Commissioner of Income Tax vs Ramkisan Tapade and Co.

Dr. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following questions of law to this court for opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-firm was entitled to continuation of registration even though the requirement of proviso (ii) of section 184(7) was not complied with inasmuch as the firm had not furnished along with its return of income for the assessment year a declaration in the prescribed Form No. 12 and in the absence of any reason for such default ?"

The assessee is a partnership firm. The relevant assessment year is 1970-71. The assessee field its return of income for the above assessment year on July 3, 1972. The assessee-firm was earlier granted the benefit of continuation of registration by the Income Tax Officer u/s 184(7) of the Income Tax Act, 1961 (for short, "the Act"). During the course of the assessment proceedings for the relevant assessment year 1970-71, the Income Tax Officer informed the assessee about the absence of declaration in Form No. 12 which, as per the provisions of section 184(7) of the Act, was required to be field along with the return of income. The assessee submitted before the Income Tax Officer that it had furnished declaration in Form No. 12 in compliance with the aforesaid provisions of the Act and expressed its inability to produce the acknowledgment thereof. However, on March 29, 1973, just before the completion of the assessment, the assessee submitted a duplicate copy of the declaration. The Income Tax Officer however, refused to allow the benefit to continuation of registration u/s 184(7) of the Act and observed as under :

"Form No. 12 is field on March 29, 1973, which is stated to be the duplicate. The assessee was given an opportunity to produce the receipt of the original Form No. 12 submitted to the office. No receipt is produced, Form No. 12 was thus not filed and the duplicate is also late. I, therefore, treat the firm as unregistered for the assessment year 1970-71."

Aggrieved by the above order of the Income Tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner, of Income Tax. By his order dated March 2, 1976, the Appellate Assistant Commissioner held in favour of the assessee. While holding so, the Appellate Assistant Commissioner made the following observations :

"That the date of presentation of the declaration in prescribed Form No. 12 was brought to the notice of the Income Tax Officer; in fairness to the assessee, he could have easily verified this from his inward register and/or acknowledgment book. But without taking the trouble of finding out the fact, he simply disbelieved the explanation offered by the assessee."

The Appellate Assistant Commissioner further observed that the genuineness of the firm was not doubted by the Income Tax Officer but the benefit of continuation of registration had been refused only on the ground of non-filing of the declaration in Form No. 12 along with the return. This, according to the appellate Assistant Commissioner, was not proper.

The Appellate Assistant Commissioner, therefore, directed the Income Tax Officer to entertain the duplicate copy of the declaration and allow and benefit of continuation of registration to the assessee-firm, if otherwise it was in order.

Aggrieved by the order of the Appellate Assistant Commissioner, the Revenue preferred an appeal before the Income Tax Appellate Tribunal (for short, "the Tribunal").

The Tribunal upheld the order of the Appellate Assistant Commissioner and rejected the appeal of the Revenue. Hence this reference at the instance of the Revenue.

Counsel for the Revenue submitted that the application in Form No. 12 not having been filed within the time specified in section 184(7), proviso, clause (ii), of the Act, the benefit of continuation of registration provided by section 184(7) of the Act cannot be availed of by an assessee. We have considered the submission. Section 184 of the Act deals with registration of firms. Sub-section (7) thereof provides that, where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year provided the requirements laid down in the proviso thereto are complied with. Clause (ii) of the Proviso was substituted by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, by the following :

"(ii) the firm furnishes, before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income for such subsequent assessment year, a declaration to the effect, in the prescribed form and verified in the prescribed manner, so, however, that where the Assessing 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 is made."

This reference relates to the assessment year 1970-71. However, the return was submitted by the assessee on July 3, 1972, after the amendment had come into force. Prior to the amendment, the requirements was to file the declaration along with the return of income. After the amendment, the assessee was required to furnish the same "before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income for such subsequent assessment year". Another change that was brought in by the amendment was that the Income Tax Officer was specifically given the power to allow an assessee-firm to furnish the declaration at any time before the assessment was made provided he was satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time allowed by clause (ii) of the proviso to sub-section (7).

