Commissioner of Income Tax v. S. Chidambarathanu — 1996 DIGILAW 243 (MAD)

Judgment :- K.A. THANIKKACHALAM, J. In pursuance of the order of this court dated October 27, 1981, the Tribunal referred the following question of law for the opinion of this court under section 256(2) of the Income-tax Act, 1961. "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in directing the Income-tax Officer to grant continuation of registration, even though Form No. 12 was not really signed by all the partners?" The assessee-firm was constituted originally under a deed of partnership dated January 1, 1964, and was reconstituted as per the deed dated August 16, 1973. The assessee-firm consisted of three partners, viz., (1) Shri Chidambarathanu, (2) Smt. J. Parvathy, and (3) Shri C. Sivarajan. Partners Nos. 2 and 3 are the daughter and son of the first partner. This firm was granted registration in prior years. For the assessment year 1977-78 corresponding to the previous year ended August 15, 1976, an application for continuation of registration was filed on June 30, 1977, in Form No. 12. It was not signed by all the three partners. Since the partner, Shri Chidambarathanu, died on March 17, 1977, his widow, Smt. Rajammal, had signed the declaration as his legal heir. Partner No. 2, Smt. J. Parvathy, had also signed the declaration. But the third partner, Shri C. Sivarajan, had not signed it since his whereabouts were not known and he was absconding. Smt. Parvathy, had, therefore, signed the declaration on his behalf also. On enquiry, the Income-tax Officer was satisfied that Chidambarathanu had died and that Sri Sivarajan, was not to be found. He held that the declaration in Form No. 12 was not in order since it was not signed by the three partners and, therefore, registration could not be continued. On appeal, the Appellate Assistant Commissioner accepted the declaration and directed the continuance of the registration. Aggrieved, the Revenue filed an appeal before the Tribunal. The Appellate Tribunal found that the firm had been dissolved at the close of the accounting year ended August 15, 1976, and the business was continued as a proprietary concern of Chidambarathanu till his death. On appeal, the Appellate Assistant Commissioner accepted the declaration and directed the continuance of the registration. Aggrieved, the Revenue filed an appeal before the Tribunal. The Appellate Tribunal found that the firm had been dissolved at the close of the accounting year ended August 15, 1976, and the business was continued as a proprietary concern of Chidambarathanu till his death. The Appellate Tribunal also found that since the declaration was to be filed after the close of the accounting year, after the dissolution of the firm only the partners that were available on that date of declaration, namely, June 30, 1977, could possibly sign the declaration. Since it was not disputed that by that date Chidambarathanu had died and Sivarajan could not be traced, the Appellate Tribunal found that the Revenue was insisting on an impossible condition since the rules only required that the declaration should be given by the partners, obviously referring only to the existing partnersThe Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner following the decision reported in Addl. CIT v. S. V. Ratnaswamy and Sons1977 (106) ITR 154, 1975 (40) TAXATION 40. Learned junior standing counsel for the Department submitted that it is not correct on the part of the Tribunal to state that declaration signed by the existing partners as on the date of filing Form No. 12 would be sufficient to comply with the provisions for getting renewal of registration under section 184(7) of the Act. According to learned standing counsel, as per the provisions of rule 22(5), all the partners should sign Form No. 12 for seeking continuation of registration. Learned standing counsel pointed out that the erstwhile firm consisted of three partners. One of the partners, Shri Chidambarathanu, died on March 17, 1977, and his widow, Smt. Rajammal, had signed the declaration as his legal heir. The second partner, Smt. Parvathy, signed the declaration in favour of herself and also for her brother who is said to be absconding. Therefore, according to the learned standing counsel, Form No. 12 was not signed by all the partners of the erstwhile firm. Learned standing counsel pointed out that the rules applicable for seeking fresh registration would also applicable for seeking renewal of registration under Form No. 12. Therefore, according to the learned standing counsel, Form No. 12 was not signed by all the partners of the erstwhile firm. Learned standing counsel pointed out that the rules applicable for seeking fresh registration would also applicable for seeking renewal of registration under Form No. 12. According to learned standing counsel, it is not correct to state that the conditions prescribed for obtaining fresh registration under section 184(1) of the Act would not be applicable for seeking continuation of registration under section 184(7) of the Act. Learned counsel for the Department submitted that the conditions prescribed under rule 22(5) should be strictly complied