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TMI Blog1985 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the accounting period relating to the assessment year in question, Sri Dinanath Bhatia died on December 17, 1966. As per the provision in the deed of partnership dated April 1, 1966, a copy of which has been annexed and marked as annexure A forming part of the statement of the case, a fresh partnership deed was not necessary to be drawn up and the same was, in fact, also not drawn up. The share amongst the remaining partners was re-allocated on December 17, 1966, so that each partner may get 1/3rd share. An application for registration of the firm with a copy of the partnership deed was made on March 30, 1967, before the Income-tax Officer along with Form No.11 under section 185 of the Act. This Form No. 11 bore the signatures of all the four partners. The Income-tax Officer took the view that as a result of the death of one of the partners on December 17, 1966, the partnership firm underwent a change in the constitution. The Income-tax Officer also took the view that a fresh deed of partnership should have been executed on the death of Dinanath Bhatia on December 17, 1966, and an application in Form No. 11 A seeking registration should also have been filed. He also po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided under section 185(2) of the Act and so the refusal to grant registration was not legally justified. The assessee also objected to the Income-tax Officer's conclusion that a fresh partnership deed was necessary in the circumstances of the case. The Appellate Assistant Commissioner held that as one of the partners, namely, Dinanath Bhatia, died on December 17, 1966, there was a change in the constitution of the firm. He, therefore, agreeing with the Income-tax Officer that an application for registration should have been filed in Form No. 11A, also considered the second contention that an opportunity to rectify the technical defect in the form of application should have been given by the Income-tax Officer before passing the order under section 185. The Appellate Assistant Commissioner held that the Income-tax Officer was not justified in rejecting the application for registration merely on a ground that the application was not in order and that under section 185(2) of the Act, the Income-tax Officer had to intimate the defect and give an opportunity for rectifying the same within a period of one month from the date of such intimation. The Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not been done, the assessee cannot be allowed to take advantage of section 185(2) of the Act, while the Income-tax Officer also took the view that the lapse on the part of the assessee in not filing an application for registration before the close of the accounting period is not a mere defect in the choice of the form but is a clear contravention of the law of limitation. The Income-tax Officer also considered the application dated March 30, 1967, in Form No. 11. This Form No. 11 was signed by Dinanath Bhatia and his three sons showing 1/4th share each. He has also pointed out that since a change in the constitution of the firm had taken place after the death of one of its partners and the firm was reconstituted, the firm should have filed an application in Form No.11A. The Income-tax Officer also took the view that an application for registration has been filed in Form No. 1 on March 30, 1967, but before the application, a change has taken place in its constitution and so the application should have been filed on behalf of the firm of three partners as existing at the time of making the application but the application was filed by the assessee in respect of the firm of four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atever technical defect was there in Form No.11 filed on March 30, 1967, had been removed by the fresh filing of an application in Form No. 11A as per the direction given by the Appellate Assistant Commissioner and so the delay was condoned by the Appellate Assistant Commissioner and the Income-tax Officer was not justified to look into that aspect again and that the Income-tax Officer should have decided the claim for registration on its merits. The Appellate Assistant Commissioner, therefore, allowed registration to the assessee-firm under section 185 of the Act for the assessment year 1967-68. The second order of the Appellate Assistant Commissioner has been annexed and marked as annexure E forming part of the statement of the case. The Department appealed before the Tribunal. The Tribunal gave the facts of the case in paragraphs 2, 3 and 4 and then the Tribunal held that there was no material on record to hold that the firm was not genuine and that the assessee filed Form No. in place of Form No. 11A and thus non filing of Form No. 11 A could only be termed as an irregularity which was curable and once it was cured; it would date back to the date when Form No. 11 was filed. