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  7. January

Khanjan Lal Sewak Ram vs Commissioner Of Income-Tax, U.P.

High Court Of Judicature at Allahabad|21 January, 1964

JUDGMENT / ORDER

JUDGMENT M. C. DESAI C.J. - This statement of case has been submitted to this court at the assessees instance by the Income-tax Appellate Tribunal, Allahabad Bench, under section 66(1) of the Indian Income-tax Act inviting it to answer the following question, said to be a question of law arising out of it :
"Whether the assessee firm which had distributed its book profits amongst the partners according to the instruments of partnership but which had not distributed the profits earned by it in the black market amongst the six partners in accordance with the instrument of partnership was entitled for renewal of registration for the assessment year 1948-49 ?"
The assessee is a firm consisting of two groups of partners, one consisting of Khanjan Lal having four annas share and his three sons having two annas share each and the other, consisting of Sewak Ram having four annas share and his mother having two annas share. The firm was registered under section 26A for the assessment years 1942-43 to 1947-48. For the assessment year 1948-49 the partners applied for renewal of registration which was refused. A firm if it is registered under the Act has certain advantages in the matter of assessment to income-tax and section 26A lays down the procedure to be followed by a firm in order to get registered. It is as follows :
"(1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration...
(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed."
Rules 2 to 6B of the Income-tax Rules deal with registration of firms. Rule 2 lays down that firm is entitled to registration if it is constituted under an instrument of partnership specifying the individual shares and makes an application signed by all the partners personally hand before the end of the previous year in the case of the first application for registration or before the 30th day of June of the assessment year if it is for renewal of registration. Rule 3 prescribes the form in which an application should be made. It has three clauses, clause 2 being a statement to the effect that the instrument of partnership specifying the individual shares of the partners is enclosed and that "the prescribed particulars are given in the Schedule attached to the instrument" and clause 3 being a certificate to the effect that "the profits of the previous year were/will be divided or credited as shown in section B of the Schedule and that the information given in the application and the Schedule is correct." The Schedule is in two section, section A relating to the firm as constituted at the date of the application and section B relating to the apportionment of the income in the previous year (applicable where the application is made after the end of the relevant previous year) and having several columns including column 1 of names of partners and column 6 of shares in the balance of profits "(annas & pies in the rupee)". Rule 4 lays down that if the Income-tax Officer is satisfied on receipt of the application referred to in rule 3 that "there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made" he "shall" endorse a certificate on the instrument or its certified copy to the effect that it has been registered with him under section 26A and that the certificate will have effect for the assessment for the year ending on such and such date. The rule further requires that "if the Income-tax Officer is not of satisfied, he shall pass an order.... refusing to recognize the instrument of partnership." Rule 5 is to the effect that a certificate of registration granted under rule 4 "shall have effect only for the assessment to be made for the year mentioned therein." Rule 6 refers to renewal of registration and provides that a firm may apply to the Income-tax Officer to have the certificate renewed for the subsequent year, that the application "shall be signed personally by all the partners...and accompained by a certificate in the form set out below" and shall be made before the 30th day of June of the assessment year. There is a form of application given in the rule which has three clauses, clause 2 being the statement that the instrument of partnership was registered on such and such date and the certificate that the constitution of the firm and the individual shares of the partners as specified in it remain unaltered and clause 3 being a certificate that "the profits of the previous year were divided or credited as shown below", followed by a statement showing particulars of the apportionment of the income, profits or gains. The statement has several columns including column 1 and column 6 as in the Schedule of the prescribed form for an application under section 4. On receipt of an application under rule 6 "the Income-tax Officer may, if he is satisfied that the application is in order and that there is or was a firm in existence constituted as shown in the instrument of partnership, grant to the assessee a certificate" in a certain from and "if the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to renew the registration", this is rule 6A. Rule 6B empowers an Income-tax Officer on being satisfied that a certificate granted under rule 4 or rule 6A had been obtained "without there being a genuine firm in existence", to cancel it.
