Kerala H.C : Whether production of certified copy of instrument of partnership is mandatory for claiming assessment in status of a firm

High Court Of Kerala

Bhaskar & Co. Vs. CIT

Assessment Year : 1993-94 & 1994-95

Section : 184

C.N. Ramachandran Nair And V.K. Mohanan, JJ.

IT Appeal Nos. 454 & 457 Of 2009

September 15, 2009

JUDGMENT

C.N. Ramachandran Nair, J. – The connected appeals are filed by the assessee challenging the orders of the Income-tax Appellate Tribunal, Cochin Bench, wherein the denial of status claimed by the assessee as a ‘firm’ by the Assessing Officer is confirmed by the Tribunal for the assessment years 1993-94 and 1994-95. We have heard learned counsel appearing for the appellant and Standing Counsel Sri Jose Joseph, who took notice on admission.

2. The assessee was being assessed as a registered firm until the assessment year 1992-93. From 1-4-1993 onwards, major amendments were introduced in Chapter XVI of the Income-tax Act dispensing with registration of firms for the purpose of assessment under the Act. Newly substituted provisions of section 184 introduced with effect from 1-4-1993 is extracted hereinbelow for easy reference :—

“184. Assessment as a firm.—(1) A firm shall be assessed as a firm for the purposes of this Act, if—

(i)the partnership is evidenced by an instrument; and

(ii)the individual shares of the partners are specified in that instrument.

(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall accompany the return of income of the firm of the previous year relevant to the assessment year commencing on or after the 1st day of April, 1993 in respect of which assessment as a firm is first sought.

Explanation.—For the purposes of this sub-section, the copy of the instrument of partnership shall be certified in writing by all the partners (not being minors) or, where the return is made after the dissolution of the 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.

(3) Where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if 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 assessment as a firm was first sought.

(4) Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year and all the provisions of this section shall apply accordingly.

(5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head ‘Profits and gains of business or profession’ and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.”

3. Admittedly, the assessee was assessed as a registered firm up to the assessment year 1992-93 and it was again assessed as a firm during the year 1995-96. However, in between for the two assessment years 1993-94 and 1994-95, the assessee was declined the status as a ‘firm’ for the purpose of assessment for the reason that it did not attach certified copy of the instrument of partnership along with income-tax return filed for these two years. When appeals are heard by the CIT(A), the argument of the assessee was that for the assessment years 1992-93 and 1995-96, the firm was assessed in that status and non-filing of the certified copy of the instrument of partnership along with returns was a bona fide omission and the same was made up by producing it before the Officer when assessments were taken up. The CIT(A) directed the Assessing Officer to make assessment as a ‘firm’ granting eligible deduction, otherwise declined under section 185 of the Act, against which the Department filed appeals before the Tribunal. The Tribunal held that since the assessee failed to produce certified copy of the instrument of partnership along with the return for both the years and since there is no evidence about the production of the same at the time of assessment, the original assessment issued declining status and making disallowance of the claims of deduction towards the payment of interest, salary, bonus, commission, remuneration etc. to partners is perfectly in order. It is against the order of the Tribunal, assessee has come up with these appeals before us.

4. The question to be considered is whether non-filing of a certified copy of instrument of partnership along with returns filed for the assessment years 1993-94 and 1994-95 is fatal to assessee’s claim for assessment in the status as a ‘firm’. The contention of counsel for the assessee is that the firm, which was assessed in that status until 1992-93, need not furnish certified copy of the instrument of partnership, for assessment in the status as ‘firm’ for the subsequent assessment years because there was no change in the deed of partnership. In other words, according to him, the firm once assessed in that status, is entitled to be assessed in the same status for all subsequent years by virtue of operation of section 184(3) of the Act, if there was no change in the constitution of the firm for any of those years. The Standing Counsel, on the other hand, contended that assessment year 1993-94 is the first year in which assessee’s claim for assessment in the status of firm after the amended provisions came into force has to be considered. Therefore, according to him, the assessee was bound to produce certified copy of the instrument of partnership along with return. It is pertinent to note that prior to the introduction of amended provisions which came into force with effect from 1-4-1993, a firm could be assessed either as a registered firm on complying with the formalities or otherwise only as an ‘Association of Persons’. However, with effect from the assessment year 1993-94 onwards, registration of firm is dispensed with, but for the first time, if a firm seeks registration in that status for any assessment year commencing on or after 1-4-1993, the firm has to furnish the certified copy of the instrument of partnership along with the return for the relevant assessment year. In our view, even an assessee, which enjoyed registration as a ‘firm’ up to the assessment year 1992-93, is required to furnish certified copy of instrument of partnership if assessment was claimed in the status of firm for any assessment year commencing from 1993-94 onwards. Once the status as ‘firm’ is made for any assessment year commencing from 1993-94 onwards based on the certified copy of instrument of partnership produced, then by virtue of operation of sub-section (3), the firm will be assessed in the same status for all subsequent years without production of any certified copy of instrument of partnership until there is a change in the constitution of the firm. For assessment as firm after change in the constitution of the firm, sub-section (4) of section 184 requires production of revised instrument of partnership along with return for the assessment year relevant for the previous year in which such change in the partnership took place. Sub-section (3) refers to the assessment in the status as a ‘firm’ based on the assessment made pursuant to production of certified copy of instrument of partnership referred to in sub-section (2) of section 184 and not the assessment made as a registered firm for any assessment year prior to 1993-94. The consequence of non-production of certified copy will naturally lead to disallowance of claims of deduction towards payment of interest, remuneration, bonus etc., paid to partner by the firm by virtue of section 185 of the Act. We, therefore, hold that the production of certified copy of instrument of partnership is mandatory for claiming assessment in the status of a firm for any assessment year commencing from 1993-94 onwards irrespective of whether such assessee was assessed as a registered firm up to 1993-94. In principle, we therefore, uphold the findings of the Tribunal.

5. Counsel for the appellant brought to our notice the findings of the CIT (Appeals) that the assessee has produced certified copy of the partnership deed before the officer at the time when assessment was taken for the above two years. However, the Standing Counsel for the respondent, defending the finding of the Tribunal, argued that there is no evidence about the production of certified copy of the instrument of partnership before the Officer when the assessment was taken up and the assessee itself does not have such a case in the ground raised by them. We do not propose to go into the question whether the claim of the assessee that certified copy of instrument of partnership was filed, subsequent to the filing of returns, but before completion of assessments, is correct or even if filed, whether it is sufficient compliance of the provisions for granting the status as firm. However, in this particular case, if the findings of the Commissioner are true, then we feel, the assessee is entitled to the benefit of assessment as a ‘firm’ because 1993-94 is the first year of assessment after the amendment came into force and sub-section (3) creates confusion as to whether the continuation of status is based on any assessment as a ‘firm’ after and including the assessment year 1993-94 or whether it is sufficient, the assessee was granted the status as a registered firm for the assessment year prior to 1993-94. Therefore, we direct the Assessing Officer to verify the records and find out, whether the assessee has produced certified copy of deed of partnership when the assessment was taken up and if so, to grant status as a ‘firm’ as a special case for the assessment year 1993-94 and if it is granted, necessarily, the assessee will be entitled to the benefit for 1994-95 as well unless there was a change in the constitution of the firm, which is also a matter of verification by the Officer. However, if the assessee had not, in fact, produced the certified copy of the deed of partnership when the assessment was taken by the Officer, then the assessee is not entitled to assessment in the status as a ‘firm’ for the two assessment years involved, in which case the Tribunal’s order will stand confirmed by this judgment.

The appeals are disposed of as above.

[Citation : 331 ITR 90]

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