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Assistant Commissioner held that once earlier the Appellate Assistant Commissioner had directed that Form No. 11 was defective and the Income-tax Officer should have given opportunity to the assessee to file Form No. 11 A and should have waited for one month and when Form No. 11A was filed on August 4, 1969, the Income-tax Officer could not say that the application was barred by limitation and he should have proceeded to decide the application in Form No. 11A on merits and as the firm was genuine, he should have allowed registration to the assessee-firm and so the 2nd Appellate Assistant Commissioner by annexure allowed the registration to the firm and the only question before the Tribunal was whether the 2nd Appellate Assistant Commissioner was justified in allowing the registration on the basis of Form No. 11A and the Tribunal only held that when Form No. 11 A was filed for removal of defects in Form No. 11, then Form No. 11A will date back to the period when Form No. 11 was filed, which shows that Form No. 11 A could not be held to be barred by time and so the order of the 2nd Appellate Assistant Commissioner was upheld by the Tribunal. Mr. L. K. Bajla on this basis argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down the law applicable to the facts found and neither the High Court nor the Supreme Court has jurisdiction to go behind or to question the statement of facts made by the Tribunal and that the statement of the case is binding on the parties and they are not entitled to go behind the facts of the Tribunal in the statement. It has also been held in this decision that when the question referred to the High Court speaks of " on the facts and circumstances of the case ", it means on the facts and circumstances found by the Tribunal and not on the facts and circumstances as may be found by the High Court. It has been held in the case Scindia Steam Navigation Co. Ltd. v. CIT [1954] 26 ITR 686 (Bom), that if a point of law is implicit in the question raised by the Tribunal and if no additional facts are necessary to support that point, then it is open to the assessee to urge that point before the High Court notwithstanding that it was not considered by the Tribunal. This principle was accepted by the Supreme Court in Scindia Steam Navigation Co. Ltd. v. CIT [1961] 42 ITR 589, which has been referred to in the Full Bench decision of the Patna High Court (Jamunadas Mannalal v. CIT [1985] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(7) and so section 184(8) will not be applicable to a case where it is the first year of registration as no question of continuation of registration is involved. In the present case before us, it is a case of registration in the first year and not a case of continuation of registration. Section 184(1) of the Act lays down that an application for registration of a firm has to be made before the Income-tax Officer if the partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrument. Under section 184(3) of the Act, the application has to be signed by all the partners personally and under section 184(4) of the Act, the application shall be made before the end of the previous year for the assessment year in respect of which registration is sought: provided that the Income-tax Officer may entertain an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year. Section 184(5) of the Act lays down that the application shall be accompanied by the original instrument evidencing the partnership, together with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions have been laid down in rule 22(4) of the Rules where the application is made after the end of the relevant previous year. Rule 22(5) lays down that the application shall be signed personally by all the partners in the firm as constituted at the date of the application. Rule 22(3) relates to a case where any change or changes in the constitution of the firm takes or take place after the date of making the application under the sub-rule itself. It is not the case before us Now let us consider the various arguments which have been advanced by the parties. Mr. B. P. Rajgarhia has submitted that when Dinanath Bhatia died on December 17, 1966, a fresh partnership deed should have been executed. Of course, the first Income-tax Officer in annexure has taken the view that after the death of Dinanath Bhatia on December 17, 1966, a fresh partnership deed should have been executed. The partnership deed is annexure A which shows that it was executed on April 1, 1966, in which the partners were Dinanath Bhatia and his three sons, namely, Tilak Raj Bhatia, Ved Prakash Bhatia and Krishna Gopal Bhatia, each having a 25 per cent. share. Clause 11 of the partnership deed shows that the firm w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the income derived by the old firm. The Allahabad Full Bench also held that this section even by implication does not create a fiction that the income derived by the old firm becomes the income of the reconstituted firm and that the income of the old firm cannot be clubbed with the income of the reconstituted firm and that after reconstitution, the firm becomes a distinct assessable entity different from the firm before its reconstitution and, therefore, two different assessment orders have to be passed against the reconstituted firm-one in respect of the income derived by it before reconstitution and the other in respect of the income derived by it after reconstitution. This observation relating to section 187 of the Act by the Allahabad Full Bench has not been followed in various Full Bench decisions of other High Courts, which I will discuss later on. The view taken in the above decision relating to the non-execution of fresh deed of partnership after the death of one of the partners is further supported by the case of CIT v. Ganesar Industries [1984] 149 ITR 48 (Mad), where one of the clauses of the partnership deed under which the assessee-firm was constituted co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 1/4th share each. On this basis, he has submitted that Form No. 11 was an invalid form and so it cannot be said to be a defective form and so no registration