The application made by the assessee was in time and in order to this extent that in column 6 of it the share held by each partner was given and not the amount of the income pertaining to his share and that there was a certificate about the profit of the previous year having been divided or credited "as shown below". Neither the income of the previous year was shown in the statement nor the amount apportioned to each partner. The partnership was dissolved on November 5, 1949, and the deed of dissolution provided that if an amount not entered in the books at the time of the settlement of accounts was found only the partner through whom it was received or paid would be accountable for it. On October 5, 1950, the partners of the first group disclosed to the Income-tax Officer that the firm had received Rs. 15,000 by way of profits which were not shown in the accounts of the firm and that they had been distributed among the partners. Sewak Ram, partner of the other group, made a statement to the effect that he and his mother were not given full shares in the profits of a certain business carried on by the firm, that the entire profits earned by it in the previous years were not recorded in the account books and that they themselves had received their shares only in those profits which were entered in them. On March 15, 1952, Sewak Ram and his mother made an application to the Income-tax Officer saying that they had withdrawn their signatures from the application for renewal because the profits were not distributed according to the deed of partnership. The Income-tax Officer made enquiries about the business activities of the firm and discovered that it had reaped extra profits in its business which were not recorded in its books during the accounting year. He observed that "it is... nothing surprising if the profits had not been properly distributed as stated on oath by Sri Sewak Ram, partner" and that "one of the partners seeks to withdraw the application for registration filed on July 12, 1949", and rejected the renewal application on these grounds. The assessee filed an appeal which was dismissed by the Appellate Assistant Commissioner and a further appeal which was dismissed by the Tribunal on the ground that the entire profits had not been distributed among the partners. Then at the assessees instance the Tribunal stated the case.
The question formulated by the Tribunal is not proper; it suggests that a firm which has distributed all its profits including undisclosed profits is entitled to registration regardless of other facts, which is not correct. In order to be entitled to registration it must make an application in the prescribed form and within the prescribed time; until it does so it cannot be said to be entitled to registration. In this case registration was refused on the ground that the Income-tax Officer had discretion to refuse it even if the application was in time and in order and not on the ground that the application for registration was withdrawn by partners of the second group withdrawing their signatures on the application for renewal and the Income-tax Officer had taken it into consideration for refusing a renewal of registration, but the Tribunal maintained its order only on the ground that the undisclosed profits had not been distributed among the partners and not on the ground that the application for registration had been withdrawn by some of them. While rule 4 regarding application for registration uses the word "shall" rule 6 regarding renewal 6 of registration uses the word "may" making it clear that an Income-tax Officer is not compelled to renew the registration merely because he is satisfied that the application was in order and that there was firm in existence constituted as shown in the instrument of partnership. Further the provision in rule 6A that if he is not so satisfied he "shall" refuse to renew the registration also indicates that while he must refuse renewal if the satisfaction does not exist he is not bound to renew if the satisfaction exists. Even if an application for renewal is in order and there is or was a firm in existence constituted as sown in the deed of partnership there may be circumstances justifying refusal of renewal. For instance, if the application is withdrawn by some of the partners or it is proved that signatures of some of the partners were obtained under duress or by fraud it would be wrong to renew registration and the Income-tax Officer should not be bound to renew registration. The Government could not have contemplated that even in such a case he must renew registration. Further one satisfaction required under the rule is only about the application being "in order" and there is authority for the view that "in order" means "correct in form" and not "true" and an application may be in order even though the particulars contained in it are untrue. One can make all statements that one is required to make in a prescribed form of an application without their being correct; so long as one has made all the required statements the application on the face of it must be said to be in order. The distinction that is made out is like the distinction between an order being within jurisdiction and an order being correct; an order within jurisdiction need not be correct. Similarly an application to be "in order" need not be correct. On this view that the satisfaction is about the form of the application, surely an applicant cannot claim that he is entitled to registration if the form of the application is correct but not its substance. The benefits arising out of registration have connection with the substance of the application and not with its form and the Government could not have intended that all that an applicant had do was to adopt the form and that he would be granted renewal regardless of the lies told by him in the application. That the statements made or the certificate given in the application is incorrect would be a ground for refusing renewal. There is thus sufficient justification for the Governments deliberately using he word "may" in the rule and the rule must mean that if the satisfaction is not there the registration cannot be renewed at all and that if it there, it may be renewed provided there do not exist circumstances justifying refusal. In other