with. The erstwhile firm came to an end on August 15, 1976, as per clause 13 of the partnership deed. Form No. 12 was filed on June 30, 1977. Therefore, on the date of submission of Form No. 12, for continuation of registration, one of the partners was dead and the other partner was absconding. In fact, the form was signed by one of the partners, namely, Smt. J. Parvathy, for herself on behalf of her brother, C. Sivarajan, who is also another partner said to be absconding. On behalf of the deceased partner Chidambarathanu, his wife signed Form No. 12 as his legal heir. Therefore, it was submitted by learned standing counsel that on the basis of Form No. 12 filed on June 30, 1977, the continuation of registration is not possible. According to learned standing counsel when the Income-tax Officer noticed the deficiencies in Form No. 12, an opportunity was given to the persons who filed Form No. 12 to rectify the mistake, but the mistake was not rectified. Therefore, it was submitted that inasmuch as Form No. 12 filed for continuation of registration was not in accordance with rule 22(5) of the Income-tax Rules, continuation of registration cannot be grantedIn support of his contention, learned standing counsel for the Department relied on the decision in J. Subba Rao and Sons v. CIT 1970 (77) ITR 241, Sri Ramamohan Motor Service v. CIT 1973 (3) SCR 959, 1973 AIR(SC) 1445, 1974 (3) SCC 116 , 1973 (89) ITR 274, 1973 TaxLR 1048, 1973 (2) CTR 247, 1973 (2) CTR(SC) 247, 1973 (2) CTR 247 and Bengal Decorators v. CIT 1978 (113) ITR 805 . According to learned standing counsel for the Department, the decision in CIT (Addl.) v. S. V. Ratnaswamy and Sons 1977 (106) ITR 154, 1975 (40) TAXATION 40 would not be applicable to the facts of this case and, therefore, the order passed by the Tribunal confirming the grant of continuation of registration is not correct. On the other hand, learned counsel appearing for the assessee, submitted that only for obtaining fresh registration under section 184(1), all the conditions prescribed thereunder should be followed. For the purpose of seeking continuation of registration under section 184(7) of the Act all the conditions prescribed for obtaining fresh registration under section 184(1) need not be complied with. According to learned counsel for the assessee, the persons available as on the date of filing Form No. 12 would be sufficient to apply for continuation of registration under section 184(7). According to learned counsel, one of the partners was absconding and, therefore, the assessee should not be insisted upon for complying with what is impossible of performance. Signing Form No. 12 by the legal heir of the deceased Chidambarathanu and the signing of Parvathy for herself and on behalf of her brother who is absconding would amount to sufficient compliance for seeking continuation of registration. According to learned counsel for the assessee, the genuineness of the firm was not disputed by the Department. Learned counsel for the assessee pointed out that the persons concerned for signing Form No. 12 would mean persons concerned as on the date of filing Form No. 12. In the present case, the persons concerned available on the date of filing Form No. 12 were the legal heir of the deceased partner Chidambarathanu and the second partner, Smt. Parvathy, who signed the declaration form for herself and on behalf of her absconding brother. Therefore, when the persons concerned as on the date of filing Form No. 12 applied for continuation of the registration under section 184(7), the Department cannot refuse to grant continuation of the registration. According to learned counsel for the assessee, the decision of the Karnataka High Court in CIT (Addl.) v. S. V. Ratnaswamy and Sons 1977 (106) ITR 154, 1975 (40) TAXATION 40 applied on focus to the facts of this case. According to learned counsel for the assessee, the decision of the Karnataka High Court in CIT (Addl.) v. S. V. Ratnaswamy and Sons 1977 (106) ITR 154, 1975 (40) TAXATION 40 applied on focus to the facts of this case. For these reasons, it was submitted that the Tribunal was correct in confirming the order of the Appellate Assistant Commissioner in granting continuation of registrationThe fact remains that for the assessment year 1977-78, the return was filed on July 1, 1977, signed by Shri C. Durairaj and Form No. 12 was filed on June 30, 1977, signed by Smt. S. Rajammal, legal heir of her late husband Shri Chidambarathanu, and by J. Parvathy, who is another partner signing Form No. 12 for herself and on behalf of her absconding brother. Fresh return was said to be filed on December 21, 1977, with the signature of Smt. J. Parvathy, the second partner. Shri Chidambarathanu died on March 17, 1977. Sivarajan, who is the third partner in the erstwhile firm, left the place and he was said to be absconding. His profits are credited in his account. It was seen that the account of this partner was not operated throughout the accounting year except for an entry for income-tax payment. Therefore, Form No. 12 was not signed by one of the partners. Registration is only a privilege which a firm gets on satisfying certain conditions prescribed