The case of the assessee is that the declaration in Form No. 12 was filed in time but, as he could not produce any evidence in support of his claim, he filed a duplicate thereof before the completion of the assessment. Therefore, the real question that falls for determination is whether the declaration filed beyond the time specified in proviso (ii) to section 184(7) of the Act can be accepted by the Income Tax Officer or not. In other words, whether the Income Tax Officer could have refused continuation of registration to the firm merely on account of delay in furnishing Form No. 12.

It appears that the Central Board of Direct Taxes had itself gone into this aspect of the matter and issued appropriate instructions from time to time. By its circular D. O. F. No. 1(38)-63/TPL dated July 9, 1963, the Board issued instructions to the Commissioner of Income Tax to the effect that continuation of registration of firms need not be refused merely on account of the delay in applying for renewal.

When section 184(7) was amended with effect from April 1, 1971, the Board again issued instruction in this regard of February 23, 1973, vide its Circular No. 105 (F. No. 225/86/71-ITA-II) (see [1973] 88 ITR 81). In the said circular, it was observed that a strict interpretation of the above provisions was likely to cause genuine hardship in many case. In the view of the matter and in view of the specific power conferred on the Income Tax Officer to allow the assessee-firm to furnish the declaration at any time before the assessment was made where he was satisfied that the firm was prevented by sufficient cause from furnishing the declaration in time, the Board desired the Income Tax Officers to be liberal in condoning the delay. The instructions of the Board are clear. The object is to instruct the Income Tax Officers not to refuse continuation of registration merely on the ground of delay and to take a liberal approach in the matter. It is well-settled that, in view of the specific provision contained in section 119 of the Act, the instructions issued by the Board are binding on the subordinate authorities. That being so, we do not find any infirmity in the order of the Tribunal upholding the order of the Appellate Assistant Commissioner directing the Income Tax Officer to entertain the duplicate copy of the declaration and to allow the benefit of continuation of registration to the assessee.

Even otherwise, on a perusal of the scheme of section 184(7) of the Act and the requirements contained in the proviso thereto, we find that the object of these requirements to ensure that there is not 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. Furnishing of a declaration to that effect in the prescribed form and verified in the prescribed manner are intended to obtain a binding statement from the assessee to that effect to avoid a detailed enquiry by the Income Tax Officer himself in that regard. The filing of the declaration in the prescribed form and its verification in the prescribed manner also assumes importance in view of section 277 of the Act which makes a false statement in any verification under the Act an offence punishable with fine and rigorous imprisonment. The filing of the declaration is, therefore, mandatory. However, the same is not the position in regard to the time within which it has to be filed. As stated earlier, under clause (ii) of the Proviso to section 184(7) as amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, though such declaration is required to be furnished before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return, power has also been conferred on the Income Tax Officer to allow a firm to furnish the same "at any time before the assessment is made". The undisputed position is that the amendment applies not only in relation to the assessment year 1971-72, but also for the assessment year 1970-71 or any earlier year where the question of continuation of registration is considered on or after April 1, 1971. (See Explanatory Notes on provisions of Taxation Laws (Amendment) Act, 1970). In the present case, though the assessment year is 1970-71, the return was submitted by the assessee on July 3, 1972, and the question of registration was considered by the Income Tax Officer on March 29, 1973, when he took up the case for assessment. On that day, he had the power to accept the declaration even though it had been filed beyond time. He did not exercise this power at all and refused registration merely on the ground of delay in filing of the declaration. On appeal by the assessee, the Appellate Assistant Commissioner exercised this power and, on consideration of the facts and circumstances of the case, directed the Income Tax Officer to accept the same. No fault can be found with this action of the Appellate Assistant Commissioner. The Tribunal was, therefore, justified in upholding his action and rejecting the appeal of the Revenue.

In view of the above discussion, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. Under the facts and circumstances of the case, we make no order as to costs.