Income Tax Case Law

[1976] 102 ITR 560 (PAT.) HIGH COURT OF PATNA Commissioner of Income-tax v. Sitaram Bhagwandas S.N.P. SINGH, CJ. AND S.K. JHA, J. TAX CASE NO. 81 OF 1971 JANUARY 14, 1975 JUDGMENT S.K. Jha, J.—In this reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the ITAT, Patna Bench, has submitted a statement of the case and referred the following question of law for the opinion of this court: "Whether, in the facts and circumstances of the case, the order of Tribunal allowing registration of the firm is legal and proper?" The assessee was a registered firm. For the assessment year 1962-63, it filed a return of its income on the 11th of February, 1963, but before the assessment was made, it submitted a declaration under section 184(7) of the Act on the 27th of November, 1966, for the continuation of the registration for the previous year. The Income-tax Officer assessed the assessee as an unregistered firm on the ground that the declaration under section 184(7) was filed late and not along with the return. Therefore, the final assessment of the assessee was made by the assessing officer by treating it as an unregistered firm and not allowing renewal to it on the belated submission of the declaration in due form. The assessee preferred an appeal before the Appellate Assistant Commissioner who refused to interfere holding that no appeal lay before him against the order of refusal passed by the Income-tax Officer. The Appellate Assistant Commissioner also held that the word "status" did not cover this aspect of the matter and that, therefore, keeping in view the provisions of section 246 of the Act, the appeal before him could not be entertained. The assessee then preferred a second appeal before the Appellate Tribunal. The Tribunal while deciding in favour of the assessee held that the appeal was maintainable also in the matter concerning the status of the assessee and further that renewal could not be refused merely because the declaration in due form had not been literally submitted along with the return filed by the assessee. The Tribunal held: "Therefore, even though the necessary declaration under section 184(7) was filed much after the filing of the return but before the assessment was taken up, it did not alter the position, in any way, of the firm from enjoying registration. As the effect of registration granted in the earlier year continued and the declaration was filed before the assessment was taken up, it would not change the position in any way. In this view of the matter, we hold that the firm should be assessed as a registered firm for the year under appeal." At the instance of the Commissioner of Income-tax thereafter, this reference under section 256(1) has been made. I may state at the outset that the question whether the declaration furnished by the assessee was actually an application under section 184(1) of the Act or a declaration under section 184(7) was not canvassed before any of the income-tax authorities. Had it been an application for registration under section 184(1) of the Act, different

considerations would arise and different results may have followed. But since the parties before the Tribunal have treated the case as being one of a declaration under section 184(7) of the Act and this reference has been made pursuant thereto, I refrain from expressing any opinion regarding the applicability of section 184(4) of the Act which prescribes the time limit for the filing of application for registration under section 184(1) of the Act. Such a question does not arise from the order of the Tribunal nor has the learned standing counsel for the revenue invited us to this aspect of the matter. Learned standing counsel for the department has urged that the Tribunal has not taken a correct view of the true intent and purport of sub-section (7) of section 184 of the Act and the provisos thereto as it stood before the amendment of 1970, namely: "184. (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, along with its return of income for the assessment year concerned, a declaration to that effect, in the prescribed form and verified in the prescribed manner." The stand taken by the department is that when proviso (ii) to sub-section (7) of section 184 expressly says that a declaration in the prescribed form and verified in the prescribed manner should be filed "along with its return of income for the assessment year concerned", it must be so construed as to give full effect to all the words used by Parliament in the words quoted above. That means, a strict literal adherence to the statutory provision must be shown by submitting the declaration along with the return ; both returns and the required declaration must be simultaneous and stitched up together so as to enable an assessee to the benefits of recurring renewal so long as the constitution of the firm and the shares of the partners were not changed under the provisions of section 184(7). Although the matter is one of first impression, having considered the point involved carefully, I think there is not much substance in the contention of learned standing counsel for the department. In this context I shall first refer to the necessary legislative changes in the provision with regard to the renewal of registration as it stood before the 1961 Act came into force and as it stood in the Act before the Amendment Act, 1970. Under section 26A of the Indian Income-tax Act, 1922, registration of a firm was a ceremony to be performed every year. Although registration was granted to a firm in a year it was required to apply for renewal every year and the procedure for such renewal was not much different from the procedure adopted for the original registration itself. By the 1961 Act the statutory provision was so altered that where registration had already been granted to any firm for any assessment year it was to have effect for every subsequent assessment year and all that the assessee was enjoined to do was to submit a declaration in the prescribed form stating that there had been no change in the constitution of the firm or the shares of the partners on the fulfilment of which requirement renewal was to be granted as a matter of course. As has been observed in a Bench decision of this court, to which I was a party, in the case of S.P. Pandey v. CIT1:

"The only requirement of the declaration given under the said provision of law is that there is no change in the constitution of the firm or that the shares of the partners as evidenced by the instrument of partnership on the basis of which registration was granted had remained unchanged." The question then is as to whether it should be held that the term "along with its return of income" means a literal stitching-up of the declaration with the return and is mandatory, or is the provision of its being so filed along with the return merely directory. If we look to the spirit and substance of the legislative provision in question, it is clear to me that the term "along with its return of income" is merely directory and not mandatory. The law must be so construed as to not make it in any way illogical or ridiculous. The spirit of the legislative change was that if the Income-tax Officer while dealing with the assessment of a firm had before him the return filed by the firm and a declaration in due form at the time when he was applying its mind to the return, that is, during assessment proceedings, the assessee was entitled to automatic renewal provided for in section 184(7). The Income-tax Officer at the time of assessment, if the assessee wants to avail of the benefit of section 184(7), must be satisfied at the time when he is making the assessment that a return has been duly filed and that the firm is actually continuing without any change in shares of partners or the constitution of the firm as is said by the assessee in the declaration in due form at any time before the assessment is made. For, giving too literal a construction to the provision would lead to absurdities. For example, if an assessee-firm files a declaration in due form, say on the 29th of June in any particular year, for the previous accounting year, but files the return for the same previous year on the 30th of June, that is the day which is the next succeeding, can it be held that the legislature has intended to deprive the assessee of the benefits of section 184(7)? It would be putting a premium upon technicality and would be piling unreason thereon to hold that the legislature had so intended the consequences to ensue. It is for this reason that in my view the provisions of proviso (ii) to sub-section (7) of section 184 cannot be so read to mean that a physical accompaniment of the return and the declaration in the prescribed form must be held to be a necessary concomitant before an order of automatic renewal can be passed. All that the legislature intended was that the return should be duly filed and that the declaration should be duly made and both the documents must be before the assessing authority at the time when he is applying his mind to the assessment of any particular firm. If he is then satisfied that the return has been duly filed and that there has been no change in the constitution of the firm and no change in the shares of the partners and the firm was registered during the previous year then the necessary advantage of renewal as conferred by sub-section (7) of section 184 must automatically flow to the assessee-firm. There is another aspect of the matter. An assessee, although it was a firm, could have filed a return under sub-section (1) or sub-section (2) of section 139 within the time prescribed or extended. It could also file a return under sub-section (4) of section 139 if it had not furnished a return within the time allowed to it at any time before the end of four assessment years from the end of the assessment year to which the return relates. And again under sub-section (5) of section 139, if any assessee, having furnished a return under sub-section (1) or sub-section (2) of section 139, discovered any omission or any wrong statement therein, it was entitled to furnish a revised return at any time before the assessment was made. If a return under sub-section (4) of section 139 could be filed at any time before the end of four assessment years from the end of the relevant assessment

year along with the declaration in due form then according to the stand taken by the department, the relief under section 184(7) could be granted to the assessee-firm but not so to a more alert and honest firm which had filed its return within the time prescribed under sub-section (1) or (2) of section 139 but it had furnished the declaration in the prescribed form not literally along with the return but say only two or three days later. Such a construction would be defeating the very object of the legislative provisions. Section 184(7) of the Act before its amendment by the Taxation Laws (Amendment) Act, 1970, which came into effect from the 1st of April, 1971, was in my view not intended-to specify any rigid time limit for the declaration in due form to be submitted after due verification; for, it is obvious from the perusal of the different sub-sections of section 184 that wherever any rigid time limit was fixed for complying with any of the statutory provisions within a specified time limit, provisions have been made for the Income-tax Officer to condone the delay in appropriate cases on his being satisfied that the firm was prevented by sufficient cause from complying with the statutory requirements within the time specified. For example, sub-section (4) of section 184 lays down that the application for registration of a firm shall be made before the end of the previous year for the assessment year in respect of which registration is sought but at the same time the proviso to that sub-section empowers the Income-tax Officer to entertain an application made even after the end of the previous year on his being satisfied that there was sufficient cause preventing the firm from making the application before the time specified. So also when sub-section (5) of section 184 has made it mandatory that the application shall be accompanied by the original instrument evidencing the partnership, the proviso to that sub-section also gave the corresponding power to the Income-tax Officer in appropriate cases to accept a certified copy of the instrument with a duplicate copy of the original instrument being accompanied with the application. If, therefore, in my view, any rigid time limit were to be laid down or specified by the legislature, merely by inserting the words "along with its return of income for the assessment year concerned", as mentioned in proviso (ii) to section 184(7), there would have been in case of such rigidity conferred on the Income-tax Officer a power to condone the delay in suitable cases. This reinforces the view that I have taken with regard to the true meaning and purport of the term "along with its return" independently of the provisions of sub-section (4) or sub-section (5) of section 184. The aforesaid view of mine that a declaration in the prescribed form and verified in the prescribed manner should be filed along with the return of income of the firm for the assessment year concerned is merely directory in nature finds support from a decision of the Supreme Court in the case of Lakshmiratan Engineering Works Ltd. v. Assistant Commissioner (Judicial)2 I, Sales Tax. In that case the Supreme Court was seized with the true construction of rules 66 and 67 of the U.P. Sales Tax Rules, 1948. Sub-section (2) of rule 66 of the Rules aforesaid laid down that "the memorandum of appeal shall be accompanied by............. a challan showing deposit in the Treasury of the tax admitted by the appellant to be due or of such installments thereof as might have become payable". Their Lordships while construing the term "shall be accompanied by" held that the provision in the rule was directory and all that was necessary was that at the time of the consideration of the appeal there should be satisfactory proof that the admitted tax had been deposited and, it page 162, their Lordships laid down:

"To hold otherwise would put a premium upon a technicality which we do not see will advance the case either for the collection of the tax or for the administration of justice". So also a Bench of the Allahabad High Court while dealing with the provisions of section 66(1) of the Indian Income-tax Act, 1922, and rule 22A of the Income-tax Rules, 1922, in the case of Chatarbhaj Chogalal v. CIT3, held that the substance of section 66(1) of the Income-tax Act was that the application should be made and the fee paid within the period of limitation and "accompanied by a fee of Rs. 100" (lid not mean a literal stitch in up of the fee with the application for reference and in that sense the provision was held to be merely directory. On a parity of reasoning, therefore, I have no hesitation in holding that the term "along with its return of income" used in proviso (ii) to section 184(7) is merely directory and all that is necessary, as I have stated earlier, is that at the time when the Income-tax Officer is applying his mind for the purpose of assessment to the return of the firm there must also be before him a declaration in the prescribed form and verified in the prescribed manner stating that there has been 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. The Tribunal, I should say, has rightly taken the view that in the absence of any specific provision having been provided in Section 184, either in sub-section (7) or in other sub-sections for refusal to continue the registration of the assessee-firm for its failure to file the declaration along with the return in the absence of any punitive results following the non-compliance of the statutory provisions regarding the filing of the declaration along with the return literally, it could not be held that the aforesaid provision was mandatory in nature. Learned standing counsel for the department next urged that the intention of the legislature could not be held to be so if it be compared with the amendment as introduced by the Taxation Laws (Amendment) Act, 1970. Learned standing counsel contended that by the aforesaid amendment the entire proviso (ii) was substituted by a new proviso (ii), which reads thus: "the firm furnishes, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 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 Income-tax Officer 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 in made." It was submitted that by this amendment greater liberty had been given to the assesseefirm in appropriate cases. The Income-tax Officer has now been authorised to condone the delay and extend the time on his being satisfied that the firm was prevented by sufficient cause from furnishing the declaration within this time so allowed and enabling the assessee to furnish the declaration at any time before the assessment is made. In my view, assuming that the subsequent legislative changes were validly to be taken into consideration, this amendment rather shows the intent of the legislature contrary to what the learned standing counsel persuaded us to hold. As I have already shown above, before the 1970 amendment the provision in proviso (ii) was not intended to specify any rigid time limit and, therefore, the Income-tax Officer had not been given any specific power for the condonation of any delay if the due declaration duly verified were to be submitted

before the assessment was made. It is only when under the amended provision the time limit has been rigidly fixed, as before the expiry of the time allowed under section 139(1) or (2), for furnishing return of income that the corresponding jurisdiction has been conferred on the Income-tax officer to extend the date so rigidly fixed. There could not be any scope for the exercise of any such power by the Income-tax Officer in case no rigid time limit was specified. I do not see any difficulty in construing proviso (ii) as it stood before the 1970 amendment as requiring merely that the return as well as the declaration must be filed before the Income-tax Officer before the assessment was made. The amendment, if in any way relevant, reinforces the view I have taken independently of it and does not in any way strengthen the case of the department. For the aforesaid reasons, I answer the question referred for the opinion of this court in the affirmative and hold that on the facts and in the circumstances of the case the order of the Tribunal allowing continuance of the registration of the firm is legal and proper. The question is thus answered in favour of the assessee and against the department. In the circumstances of the case, however, the assessee is not entitled to costs of this reference. S.N.P. Singh CJ.—I agree.