under sections 184 and 185 and rules 22(5) and 24 of the Income-tax Rules. There is no provision for anyone else to sign on behalf of a partner in the renewal application form. Under rule 22(5) the renewal application form should be signed by all the partners as stated in the partnership deed. Since there was a defect in Form No. 12 filed in the present case, the Income-tax Officer gave a notice under section 185(2) for modification of the mistake. That mistake was not rectified. One of the partners Chidambarathanu died on March 17, 1977. For the assessment year 1977-78, the previous year ended on August 15, 1976. The application for continuation of registration was filed on June 30, 1977, in Form No. 12. That mistake was not rectified. One of the partners Chidambarathanu died on March 17, 1977. For the assessment year 1977-78, the previous year ended on August 15, 1976. The application for continuation of registration was filed on June 30, 1977, in Form No. 12. The Tribunal was informed that the partnership came to a close on the last date of the accounting year, namely, August 15, 1976, as provided under clause 13 under which the first partner, Shri Chidambarathanu, was empowered to terminate the partnership by giving notices in writing to the other partners. From August 16, 1976 onwards, the business was carried on by Sri Chidambarathanu as a proprietary concern till his death on March 17, 1977. The above facts appear in the deed of partnership dated August 16, 1973, and the deed of partnership dated June 10, 1977, was executed after the death of Shri Chidambarathanu. Therefore, the assessee-firm which claimed continuation of registration came to an end on August 15, 1976, i.e., the last date of the accounting year. Thereafter the business was carried on as a proprietary concern by Chidambarathanu till his death. On the date of application for continuation of the firm, i.e., on June 30, 1977, only one partner, viz., Smt. J. Parvathy was available. Her father, Chidambarathanu, had expired and he was represented by his wife, Smt. Rajammal. The third partner, C. Sivarajan is said to be absconding and on his behalf his sister, J. Parvathy, signed in the declaration Form No. 12The point for consideration is, whether Form No. 12 filed, signed by Smt. Rajammal, on behalf of her deceased husband, and by J. Parvathy, signed for herself and on behalf of her brother, would be sufficient for the purpose of compliance under section 184(7) of the Act, to seek continuation of registration ? Registration of a firm is provided under section 184 of the Income-tax Act, 1961. The registration once granted would continue provided certain conditions are fulfilled. Those conditions are stated in sub-section (7) to section 184. Registration of a firm is provided under section 184 of the Income-tax Act, 1961. The registration once granted would continue provided certain conditions are fulfilled. Those conditions are stated in sub-section (7) to section 184. Sub-section (7) of section 184 runs as under: "(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-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 is made." The manner of the application for registration is provided in sub-section (3) of section 184 which is to the following effect. "(3) The application shall be made to the Income-tax Officer having jurisdiction to assess the firm, and shall be signed---(a) by all the 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." Section 187 of the Act deals with the change in the constitution of a firm and sub-section (2) of section 187 explains the change in the constitution of a firm for the purpose of the section. The said sub-section is to the following effect: "(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." Learned counsel for the assessee contended that the submission of Form No. 12 for continuation of registration signed by the wife of the deceased partner, Chidambarathanu, and Smt. J. Parvathy signed for herself and on behalf of her absconding brother would be sufficient to seek continuation of registration, under section 184(7) of the Act. According to learned counsel, these are the persons who were available for signing Form No. 12 to seek continuation of registration. It was submitted that the signature of the absconding partner cannot be insisted upon, since it is impossible to get the signature of the absconding partner. It was further submitted that the conditions prescribed for obtaining fresh registration cannot be insisted on for seeking continuation of registration. Reliance was placed upon the decision of the Karnataka High Court in Addl. CIT v. S. V. Ratnaswamy and Sons 1977 (106) ITR 154, 1975 (40) TAXATION 40. According to the facts arising in that case during the relevant year there were six partners. After the end of the relevant previous year and on July 1, 1969, a fresh partnership deed is said to have been drawn up by five of the said six partners, excluding S. R. Ramachandra, one amongst the original six partners, whose whereabouts had not been known since November 1, 1968. The firm as originally constituted had been granted registration under section 184 of the Act for the earlier years. The