Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order passed under s. 185(1) (b) of the IT Act, 1961, refusing to grant registration to the firm for the asst. yr. 1981-82, when there was a change in the constitution of firm ?

High Court Of Allahabad

Plywood Products vs. CIT

Sections 185(1)(b), 185(2), 187(2), 256(2)

Asst. Year 1981-82, 1984-85, 1985-86

M.C. Agarwal & S. Rafat Alam, JJ.

IT Appln. Nos. 142 of 1996 and 3 & 4 of 2000

7th February, 2000

Counsel Appeared

V.K. Rastogi, for the Applicant : Prakash Krishna, for the Respondent

JUDGMENT

M.C. AGARWAL, J. :

These are three applications by the assessee under s. 256(2) of the IT Act, 1961, praying that the Tribunal, Allahabad, be directed to state a case and to refer the following questions stated to be of law and to arise out of the Tribunal’s common order dt. 30th Oct., 1995, passed in ITA Nos. 1062,1063 and 1064 (All) of 1999, for the asst. yrs. 1981-82, 1984-85 and 1985-86 : “Asst. yr. 1981-82 (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order passed under s. 185(1) (b) of the IT Act, 1961, refusing to grant registration to the firm for the asst. yr. 1981-82, when there was a change in the constitution of firm ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order refusing to grant registration merely on technical grounds, which are procedural formalities ? (iii) Whether the Tribunal was justified in confirming the order of the assessing authority refusing to grant registration, without considering the provisions of s. 185(2) of the IT Act, 1961, wherein opportunity to remove the defect in the application for registration is to be given ? (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order refusing to grant registration on the ground that Forms Nos. 11 and 11A were filed at the close of accounting year on 30th June, 1981, whereas the accounting year ended on 30th June, 1981, and the filing of these forms is a procedural requirement ? (v) Whether the Tribunal was justified in confirming the order refusing to grant registration to the firm, whereas the partners have been assessed in their individual capacity on the determined share income from the firm ?” “Asst. yrs. 1984-85 and 1985-86 (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order refusing to grant renewal of registration on mere procedural discrepancy in Form No. 12 ? (ii) Whether, in the facts of the case, the Tribunal was justified in confirming the order of the assessing authority ignoring the provisions of s. 185(2) of the IT Act, 1961 ? (iii) Whether the Tribunal was justified in confirming the order refusing the renewal of registration for the asst. yrs. 1984-85 and 1985-86 without pointing out any legal discrepancy other than the procedural defect ?”

We may mention that IT Appln. No. 142 of 1996 was a consolidated application for all the three years but by order dt. 27th Oct., 1997, a Bench of this Court directed the petitioner to make separate applications for other assessment years. It was thereafter that IT Appln. Nos. 3 and 4 of 2000 were moved for the asst. yrs. 1985-86 and

1984-85.

We have heard Sri V.K. Rastogi, learned counsel for the petitioner and Sri Prakash Krishna, learned counsel for the respondent.

The facts of the case are that there was a partnership firm which consisted of 13 persons. The partnership deed contained cl. 28 as under : “That on the death of a partner his share shall be dealt with and his heirs admitted to the partnership in accordance with his personal law.”

The accounting year of the firm ended on 30th June of every year. During the accounting period relevant to the asst. yr. 1981-82, i.e., on 3rd Jan., 1980, one of the partners, namely, Sri G.K. Singhania, died and in his place, his son, Sri Ramapati Singhania, joined the firm as a partner. A new partnership deed was drafted on or about 19th May, 1980, but it remained unsigned. Another partnership deed was executed on 2nd Aug., 1980. For the asst. yr. 1981-82, Form Nos. 11A and 12 were filed on 30th June, 1981, i.e., after the close of the accounting period. The AO did not allow the registration to the firm for the reasons: (a) that no partnership deed was executed during the accounting period ending on 30th June, 1980 ; (b) Form No. 12 was not in a proper form; (c) Form No. 12 was not signed by Sri R.P. Singhania as a legal representative of the deceased Sri G.K. Singhania for the period up to 3rd Jan., 1980 ; and (d) the information given in Form No. 12 was incorrect inasmuch as there was a change in the constitution of the firm with the introduction of a new partner Sri Ramapati Singhania. For the asst. yr. 1984-85, the AO did not allow continuation of registration on the ground that registration had been refused for the asst. yr. 1981-82 and no fresh deed was filed although Form No. 12 was filed on 30th June, 1984. For the asst. yr. 1985-86 also registration was refused. The AO observed that because of non-compliance of notices under ss. 143(2) and 142(1), the assessment was made ex parte and, therefore, the genuineness of the partnership was in doubt. The assessee appealed to the AAC who reversed the orders passed by the AO holding that the firm was genuine and registration had already been granted to the firm for asst. yr. 1980-81 and there was no valid ground for declining the renewal of registration for the asst. yrs. 1981-82, 1984-85 and 1985-86. The AO then appealed to the Tribunal and allowing the aforesaid appeals, the Tribunal restored the orders passed by the AO and upholding the reasons given by the AO for refusing to allow the registration to the firm for the asst. yr. 1981-82 and renewal of registration for the asst. yrs. 1984-85 and 1985-86.

