot be doubted that any matter, for which a specific provision is made in the Income-tax Act, is to be governed by it notwithstanding anything different or contrary contained in the general law relating to that matter. After discussing the provisions of section 187 and observing that a person may cease to be a partner for any of the special reasons such as death, retirement, etc., and the situation envisaged by sub-section (2)(a), their Lordships held that resort to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it was held that even when a firm is reconstituted in accordance with the terms of the deed of partnership and a partner is replaced by another without the firm being dissolved, there is a change in the constitution of the firm for the purpose of section 184(7) of the Act. The registration of the firm was denied on the ground that the application filed was not in proper form, i.e., instead of fresh application for registration, an application for continuation of registration was filed. In the case of K. C. Trunk and Bucket Factory v. CIT [1977] 106 ITR 348 (Gauhati), one of the partners ceased to be so on account of his death. The surviving partners of the firm continued as partners under the terms of the partnership deed. It was taken to be a change in the constitution of the firm within the meaning of sub-section (2)(a) of section 187 of the Act. It was, therefore, considered mandatory for the assessee to make an application under section 184(2) for fresh registration of the firm for the assessment year in question and it not being done, registration was refused. Registration under the Act enables the firm to have the benefit of lower rates of tax than those which would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee does not fall under the proviso. The note dated October 20, 1976, was only an explanation to the query made by the Income-tax Officer and that too after the expiry of the period when application in Form No. 11A was required to be filed. The application in Form No. 11A is required to be accompanied by the documents mentioned in rule 22(2)(ii)(b) of the Rules. Form No. 11A containing the declaration by the partners of the firm is required to be signed by all the partners. The note dated October 20, 1976, therefore, could not be treated as a fresh application for registration in Form No. 11A. Section 185(2) of the Act provides that where the Income-tax Officer considers that the application for registration is not in order, he shall intimate the defect to the firm and give it an opportunity to rectify the defect within a period of one month from the date of such intimation and if the defect is not rectified within that period, the Income-tax Officer shall, by order in writing, reject the application. In order to attract the provision of this sub-section, there should be an application in existence. In the present case, there was no application at all in Form No. 11A and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y stressed that in case the registration of the firm cannot be allowed after September 16, 1973, because of the failure of the assessee to file the application in Form No. 11A, the registration up to September 16, 1973, at least should have been allowed because for that period there was an application in Form No.11. The answer to the question relating to such a claim would depend upon the point as to whether piece-meal registration of a firm can be allowed. Mr. Lodha has placed reliance on the principle enunciated in the case of Beni Prasad Sidhgopal v. CIT [1981] 128 ITR 659 (All). In that case, the assessee-firm was granted registration for the assessment year 1956-57. Registration was renewed thereafter up to the year 1959-60. During the accounting year relevant to the assessment year 1960-61, one of the partners died on December 20, 1958, and a minor was admitted orally to the benefits of the partnership. On the question whether the firm was entitled to renewal of registration and, in the alternative, whether it was entitled to registration up to the date of death of the partner, it was held that, as during the accounting year relevant to the assessment year 1960-61, one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Assistant Commissioner. On further appeal, the Appellate Tribunal directed the Income-tax Officer to grant continuation of registration up to October 15, 1563, holding that the Act did not prohibit the grant of registration for part of the previous year. On a reference made at the instance of the Revenue, it was held as under (headnote): "Where a firm ceased to exist or is succeeded by a different firm during the course of the previous year, it may, be permissible to grant registration for the assessment year in relation to that part of the previous year during which it existed. Bat, where the assessee claims to be the same firm throughout the previous year and submits a single return as if there was only one assessee during the whole of the previous year, the registration can be granted only in relation to the whole of the previous year and not for a part of the previous year." In the case of K. C. Trunk and Bucket Factory v. CIT [1977] 106 ITR 348 (Gauhati), the point for determination was as to whether registration should have been allowed for the period up to the death of one of the partners. It was observed that section 4 of the Act, which is the charging sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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