firm as originally constituted had been granted registration under section 184 of the Act for the earlier years. On August 10, 1970, the firm filed along with its return of income for the assessment year 1970-71 a declaration envisaged in the proviso (ii) to sub-section (7) of section 184 of the Act in the prescribed form signed by the said continuing partners who constituted the firm as on that date and also by one Parvathamma, claiming to be the legal representative and mother of the said S. R. Ramachandra, whose whereabouts were not known. On the basis of this declaration, the Income-tax Officer, granted continuance of registration of the firm for the assessment year 1970-71In the said case, the Tribunal accepting the contention of the assessee took the view that the declaration in Form No. 12 was liable to be made only by the partners who constituted the firm as on the date of making of the said declaration and that as the said application was made on August 10, 1970, when only five amongst the original partners, excluding the said S. R. Ramachandra, were the continuing partners, the declaration in Form No. 12 signed by them was sufficient compliance with the requirements of the law and that the fact that one more person, Parvathamma, had also signed the form was a mere surplusage which did not ipso facto, detract from the validity and efficacy of the declaration which was otherwise in accordance with law. On a reference, the Karnataka High Court held: "What emerges from a reading of the provisions of sub-section (1) of section 187 and of sub-section (7) of section 184 together is that the concept of a 'registered firm' as an assessable entity under the Act has, subject to certain conditions, an element of durability as such assessable entity for the subsequent years also and that the furnishment of a declaration contemplated by the second proviso to sub-section (7) of section 184 of the Act is by the 'firm' alone, which, in turn, could only mean its partners as constituted at the time of making such declaration. It is these partners who would be adversely affected in consequence of a non-continuance of the registration." It was further held that the above reasoning points inescapably and irresistibly to the conclusion that the "persons concerned" referred to in rule 24 are the partners of the "firm" as constituted at the date of making the declaration under the second proviso to sub-section (7) of section 184 of the Act. The conclusion as to the validity of the declaration made in the present case reached by the Tribunal, therefore, becomes supportable, though, however, on a different reasoningOur attention was drawn to the decision of the Mysore High Court reported in the case of J. Subba Rao and Sons v. CIT 1970 (77) ITR 241. According to the facts arising in the abovesaid case, learned counsel for the assessee made two submissions: "(1) The clear language of section 184(7) of the Act does not provide for the requirement of signature by the partners personally. This omission to provide for that requirement on the part of the Legislature is not unintentional as can be gathered by contrasting this provision with the provisions of section 184(3), which specifically provides for the requirement of signature of all the partners personally. This being the position, any provision made in this behalf in the Rules, namely, rule 22(5) read with rule 24, cannot prevail. He submits that rule 24 also does not in clear terms enjoin that a declaration should be signed by all the partners personally. It is also argued that the words 'persons concerned' occurring in rule 24 will have to be construed as referring to 'persons who are authorised' to act on behalf of a firm, meaning that, in the absence of such authorisation, any partner could so act. Therefore, it is only such 'persons concerned' who will have to comply with the requirements of rule 22(5) as enjoined by rule 24 of the Rules (2) While sub-sections (1) to (6) of section 184 of the Act provide for the making of an application for registration of a firm for the purpose of the Act, sub-section (7) of that section merely provides that where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year, provided the conditions specified therein are satisfied. It is, therefore, urged that the provisions of sub-section (7) of section 184 were intended to be less stringent than the provisions of section 184(3), which enjoins that an application made for registration of a firm shall be signed by all the partners, excluding minors, personally. It is, therefore, submitted that even if the legislative intendment was that the partners should sign personally, for the purposes of continuation of registration under section 184(7) of the Act, such a requirement will only be directory in character. It, therefore, follows that what is required is substantial compliance with the requirements of section 184(7) of the Act read with rules 22(5) and 24 of the Rules. "While answering these two points, the Mysore High Court held that :" If the argument of Sri Bhat that any person who is authorised to act on behalf of the firm could sign the declaration is assumed to be right, such