words, non-existence of the satisfaction is a sufficient ground for refusal to renew while existence of the satisfaction permits, but does not confer a right to, renewal and "in order" means correct in form. The interpretation that "in order" means correct in form is consistent with the interpretation that the first paragraph of rule 6A confers discretion upon the Income-tax Officer. If the application is in order as so interpreted but is incorrect in substance the Income-tax Officer may exercise his discretion against renewal. As he has discretion and is not bound to renew the registration, "in order" need not be interpreted to mean "correct in form and substance". The registration will not be renewed merely because the form of the application is correct; the application will have to be correct in substance also so that there is no question of exercising the discretion against the applicant. This interpretation is confirmed by the fact that the satisfaction has to be also on the point that there is or was a firm in existence constituted as shown in the deed of partnership. The application itself has to contain the statement that the constitution of the firm as specified in the partnership instrument remains unaltered but the partners are not entitled to registration merely because they say so. In addition to saying so what they say must be true. The express requirement about its being true suggests that it must be made. Under rule 6B registration or renewal of registration can be canceled (only) on the ground that it had been obtained without there being a genuine firm in existence. If the words "in order" meant "correct in form and substance" the Government would have provided for cancellation of the registration or its renewal also on the ground that the application was substantially incorrect. There might be no justification for canceling it only on the ground that the application was not quite in order but if the statements made in the application were substantially untrue, it would be a good reason for cancellation of the registration or the renewal. The absence of a provision for cancellation on this ground shows that the application was only required to be correct in form. If an application is correct in form and the other satisfaction exists the Income-tax Officer has discretion and may renew the registration in exercise of it; if later he finds that the application was incorrect in substance it would be a case of wrong exercise of discretion and the Government might have well thought that he should not have the power of cancellation in such a case.
Column 6 of the form of an application for registration as well as of an application for renewal is of "Share in the balance of profits or loss (annas and pies in rupee)" and if against the name of each partner entered in column 1 his share in a rupee of profit or loss is entered in column 6 entries in these two columns are in order. There is nothing to suggest that in column 6 not the fractional share but the amount of the share in the profits or loss of the particular year should be mentioned. What is meant by "share" in the heading of the column is made clear by the words "annas and pies in the rupee"; only the share in a rupee of profits or loss is to be stated and not the actual amount of the share in the profits or loss is to be stated and not the actual amount of the share in the profits of loss of the year. Nothing is to be gained by the actual amount being mentioned instead of the fractional share in a rupee. Undoubtedly, there is a difference between stating the amount of the share in the actual amount of the profits or loss and stating the share in a rupee of profits or loss; if the amount is stated it means that nothing more has been distributed to the partner and that if the correct amount of the profits during the year is more no share in the excess of the profits has been paid to the partner. On the other hand, if only the fractional share in a rupee of profits or loss is entered in the column it means that whatever is the correct amount of profits the partner has received his share in it. But the statement in clause 3 of the application that each partner has received either by payment or through credit his share in the profits of the year amounts to the statement that each partner has received his share out of the amount of the correct profits of the year. It may be an untrue statement when a part of the correct profits is not distributed among the partners but the statement is there. Even if the partners were required to state the amount of each partners share in the actual profits there is nothing to prevent their stating wrong amounts in column 6. Section B of an application for registration requires "particulars of the apportionment of the income, profits or gains" but the columns are same for section B as for section A and if the actual amount of the share received by each partner is not required to be stated in section A it is also not required to be stated in section B. Stating the fractional share in a rupee of profits or loss is giving "particulars of the apportionment of the income, profits or gain" (or loss). An application for certificate is in two sections because the particulars of the partnership on the date of the application may be different from the particulars of the partnership in the previous year. The amount paid to each partner as salary or commission has to be stated in column 5 of the form of an application for registration or renewal but it does not follow that the actual amount of the share must be stated in column 6. Salary cannot be described in terms of a fractional share. Commission also even when it is fixed at a certain percentage of the profits cannot be described in terms of a fractional share of the profits because though it may be earned at a certain percentage of, and be paid out of, the profits the commission agent cannot be said to have a share in the profits. Moreover, while the application contains the certificate about the distribution of the profits according to the shares shown in column 6 it does not contain a certificate that a salary at a certain rate per month or a commission at a certain percentage was paid and, therefore, the actual amount received by way of salary or commission is required to be stated in column 5.