could be granted on the basis of Form No. 11. For this purpose, Mr. B. P. Rajgarhia has relied on the case of Sri Ramamohan Motor Service v. CIT [1973] 89 ITR 274 (SC). In this case, a partnership deed was executed on February 5, 1955, relating to a firm consisting of five partners which came into existence on January 1, 1955. The fifth partner was a minor and the deed showed that he was a party thereto being represented by his father. Under the deed, the profit or loss of the business was to be divided or borne between the partners in equal shares, and for the assessment year 1956-57 an application for registration under section 26A of the 1922 Act was made on June 30, 1955, the last date for making such an application. Later, on objection being raised by the Registrar of Firms that the firm was invalid under section 30 of the Partnership Act, 1932, the four adult partners by their letter dated December 18, 1955, informed the Registrar that the minor was admitted to the benefits of the partnership with the consent of all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . P. Rajgarhia has also relied on the case of Pratapmal Luxmichand v. CIT [1956] 29 ITR 489 (SC). In this case, an application for registration of a firm consisting of seven partners under section 26A of the 1922 Act was personally signed by six partners and was accompanied by deed of partnership, which had also been signed by those six partners. The special Income-tax Officer rejected the application on the ground that the deed and the application were not signed by all the members of the partnership business. On appeal, the Appellate Assistant Commissioner cancelled the order of the special Income-tax Officer and directed him to register the firm after obtaining the signature of the seventh partner both on the application for registration and on the deed of partnership and, in those circumstances, their Lordships of the Supreme Court held that the only power which the Appellate Assistant Commissioner had under rule 2(c) of the Income-tax Rules, 1922, was to accord permission to the assessee to make the application in proper form to the Income-tax Officer signed by all the partners personally including the seventh partner before the assessment was confirmed, reduced, enhanced or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and the rules framed thereunder and as the word " personally " in rule 6 requires the application to be signed by the partner in person, the signature by an agent on his behalf is invalid. This decision also lays down that the registration of a firm under section 26A of the 1922 Act confers on the partners a benefit to which they would not have been entitled but for that section and such a right being a creature of the statute can be claimed only in accordance with the statute which confers it and a person who seeks relief under section 26A must bring himself strictly within its terms before he can claim the benefit of it. The decision was in the special facts of the case and it cannot be doubted that if an agent signs for a partner, then the application form will be invalid. Mr. B. P. Rajgarhia has also relied on the case of Jain Co. v. CIT [1978] 115 ITR 68 (Gauhati). In this case, the assessee-firm was constituted by a deed dated February 1, 1964. The deed showed that the firm consisted of five partners who were to share the profits and losses equally. In June, 1964, one of the partners retired from the firm and thereafter the firm continued with the remaining four par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm which was signed by A himself along with the other partners. The Income-tax Officer refused registration to the firm under section 26A of the 1922 Acton the ground that the earlier application was not signed by all the partners personally, while the later application signed by all the partners was submitted on August 23, 1965, after the end of the relevant previous year, that the later application was delayed by four years and ten months and that no sufficient cause was shown for condonation of delay in the filing of the valid application for registration and so the order of the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner and in second appeal by the Tribunal. In those circumstances, it was held by the Bombay High Court that the provisions regarding registration of a firm under section 26A of the 1922 Act should be strictly complied with and since the initial application for registration was not signed by all the partners, it was not a proper application and that the previous year of the firm ended on October 28, 1960, but proper application signed by all the partners was made only on August 23, 1965, and since the application was not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. It has also been held in this decision that all that this section requires is that if the same business is continued by a reconstituted firm of which at least one of the old partners continues to be a partner of the new firm, it will be treated as a continuing entity in the eyes of law and that section 188 has been designedly worded to apply only to those cases of succession of firms which are not covered by section 187 of the Act. It has also been held in this decision that it is not correct to say that even under section 187(2), two separate assessments should be framed and that because of the changed definition of the word "person", a partnership firm has been invested with the status of a continuing entity and a unit of assessment and the framing of only one assessment against a person is the normal rule and it has been