authorisation should necessarily be in favour of more than one person in order to satisfy the requirement of verification as enjoined in Form No. 12. Further, it follows that no single partner could act in order to make the declaration in accordance with Form No. 12. Therefore, any single person or partner authorised to act cannot satisfy the requirements of such verification " The Mysore High Court also observed that :" They cannot accept the interpretation placed by Sri Bhat on the words 'persons concerned' occurring in rule 24 of the Rules. Under rule 22(5) of the Rules, persons other than partners could also sign an application for registration of a firm for the purposes of the Act in certain circumstances specified therein. The words 'persons concerned' occurring in rule 24, in our opinion, are referable to such persons as are specified in rule 22(5). It follows from this conclusion of ours that the rule enjoins that persons other than partners can sign only in exceptional circumstances specified in rule 22(5). It is also clear from rule 22(5) that the principal requirement is that all the partners should sign personally. " It was also observed by the Mysore High Court as follows: " The next argument of Sri Bhat that the requirement of signature by all partners is directory in nature cannot also be accepted. It is also clear from rule 22(5) that the principal requirement is that all the partners should sign personally. " It was also observed by the Mysore High Court as follows: " The next argument of Sri Bhat that the requirement of signature by all partners is directory in nature cannot also be accepted. The basis for this argument is that section 184(7) of the Act merely provides for the continuation of registration of the firm which had been granted earlier, and, therefore, furnishing of a declaration is more or less a formal matter. This will nevertheless be so, even if the rule provides for an additional requirement to be fulfilled, as any such additional requirement will also be directory in nature." Thus, the arguments advanced before us by learned counsel for the assessee are answered in the above said decision of the Mysore High Court cited supra. Our attention was also drawn to the decision of the Supreme Court reported in Khanjan Lal Sewak Ram v. CIT 1972 (83) ITR 175, 1972 AIR(SC) 61, 1971 (3) SCC 662 , 1972 (1) SCR 502 , wherein while considering the provisions of section 26A, rules 6, para 3, 6A of the Indian Income-tax Rules, 1922, the Supreme Court held that the application for renewal of registration made by the assessee did not comply with the conditions prescribed in paragraph 3 of rule 6 of the Indian Income-tax Rules, 1922, and the firm was not entitled to renewal of registration for the assessment year 1948-49. So also, the Supreme Court, in Sri Ramamohan Motor Service v. CIT 1973 (3) SCR 959, 1973 AIR(SC) 1445, 1974 (3) SCC 116 , 1973 (89) ITR 274, 1973 TaxLR 1048, 1973 (2) CTR 247, 1973 (2) CTR(SC) 247, 1973 (2) CTR 247 while, considering the provisions of sections 26A and 59 of the Indian Income-tax Act, 1922, and the Indian Partnership Act, 1932, section 30, held that: "before a person can claim the benefit of section 26A he must strictly comply with the requirements of that section and in view of sub-section (2) of that section he is also required to comply with the requirements of the relevant rules. Substantial compliance with the rules is not sufficient." In the case of Rao Bahadur Ravulu Subba Rao v. CIT 1956 (30) ITR 163, 1956 AIR(SC) 604, 1956 SCJ 591, 1956 (1) SCR 577, 172, the Supreme Court while considering the provisions of section 26A of the Indian Income-tax Act, 1922, held that before a person can claim the benefit of section 26A, he must strictly comply with the requirements of that section. In view of sub-section (2) of that section, he is also required to comply with the requirements of the relevant rules. Failure to comply either with the requirements of sub-section (1) or sub-section (2) of section 26A disentitles the applicant to the benefit of that section. The same view was taken by the Supreme Court in N. T. Patel and Co. v. CIT 1961 AIR(SC) 1356, 1961 (42) ITR 224, 1962 (1) SCJ 57, 1962 (1) SCR 251 . The decision of the Supreme Court in Khanjan Lal Sewak Ram v. CIT The decision of the Supreme Court in Khanjan Lal Sewak Ram v. CIT lends support to the abovesaid conclusion. As already seen, according to the facts arising in this present case, one of the partners of the erstwhile firm, who is said to be absconding has not signed Form No. 12. Hence, Form No. 12 filed by the assessee in the present case is not in strict compliance with the provisions contained in rule 24 read with rule 22(5). Thus considering the facts arising in this case, in the light of the judicial pronouncements, cited supra, we would prefer to follow the judgment of the Supreme Court and that of the Mysore High Court cited supra instead of the decision of the Karnataka High Court reported in CIT (Addl.) v. S. V. Ratnaswamy and Sons 1977 (106) ITR 154, 1975 (40) TAXATION 40. For the foregoing reasons, we answer the question referred to us in the negative and in favour of the Department. No costs.