The amount received by each partner as his share in the profits cannot be stated in the application unless the correct amount of the profits was known. Profits of a partnership business as worked out by the partners may not be identical with the profits worked out by an Income-tax Officer for assessment purposes. Interest and commission paid to partners can be deducted when they calculate the profits for distribution among themselves, but an Income-tax Officer will not deduct them for assessment purposes. The forms of the applications of not show which profits, profits for purposes of distribution or profits for purposes of assessment, are to be distributed among the partners. Fractional shares of the partners in a rupee of profits can be stated in the applications even though the correct amount of the profits is not known but the actual amount received by each partner cannot be stated. The there may be bona fide doubts whether certain receipts are income or capital receipts and whether the partnership is entitled to deduct certain expenses or not; the correct amount of the profits for assessment purpose cannot be determined unless these doubts are resolved. Finally the accounts maintained by a partnership may be rejected by an Income-tax Officer under section 13 and he may estimate the amount of its profits upon such basis and in such manner as he may determine. The Government could not have expected the partners to certify that they had distributed or credited the correct profits of the partnership and to state correctly the amount received by each partner as his share in them. Section 28(2) permits an Income-tax Officer, on being satisfied that the profits of a registered firm were distributed otherwise than in accordance with the shares of the partners as shown in the partnership deed and that a partners had thereby returned his income below its real amounts, to impose a penalty upon him. So the department was not left without any remedy in case the amount received by a partner by way of his share in the profits was less than what it should have been and it cannot be said that refusal to register was necessary if the amount received by a partner as his share in the profits was not stated, and stated correctly, in the application for registration or renewal.
Whether all the profits derived by the partnership during the previous year were distributed or credited to the partners in accordance with their shares or not is a question of fact. In the application for registration or renewal the partners have to certify that the profits had been distributed or credited to them in accordance with their shares. They have to certify about the distribution or crediting of the actual or real profits. We ignore the case in which there is a bona fide doubt as to what the actual profits were; if the partners distributed or credited among themselves their shares in what they bona fide believed to be the actual or real profits they can be said to have certified the fact as required by the form of the application. But if they dishonesty concealed certain profits and did not distribute or credit them among themselves they cannot truthfully certify that they had distributed or credited the profits. If they distributed or credited only a portion of the profits their certifying would relate only to the portion distributed or credited and it would be a case of there being no certifying in respect of the other portion not distributed or credited. In such a case it can be said that there was no certificate in respect of a portion of the profits. The Government evidently wanted a correct certificate and giving an incorrect or incomplete certificate was as good as not giving a certificate. If no certificate was given at all the application can be said to be not in order. If a certificate was given it cannot be said be not in order but if it is found that the certificate was incorrect or incomplete it would certainly be a relevant matter to be taken into consideration by the Income-tax Officer when he has to exercise his discretion in the matter of granting or refusing registration of renewal. When the Government made a right to registration or renewal dependent upon the partners giving a true certificate the incorrectness or incompleteness of their certificate would be a just ground for refusal to register or renew.
It has been found by the Tribunal that the actual or real profits had not been divided in accordance with the partnership deed. The President of the Tribunal, to whom the case was referred on a difference of opinion between the two Members of the Tribunal, relied upon the "finding of fact.... that Sewak Ram and Jagrani Devi had not received their entire share of the black market profits" and held that the certificate given by the partners was "a wrong certificate". It was on this finding of fact, and not on the ground that certain profits had been canceled by the assessee, that the discretion was exercised against renewal. Concealment of a portion of the profits would not have rendered the certificate incorrect if they in fact had been distributed or credited the partners in accordance with their shares in the partnership deed. The certificate was a general one-whatever were the profits "were divided or credited as shown in section B of the Schedule" - and if the disclosed and concealed profits had all been divided or credited in accordance with the shares it was a correct certificate notwithstanding the concealment of a portion of the profits from the account books. Registration or renewal might not be refused only because a portion of the profits was concealed from the accounts though it had been distributed or credited among the partners in accordance with their shares. Here it was refused because there was no distribution or crediting at all. The question before us is whether it could be refused and out answer must be "yes", as registration or renewal was at the discretion of the Income-tax Officer and the fact relied upon by him in the instant case was a relevant fact.