held that one assessment for both the periods was justified in law under section 187(2) of the Act. Thus, according to this decision, only one assessment has to be made for the entire accounting period in spite of the death of Dinanath Bhatia on December 17, 1966, and the firm has to be assessed as it existed on the date of the assessment consisting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa High Court held that the assessee filed one return for both the periods which showed that there was no claim for making two separate assessments and that single return for the entire year indicated that the business continued till the end of the year in the same manner as up to August 31, 1968, when one of the partners, R, died. It was also held by the Orissa High Court that the assessee-firm's claim to be treated as a registered firm up to August 31, 1968, had no force and so continuation of registration for part of the relevant previous year was not maintainable under the provisions of section 187(1) of the Act. The facts of this case are different from the facts of the present case before us. A reference may also be made to the case of CIT v. Kejriwal Traders [1969] 71 ITR 463 (Cal). In this case, the assessee-firm was originally constituted by a partnership deed dated April 18, 1957. On September 30, 1957, one of the partners retired and a new partnership deed was executed on January 31, 1958, in which it was recited that the partnership constituted under the date April 18, 1957, was " dissolved ". For the assessment year 1958-59, for which the previous year was from F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, by a deed of partnership dated March 18, 1960, four persons entered into an agreement to carry on business and to share profits thereof, respectively, at specified rates. The partnership was to commence from January 1, 1960, and the accounting year was to be the calendar year. Clause 11 of the deed provided that in case of death or insolvency of any of the partners, the partnership would be carried on by the remaining partners. In the course of the very first year of existence of the partnership, one of the partners died. The business was continued by the remaining partners without executing any fresh deed of partnership or entering into any written agreement about the division of profits. The Income-tax Officer granted initial registration to the firm for the assessment year 1961-62. The assessee filed an application for fresh registration as also a declaration under section 184(7) and application for renewal of registration for the year 1962-63. The Income-tax Officer rejected the applications. In those circumstances, it was held that the new partnership of the three partners was not entitled to registration as there was no deed of partnership specifying the respective share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer refused registration on the ground that the application was not in proper form and a fresh application for registration should have been filed instead of an application for continuation of registration. In those circumstances, it was held by the Andhra Pradesh High Court that 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 the part of the previous year during which it existed, but 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, registration can be granted only in relation to the whole of the previous year and not for a part of the previous year, and that a firm is constituted by its partners and even if in accordance with the terms of the deed of partnership, 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. In this case, it was held that registration for part of a year cannot be allowed. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 185(2) of the Act and if the application in Form No. 11A is filed, then the application for registration should be considered in the light of the direction given above. Even the 2nd Income-tax Officer also clearly pointed out that the assessee should have filed an application in Form No. 11 A and not in Form No. 11 but he took the view that the application in Form No. 11A was filed on August 4,1969, beyond the statutory time allowed for filing the application and so he did not entertain the application. The 2nd Appellate Assistant Commissioner held that when the 1st Appellate Assistant Commissioner bad directed the Income-tax Officer to accept Form No. 11A, then it amounted to condonation of delay by the 1st Appellate Assistant Commissioner and so the 2nd Income-tax Officer should not have refused registration on the basis of Form No. 11A on the ground that there was delay and so the Appellate Assistant Commissioner allowed registration. Even the Tribunal held that the application in Form No. II A only was required for registration. Thus, all the authorities were consistent that the application in the case of change in the constitution of the firm should be filed by the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and showed their share as 1/4th each, then the form was an invalid form. Iam of the view that when on March 30, 1967, the application in Form No. 11 was filed, it was not a proper form and it clearly made a declaration that each of the four partners had 1/4th share and it could only show that Dinanath Bhatia was alive at that time. At that time, only three sons of Dinanath Bhatia were partners as Dinanath Bhatia had already died on December 17, 1966. The assessee should have filed an application in Form No. 11A only, showing the three partners in the deed having 1/3rd share each for the whole year, as in view of the