5. Registration of firms is governed by ss. 184 to 189 of the IT Act. Sec. 184 as it stood at the relevant time was as under : “184. Application for registration.—(1) An application for registration of a firm for the purposes of this Act may be made to the ITO on behalf of any firm, if— (i) the partnership is evidenced by an instrument ; and (ii) the individual shares of the partners are specified in that instrument. (2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution. (3) The application shall be made to the ITO having jurisdiction to assess the firm, and shall be signed— (a) by all partners (not being minors) personally ; or (b) in the case of a dissolved firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased. Explanation.—In the case of any partner who is absent from India or is a lunatic or an idiot, the application may be signed by any person duly authorised by him in this behalf, or, as the case may be, by a person entitled under law to represent him.(4) 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 ITO 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. (5) The application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof : Provided that if the ITO is satisfied that for sufficient reason the original instrument cannot conveniently be produced, he may accept a copy of it certified in writing by all the partners (not being minors), or, where the application is made after the dissolution of the firm, by all the persons, referred to in cl. (b) of sub-s. (3), to be a correct copy or a certified copy of the instrument ; and in such cases the application shall be accompanied by a duplicate copy of the original instrument.

(6) The application shall be made in the prescribed form and shall contain the prescribed particulars.

(7) Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year : Provided that— (i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted ; and (ii) the firm furnishes, before the expiry of the time allowed under sub-s. (1) or sub-s. (2) of s. 139 (whether fixed originally or on extension) for furnishing the return of income for such subsequent assessment year, a declaration to that effect, in the prescribed form and verified in the prescribed manner, so, however, that where the ITO is satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time so allowed, he may allow the firm to furnish the declaration at any time before the assessment is made. (8) Where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section.” Sub-s. (2) of s. 185 provides for removal of defects in the application for registration and it stands as under : “(2) Where the ITO 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 in the application within a period of one month from the date of such intimation : and if the defect is not rectified within that period, the ITO shall, by order in writing, reject the application.” Section 187 deals with change in constitution of a firm and sub-s. (2) thereof defines what is a change in the constitution of the firm. Sub-s. (2) of s. 187 stands as under : “(2) For the purposes of this section, there is a change in the constitution of the firm— (a) if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change ; or (b) where all the partners continue with a change in their respective shares or in the shares of some of them.”

6. As stated above, for the asst. yr. 1981-82, the accounting year of the assessee ended on 30th June, 1980. During the course of the accounting year, i.e., on 3rd Jan., 1980, one of the partners, namely, Sri G.K. Singhania, died and his place was taken by his son, Sri Ramapati Singhania, who joined the firm as a partner. Thus, Sri G.K. Singhania ceased to be a partner and Sri Ramapati Singhania was admitted as a new partner and, therefore, it was a case of a change in the constitution of the firm. Therefore, what was required was that the firm should have applied for registration in Form No. 11A. Sec. 184(4) requires that the application shall be made before the end of the previous year for the assessment year in respect of which registration is sought. Sub-s. (5) then requires that the application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof. These provisions indicate that the partnership deed should be executed before the end of the accounting period and in this case admittedly this was not done. As stated above, a partnership deed was executed on 2nd Aug., 1980, i.e., after the close of the accounting period, and an application for registration was moved in Form No. 11A on 30th June, 1981. As stated by the AAC, the partnership deed was filed in the Income-tax office on 22nd Dec., 1982, meaning thereby that the application in Form No. 11A was not accompanied by the partnership deed, dt. 2nd Aug., 1980.

Learned standing counsel, Sri Prakash Krishna, contended that the Supreme Court has already held that for the defaults, as pointed out above, the registration cannot be granted and, therefore, no referable question arises from the order of the Tribunal. He placed reliance on Wazid Ali Abid Ali vs. CIT (1988) 67 CTR (SC) 43 : (1988) 169 ITR 761 (SC) : TC 34R.439, in which it was held that where an heir of a deceased joins the partnership, there is a change in the constitution of the firm and fresh deed of partnership and fresh application for registration is necessary. In Sri Ramamohan Motor Service vs. CIT (1991) 94 CTR (SC) 219 : (1991) 188 ITR 212 (SC) : 33R.1608, the Supreme Court held that where no valid partnership deed was in existence during the accounting period, the firm was not entitled to registration.

Learned counsel for the petitioner, on the other hand, placed reliance on Shivkisan Laxminarayan Jaju & Sons vs. CIT (1976) 105 ITR 359 (Bom) : TC 34R.290. That was a case in which the partnership provided that the death of any partner shall not dissolve the partnership but the same shall be continued by the surviving partners and the heirs and legal representatives of the deceased partner would be entitled to the share of the deceased up to the end of the accounting year in which the death takes place. One of the partners died during the relevant previous year and an application for renewal of registration was made that was signed by the surviving partners and the widow of the deceased partner. It was held that the firm was entitled to renewal of registration. As is evident, the facts of the case were different and, therefore, this ruling is of no help. Reliance is also placed on Joshi & Co. vs. CIT (1987) 61 CTR (Cal) 1 : (1986) 162 ITR 268 (Cal) : TC 34R.452, in which case also the facts were different.

It was contended by learned counsel for the assessee that the AO should have given an opportunity to the assessee to remove the defects in terms of s. (2) of s. 185. We have reproduced the provision of sub-s. (2) of s. 185 which patently show that the defects contemplated are of a procedural or clerical nature and the defects like the non- execution of the partnership within the accounting period or non-filing of the applications for registration/renewal within time are not defects which are capable of being cured or removed.

So far as the asst. yrs. 1984-85 and 1985-86 are concerned, there is nothing on record to show what happened in the intervening assessment years, i.e., the asst. yrs. 1982-83 and 198384. The Tribunal has proceeded on the basis that the grant of renewal of registration for the asst. yrs. 1984-85 and 1985-86 is consequential to the grant of registration for the asst. yr. 1981-82 and the questions, as proposed, also adopt the same approach. Therefore, registration having not been allowed for the asst. yr 1981-82, no question of renewal of registration for the aforesaid years would arise and, therefore, the question raised for these years are also no referable questions of law.

For the above reasons, we find that no referable question of law arises out of the Tribunal’s order. The applications are accordingly rejected.

[Citation : 257 ITR 433]

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