We shall notice the decisions cited at the bar. In Commissioner of Income-tax v. Maula Dad the Supreme Court of Pakistan ruled that an application for registration under section 26A of the Income-tax Act may not be refused on account of a false statement in the application about the amount of the profits accrued or the fact that they were divided among the partners. Muhammad Munir C.J. observed at page 244 :
"The Income-tax Officer is bound to register a firm if he is satisfied that the firm exists and that the application has been properly made.. . The words properly made... must be given their ordinary meaning. .. and... refer back to the particulars which are prescribed by rules 2 and 3, namely, that the application has been made by the persons who are required to make it; that it has been signed by the persons who are required to sign it; and that it has been made in the prescribed form and is accompanied by the prescribed documents. If these requirements are fulfilled,... the Income-tax Officer has to decide.. . whether a firm as set out in the instrument of partnership exists... If he is satisfied that the firm exists, he is bound to register the firm... The question what are the true profits of the firm is not at this stage before him and he has yet to decide it under the general provisions of the Income-tax Act... The falsity of the return and of the certificate in the application for registration... is irrelevant to the issue, which the Income-tax Officer has to decide under rule 4, whether or not a firm exists as stated in the instrument..."
These observations partly support, and partly conflict with, the view that we take. The learned Chief Justice dealt with rule 4 and not with rule 6A and the law laid down by him in regard to rule 4 which uses the word "shall" may not be said to be applicable to rule 6A which uses the word "may". Even as regards rule 4 we respectfully consider it preferable to hold that when the satisfaction exists it confers discretion, instead of imposing an obligation, to register. Further what was found in that case was that some profits were concealed and not that they were not distributed in accordance with the certificate; we have emphasised the distinction between (1) distributing whatever profits have accrued and giving a wrong figure of them and (2) giving a wrong amount and not distributing the excess. The former was the case before the learned Chief Justice whereas the case before us is of the latter class.
In Commissioner of Income-tax v. DCosta Brothers Tambe and Desai JJ. denied that a partnership could be said to have failed to distribute profits according to the shares specified in the partnership deed because in ascertaining and distributing the profits it erroneously debited household expenses of the partners to the profit and loss account. The application considered by the learned judges was an application for registration and not for renewal and they observed :
"The provisions of rule 4 are mandatory in terms. It casts an obligation... The determination of profits by an assessee firm in a manner different from the provisions of the Income-tax Act or even not strictly in accordance with the express terms of the deed of partnership would not therefore entitled an Income-tax Officer to reject the application for certification of the deed of partnership on the ground that the application... has not been properly made."
The question answered by the learned judges was different from the question arising before us, it being simply whether a bona fide mistake in calculating and distributing the profits can amount to a failure to distribute the profits in accordance with the terms of the partnership deed. What would be the effect of failure to distribute the profits according to the terms of the partnership deed on an application for registration was not a question raised before them, though it has been answered. The question that was referred assumed that failure to distribute the profits would justify rejection of the application and all that the learns judges had to find was whether there was failure or not. The question would have been fully answered by the learned judges holding that when all the profits that were bona fide worked out by the partners had been distributed there was no failure. What has been found in the case before us is that there was deliberate and dishonest concealment of a portion of the profits.
In Commissioner of Income-tax v. Madanlal Chhaganlal Dixit C.J. and Pandey J. held that registration cannot be refused when the amount of the profits disclosed is less but the whole has been distributed. There whatever were the profits ascertained by the partnership were distributed and this fact at once distinguishes it from the instant case. The learned judges did not go into the question whether an Income-tax Officer has discretion under rule 4 or not; they only decided that the mere fact that in calculating the profits the firm failed to credit interest on the capital investment was not a ground for refusing to register.
What was decided by Ansari C.J. and Govinda Menon J., in St. Josephs Provisions Stores v. Commissioner of Income-tax, was that "the absence of entries in the separate accounts of each partner is not fatal, and the requirement of rule 6 is met where the profit is taken into the reserve fund by showing the partners shares therein and indicating what is the contribution of each partner to the reserve fund". They treated the crediting to the reserve account of the profits after specifying the share of each partner in them as crediting them; in the instant case there is a specific finding of fact that a portion of the profits was not distributed among the partners at all. They did not hold that renewal could not be refused on the ground that there was no distribution or crediting of the profits. This decision was distinguished by Chandra Reddy C.J. and Mohammad Mirza J., in Chintalapati Ranga Naikulu v. Commissioner of Income-tax, holding that "excluding any part of the divisible profits from division in accordance with the instrument of partnership will entail the consequence of rejection of the registration".