partnership deed (annexure A) after the death of Dinanath Bhatia, the share capital of Dinanath Bhatia on the date of death before adjustment of profit and loss in the partnership was to be distributed among the remaining three partners equally and the share of the three sons of Dinanath Bhatia were to be 1/3rd each as partners. In view of clause 11 of the deed (annexure A), the firm as in existence on March 30, 1967, should have shown only three partners and should have shown 1/3rd share each throughout the year and so it cannot be doubted that Form No. 11 was not a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be valid. In those circumstances, it was held by the Madras High Court that as there was no change in the constitution of the partnership till the date of death of the partner, the assessee was entitled to continuation of registration under section 184(7) of the Act till that date. It was also held that the only defect in the application for registration filed by the firm was that they claimed registration till the end of the year instead of till December 7, 1969, and that if the Income-tax Officer had followed the mandatory procedure contemplated under section 185(3) by returning the application for rectification of the defect, the firm could have filed a proper declaration under section 184(7) in which event, no objection could have been raised by the Income-tax Officer for refusing registration of the firm up to December 7, 1969, and so it was held that the assessee-firm was entitled to registration till December 7, 1969, when the firm was dissolved. Thus, it is evident that in the case of dissolution of the firm, the application in Form No. 12 could have been filed till the date of dissolution of the firm but an application was filed for continuation of registration of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application for condonation of delay was needed. It has been held in the case of CIT v. Raghunandan Prasad Mohan Lal [1974] 97 ITR 398, by the Allahabad High Court, that neither the Act nor the Rules expressly require a separate written application or a written prayer for condonation of delay in making an application for registration. Thus no application was needed in this case. If the 1st Income-tax Officer had given opportunity to the assessee-firm to file a fresh application in Form No. 11A as required under section 185(2) of the Act, the assessee could have filed application in Form No. 11A and registration could have been granted to the assessee. The Income-tax Officer failed to do so and so the 1st Appellate Assistant Commissioner by his order dated June 30, 1969, directed the Income-tax Officer to intimate the defect of having used an incorrect form for making application for registration as required under section 185(2) of the Act after waiting for one month and on receipt of the application in Form No. 11A or otherwise should deal afresh with the question of registration in accordance with the direction given above. Thus, the direction to the Income-tax Officer was that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer refused to register a firm on the ground that it had failed to comply with notices under section 142(1) and section 143(2) of the I.T. Act. On appeal, the Tribunal found that notices had been issued under sections 142(1) and 143(2) and the assessment proceedings completed within a month of the issue of the notices, and so the failure on the part of the assessee did not warrant refusal of registration to the firm. In those circumstances, the Allahabad High Court held that the Tribunal was justified in arriving at its conclusion that the refusal of registration was not warranted, and that though the Income-tax Officer had exercised his discretion under section 185(5) in a particular way, it was open to the Tribunal to substitute its discretion for that of the Income-tax Officer as it is well settled that an appellate court or authority has the same power as the court or authority of the first instance. Thus, it cannot be doubted that the Appellate Assistant Commissioner was justified in giving direction to the Income-tax Officer to accept the application in Form No. 11 A. It cannot be doubted that the 1st Income-tax Officer had not given an opportunity to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of profit or loss in the partnership and that the profit and loss would be distributed among the three remaining partners equally to the extent of 1/3rd each. Thus, according to the terms of the deed, there is no question of ascertainment of profits for the two periods separately. It has been held in the case of CIT v. Voleti Veerabhadra Rao and Sons [1972] 84 ITR 764, by the Andhra Pradesh High Court, which has been relied upon by the assessee, that as the provisions of section 184(7) do not specify the ascertainment or distribution of profits amongst the partners as one of the requisite conditions for continuation of registration of the firm for the subsequent years, the assessee was entitled to continuation of registration under the Act for the year 1963-64. Thus, it is evident that the ascertainment of profits was not necessary. However, in the present case, in view of clause 11 of the deed of partnership, in annexure A, no profit and loss was to be ascertained for the period prior to the death of Dinanath Bhatia on December 17, 1966, and so if the three partners as existing on the date of the assessment showed that they were entitled to the entire profits for the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X
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