9911796707
TMI Blog1981 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... tus of registered firm till the assessment year 1969-70. The firm had four partners. One of them, Velayutha Nadar, died on December 7, 1969, in the midst of the firm's account year, which would normally have ended on March 31, 1970. With the death of this partner, however, the firm was dissolved on December 7, 1969. The surviving partners, however, did not proceed to an accounting of the partnership as on December 7, 1969, but closed the accounts only on March 31, 1970. This they did apparently on the basis of an independent agreement which was come to on November 26, 1969, in and by which, the surviving partners agreed to continue the partnership till March 31, 1970. The fact, however, was that subsequent to the death of Velayutha Nadar on December 7, 1969, no transactions were effected by the partnership firm, but only the business of the partnership was wound up and the accounts taken for the purpose of dissolution of partnership as on December 7, 1969. While so, however, in connection with the firm's assessment for the assessment year 1970-71, the surviving partners and the legal representatives of the deceased partner filed a declaration in Form No. 12 of the forms prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessment made in the character of an unregistered firm for the entirety of the previous year. In these references, brought at the instance of the Commissioner, the Department's learned counsel, Mr. A. N. Rangaswamy, submitted that with the death of one of the partners, it must be held that there was change in the constitution of the firm. He further urged that the application for declaration of the registration to continue for the assessment year 1970-71 was not properly made and hence the ITO was quite justified in refusing to continue the registration and in treating the firm as an unregistered firm for the whole of the assessment year 1970-71. The learned counsel, accordingly, submitted that the decision of the Tribunal to the contrary was not in accordance with the Rules. Sections 184 and 185 of the I.T. Act, 1961, provide for the procedure for registration of firms. Section 184 deals with an application filed for the first time for registration of a firm for the purposes of the Act. Section 184(7) expressly provides that where registration is granted to any firm for any assessment year it shall have effect for every subsequent assessment year. This position is subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es bearing on the matter of strict compliance with the prescribed Form No. 12. As it happened, however, in the form (Form No. 12), which was subscribed to by the surviving partners and the heirs of the deceased partner, what they declared was, that there had been no change in the constitution of the firm till March 31, 1970. Obviously this was a mistake, which might be said to be apparent even from the application, because the application itself was subscribed to, not by all the four partners, but only by three partners, who survived the death of Velayutha Nadar and Velayutha Nadar's legal representatives. The statement, however, that there had been no change in the constitution of the firm was quite accurate since the dissolution of a firm by death of the partner does not make for any change in the constitution of the firm, up to the date of dissolution. The only consequence which is brought by the dissolution of the firm by death or by other cause is the end of the firm. The firm, as constituted, ends. There is no change in the constitution of the firm merely because there was a dissolution. It is on this principle that clause (ii) of the prescribed form is based. The ITO could v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t material to the continuance of registration, for, it was a palpable error on the part of the partners to say that the firm was entitled to registration till March 31, 1970, when they themselves clearly demonstrated in the application itself that one of the partner had died and, by reason of his death, his heirs and legal representatives had to subscribe to that application. If the ITO had followed what we regard as a mandatory procedure in returning the application as enacted under s. 185(3), it could have assisted the partners to have the defect rectified and then asked continuance of registration on the basis of perfect declaration under s. 184(7) of the Act. As it happened, however, the ITO did not follow this procedure. He did not return the declaration. Nor did he draw the attention of the partners to the defect in the declaration. On the contrary, as we might observe, he took advantage of the defect in the declaration and on that basis denied the continuance of registration to the firm for the year 1970-71. In our judgment, the ITO was not justified under the law in doing so. The Tribunal was quite right in holding that the slight defect in the declaration ought to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld by the Tribunal in appeal by the Department. On a reference, at the instance of the assessee, the Orissa High Court upheld the Tribunal's decision on the score that the assessee-firm continued the business without a break even after the death of the partner and also filed a single return for the entirety of the previous year. In those circumstances, according to the learned judges, the assessee-firm could not be treated as a registered firm during the previous year. It was urged before the learned judges that the firm was entitled to continuance of registration at least up to the date of death of a partner during the previous year relevant to the assessment year 1969-70. This argument was also repelled by the learned judges on the ground that under s. 187(1) of the Act, registration for a part of the year cannot be maintained. Although the learned judges have referred to some decided cases, it is not quite clear from their judgment as to what was the precise basis on which they came to the ultimate conclusion that registration cannot be granted to the firm even up to the period of the death of the partner. It is quite possible that the learned judges had proceeded on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reliance was placed on the provisions of s. 185(2) of the Act. In that case, on the peculiar turn of facts it so happened that the partners of the firm made an application in Form No. 12 instead of in Form No.11 or 11A. It was urged on behalf of the assessee-firm that the ITO ought to have drawn the attention of the assessee to the inappropriateness of this form and given an opportunity to rectify the defects. The learned judges, however, took the view that since what was filed was a declaration in Form No. 12, there was, in the proper sense, no application at all, to which the provisions of s. 185(2) can he applied under which the assessee-firm would have obtained an opportunity to rectify the defects. Without deciding whether on the facts before the learned judges, this conclusion was or was not correct, we might observe that the provisions of s. 185(2), in the same way as the other provision in s. 185(3), does require the ITO to be helpful to the assessees in the matter of processing the applications for registration or declaration, as the case may be, drawing their attention to defects and putting them in the way of rectifying those defects and giving them an opportunity, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of the (defective) applications with an express reference to the defects contained in the applications and an opportunity given to the assessee-firms to rectify the defects. Such a procedure had not been gone through in this case. As we observed, since the defect was a minimal one, the Tribunal was justified in reading the declaration as if it did not contain even that defect and in proceeding to grant continuance of registration on that basis. Time was when the provisions relating to registration of firms in the I.T. Act were buttressed by such judicial utterances as that" registration is not a common law right but a statutory privilege ". Even now, the registration of firms might remain very much a statutory privilege, but the assessees are entitled to be given the guidance, at official level, which the statute compels the ITO to render to them. At the end of the discussion we express our opinion on the two questions of law by saying that the answer to both shall be in the affirmative. We may add that so far as the second part of the second question is concerned, we did not hear any arguments from the learned counsel for the assessee that for the period subsequent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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