Commissioner of Income-tax v. Sat Ram Gian Chand contains nothing relevant in the instant case; the learned judges simply refused to treat the question whether the firm was a genuine firm or not as a question of law arising out of the Tribunals order. The profits that were divided among the partners were found not to have been calculated in accordance with commercial principles; but what was argued was not that the application for registration was consequently not properly made but that the partnership did not exist. The fact that the profits were not calculated in accordance with commercial principles may not justify the finding that the partnership did not exist but whether it justifies the rejection of the application for registration or not is a different question.
Chhotalal Devchand v. Commissioner of Income-tax is of no assistance in the instant case; what was contended unsuccessfully in that case was that the profits were divided not among the seven partners by opening their capital accounts but among the two firms of which six of the persons were partners and the seventh person. The partnership consisted of an individual and two firms owned by six persons and as the profits were distributed among the individual and the two firms it was argued that they were not distributed among the seven persons and this argument was repelled. The question before Chagla C.J. and Desai J. was whether the certificate about the distribution of profits was correct and not of the effect of its being incorrect, it having been assumed that if it was incorrect registration should be refused. The statement of Chandra Reddy C.J. and Jagan Mohan Reddy J. in Grand Hotel v. Commissioner of Income-tax, to the effect that an Income-tax Officer has no "unfettered discretion in the matter and it is open to him to grant or reject an application for registration irrespective of considerations pointed out in section 26A... and the relevant rules", was relied upon; this statement does not run counter to saying that when the satisfaction referred to in rule 4 or 6A exists he has the discretion to grant or refuse registration and that he has no discretion and must refuse registration or renewal if the satisfaction does not exist. We respectfully agree with their observation :
"If the application does not conform to the procedure indicated in the rules, the Income-tax Officer should surely reject the application. But he cannot capriciously and without proper basis decline to register the partnership."
This does not show that the existence of the satisfaction leaves him without discretion. No question of mala fides in calculating and distributing the profits arose in that case.
The question that came up for decision before Chagla C.J. and Tendolkar J. in Atmaram Bhogilal v. Commissioner of Income-tax, was whether a partnership entered into between Jaswant Lal and his father after their alleged separation was a genuine partnership or not and the answer depended upon whether there was separation between them prior to the alleged partnership. We have nothing to do with that question in the instant case; if there did not come into existence a genuine partnership, registration had to be refused but what the learned judges held was that there was a genuine partnership. They recognised that "it is left to the discretion of the Income-tax Officer whether to register the deed of partnership or not to register it", though they observed that "his discretion is fettered by the rules" and that "there is an obligation upon him to register a partnership deed if he is satisfied that there is, or was, a firm in existence... and that the application has been properly made." The application there was for registration under rule 4 and not fir renewal under rule 6A and the only ground on which the Income-tax Officer refused registration was found to be untenable. As there was no other ground justifying refusal the partnership was rightly held to be entitled to registration. Rule 6A came in for consideration by this court in Hajie Saeed & sons v. Commissioner of Income-tax. The question that Braund and Pathak JJ. had to answer was whether renewal could be refused even though it had been granted in a previous year and the answer naturally was in the affirmative, there being no provision laying down that if once registration is renewed it must be renewed every year. There would have been no sense in requiring an application for renewal year after year if renewal in one year made renewal in subsequent years obligatory. The Act makes no distinction between registration and renewal of registration; renewal is nothing but registration within the meaning of section 26A. The difference between registration and renewal has been made only by the rules which require applications of different contents for registration and for renewal. The learned judges interpreted rule 6A as conferring discretion and not imposing obligation upon an Income-tax Officer in the matter of renewal. The observations at page 58 that "the moment the Income-tax officer is satisfied that the form of the application is as prescribed under the rules, the matter is left entirely to his discretion" and that "the expression the application is in order relates to the form of the application and not to the correctness of the statement made therein" support the view that we take. It must be noted, however, that rule 6A considered by them was differently worded and the only satisfaction required was about the application being in order. Since there could not arise any question of renewal if the partnership did not exist at all it could be argued that even if the application was correct in form the Income-tax officer had discretion to refuse renewal on finding that no genuine partnership existed and it may be said that now with the added requirement that the Income-tax Officer must be satisfied about the existence of a genuine partnership, there is no longer any scope for the argument. Our reply would be that the requirement was added in order to remove the matter from the discretion if not genuine partnership existed.
That a partnership comes into existence by a verbal agreement confirmed by an instrument of partnership drawn up after the expiry of the relevant previous year is entitled to registration was the ratio decidendi of R. C. Mitter & Sons v. Commissioner of Income-tax decided by the Supreme Court. Sinha J. (as he then was) laid down the essential condition to be fulfilled by a partnership in order that it may be entitled to registration but did not say that if they were fulfilled it was bound to be registered. By fulfilling the conditions it became qualified to be registered but if there are other facts on account of which it was disqualified, registration could be refused. The ground on which registration was refused was found by the learned judges to be unsound and that ground is different from the ground in the instant case.
In N. T. Patel & Co. v. Commissioner of Income-tax the Supreme Court speaking through Kapur J. confirmed refusal of registration on the ground that though the partnership existed in the previous year there did not exist any instrument of partnership specifying the individual shares of the partners in that year. The learned judge said at page 228 that the right to registration "can be claimed only in accordance with the statute which confers it and a person seeking relief under that section must bring himself strictly within the terms of that section". No occasion arises in the instant case of applying this observation.
A preliminary objection was raised in the instant case on the ground that the question referred to us does not arise from an order passed under section 33 of the Income-Tax Act. The Tribunal could submit the statement to this court only if the order giving rise to the question was an order made under section 33. An appeal lies under section 33 to the Tribunal from an order passed by an Appellate Assistant Commissioner under section 31 and an order is passed under section 31 on an appeal filed under section 30 by an assessee objecting to a "refusal to register a firm under sub-section (4) of section 26A". It was contended that registration is different from renewal of registration, that no appeal is provided from an order refusing to renew registration and that the only remedy of the assessee was to apply under section 33A to the Commissioner of Income-tax to revise the Income-Tax Officers order. Reliance was placed upon Commissioner of Income-tax v. Arunachalam Chettiar in which the Supreme Court held that if an order did not come within the purview of section 31 "no appeal lay therefrom to the Appellate Tribunal under section 33(1) and if no such appeal properly came before the Appellate Tribunal it could not properly make an order under section 33(4) and if there was no order under section 33(4) there could be no reference under section 66". The whole foundation on which preliminary objection rested is wrong. As we said earlier the Income-tax Act makes no distinction between registration and renewal of registration; what is renewal of registration is nothing but registration for a subsequent year. Refusal to renew is refusal to register; see Commissioner of Income-tax v. Arokiaswami Chetti & Co., R. C. Mitter & Sons v. Commissioner of Income-tax at page 198 (vide the observation "the application for registration has to be made every year, which in fact means an application for renewal of the registration"), Hajie Saeed & Sons v. Commissioner of Income-tax at page 60, and Raghunandan Prasad v. Commissioner of Income-tax. There was, therefore, no merit in the preliminary objection. Further, the Tribunal purported to pass the order under section 33 and that is enough to give it jurisdiction to refer to this court a question of law arising from its order. The words used in section 66(1) are "an order under sub-section (4) of section 33" and not "an order which could legally have been made under sub-section (4) of section 33" or "an order which was rightly made under sub-section 33". Whether an order is an order made under section 33(4) or not, depends upon what the maker professed to do; if it professed to make an order under section 33(4) it is such an order even if it could not legally be made under that provision. Correctness of the order which includes correctness of the exercise of the jurisdiction to make it, is irrelevant. For these reasons we rejected the preliminary objection.
The answer to the question is that the assessee firm had no right top renewal of registration and that it could be refused on the ground that it had not distributed a portion of its; profits in accordance with the instrument of partnership in the previous year relevant to the assessment year 1948-49.
We direct that copies of this judgment shall be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal and the Commissioner of Income-tax as required by section 66(6) of the Act. The assessee shall pay to the Commissioner of Income-tax his costs of this reference which we assess at Rs. 200. Counsels fee is assessed at Rs. 200.
Reference answered accordingly.
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Title

Khanjan Lal Sewak Ram vs Commissioner Of Income-Tax, U.P.

Court

High Court Of Judicature at Allahabad

JudgmentDate
21 January, 1964