COMMISIONER OF INCOME TAX v. KIRIT WOOD WORKS — 1998 DIGILAW 838 (GUJ)

R. BALIA, J. ( 1 ) AT the instance of revenue, the Income Tax Appellate Tribunal, Bench b, has referred the following question of law arising out of its order dated 15. 3. 1983 in Income Tax Application No. 2486/ahd/89 relating to A. Y. 1978-79. "whether, on the facts and in the circumstances of the case, the tribunal was right in law incoming to the conclusion that the assessee firm was entitled to registration under the I. T. Act, 1961 for the Asstt. Year 1978-79?" ( 2 ) THE facts and circumstances of the case, as narrated by the tribunal, may be briefly noticed. The assessee is a registered firm up to the previous year relevant to A. Y. 1977-78. The relevant accounting period for the A. Y. in question 1978-79 was from 24. 10. 76 to 11. 11. 1977. Before the end of the previous year one of its partners died on 16. 9. 77. An application was filed on 29. 6. 78, that is to say after the end of the previous year, under Form No. 12 that the firm continued to be registered for the first part of the previous year from Kartik Sud 1 to Bhadarwa sub. 3, that is to say, from 24. 10. 76 to 16. 9. 77 disclosing that Manilal Lalji Mistry has died on 16. 9. 77. The partnership deed of the firm provided that the firm shall not be dissolved on the death of one of the partners. The assessing officer pointed out that as it is not a case of dissolution of the firm, the declaration furnished by the firm in pursuance of sub-sec. (7) of sec. 184 is not in order. According to assessing officer, it was a case where there has been a change in the constitution of the firm resulting on account of death of the partner coupled with provision in the partnership deed. In order to avail the benefit of continued registration for the previous year in question, the assessee must have filed an application in Forms No. 11 and 11a for registration afresh in terms of sec. 184 (8) and as the assessee has not done so, he made order that the registration granted to the firm shall not have the effect for the relevant assessment year. 184 (8) and as the assessee has not done so, he made order that the registration granted to the firm shall not have the effect for the relevant assessment year. This order of the assessing officer was affirmed by the Appellate Assistant Commissioner of Income Tax vide his order dated 19. 9. 1981. On further appeal, the tribunal, relying on its earlier decision in I. T. A. No. 360/hyd/69-70 dt. 19. 8. 71 and a decision of Madras High Court in Addl. C. I. T. v. Abdul Kareem and Co. , (1979) 117 ITR 233 set aside the order of the lower authorities. It held,"in this case the firm was filing for registration only for a part of the accounting period i. e. upto the death of one of the partners. There can be no dispute that there was no change in the constitution of the firm upto that date. It would be another situation if the firm is asking for registration for the entire period. In that event Form No. 11 and 11a may be required to be filled up but that, as stated above, is not the position here. Therefore the change in the constitution of the firm is irrelevant for our purpose. All the more the question whether there was a change in the constitution of dissolution of the firm on the death of a partner, is irrelevant. " ( 3 ) RELYING on the decision of the Madras High Court in Abdul Kareem and Co. (supra), it further held that the ratio of the case therefore is that the firm is entitled to registration for a part of the accounting period ending on a certain date on the basis of application in Form No. 12 if upto that date the partnership continues as it was from the beginning of the accounting period. ( 4 ) WE have heard learned counsel for the revenue at sufficient length and also Mr. Soparkar who, in the absence of any representative of the assessee, lent his assistance to the court as amicus curiae. ( 5 ) IT would be appropriate here to notice in brief the scheme relating to registration of the firms under the Income-tax Act, 1961 to the extent relevant for the present purposes. A firm for the purposes of Income-tax Act is an independent assessable entity from its partners. ( 5 ) IT would be appropriate here to notice in brief the scheme relating to registration of the firms under the Income-tax Act, 1961 to the extent relevant for the present purposes. A firm for the purposes of Income-tax Act is an independent assessable entity from its partners. The firm under the Income-tax Act for the purposes of computation of taxable income and other purposes is dealt with differently depending on whether the firm is registered or deemed to be registered under the Income-tax Act or is an unregistered firm. Presently we are not concerned with such difference. Chapter XVI of the Income-tax Act deals with special provisions applicable to firms. In Part B of Ch. XVI are the provisions relating to registration of firms. The procedure prescribed for registration of a firm is that an application u/s 184 for registration of the firm for the purposes of the Act is to be made to the Income-tax Officer on behalf of the firm which could be made either during the existence of the firm or after its dissolution subject to other provisions of Sec. 184. Apart from other requirements as to signature, etc. , it also requires the application to be made in the prescribed form which is to contain prescribed particulars. Sub-section (7) of Sec. 184 envisages, 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 in the shares of the partners as evidenced in the instrument of partnership on the basis of which registration was granted, and (ii) the firm furnishes, before the expiry of the time allowed under sub-sec. (1) or sub-sec. (2) of sec. 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. Sub-section (8) of sec. 184 envisages where any such change in the constitution of the firm or in the shares of the partners has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. Sub-section (8) of sec. 184 envisages where any such change in the constitution of the firm or in the shares of the partners has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. ( 6 ) AS we have noticed that there is requirement for the purposes of furnishing an application for registration as well as the requirement for furnishing a declaration under sub-sec. (7) of sec. 184 to have continued effect of registration for subsequent assessment year, and that such application is to be made in the prescribed form and to contain prescribed particulars, it would be relevant to refer to rules framed in this connection which prescribes for such matters. Part V of Income-tax Rules 1962 deals with registration of firms. Rule 22 in substance requires that an application for registration of a firm for the first time is to be in Form 11, whcih can be made before or after the end of previous year for which registration is sought and ther is no change in the constitution of firm or change in the share of partners since the constitution of firm upto the date of making of the application. In the latter case, that is to say where there is such change, the application is to be in Form 11a. Once registration is granted, again an application for registration afresh is envisaged only when during any subsequent previous year relevant to the concerned assessment year there is such change in the constitution of the firm or in the share of partners. Such application too is to be in Form 11a. Rule 23 requires, "if after the date of the application, or of the last application where more than one application are made, for registration of a firm for any assessment year and before the assessment for that assessment year is completed by the Income-tax Officer, so far as known to the firm, any change or changes take place in the constitution of the firm or the shares of the partners, the details of such change or changes shall be communicated by the firm to the Income-tax Officer as soon as possible after each such change takes place. " Rule 24 deals with the declaration for continuation of registration where there is no such change in constitution of the firm or in the share of partners since registration. It requires a declaration to be furnished as required under sub-sec. (7) of sec. 184. Such declaration is to be furnished in Form No. 12. Rule 25 requires that certificate shall be recorded on the last of the instruments evidencing the partnership during the relevant previous year (or on the certified copy submitted in lieu thereof) attached with the application for registration of the firm. ( 7 ) SECTION 185 (4) requires the Income-tax Officer, where a firm is registered for any assessment year, to record a certificate on the instrument of partnership that the firm has been registered under this Act for that assessment year. Where it is a case for declaration under Form No. 12 for the registration to have continued effect for the subsequent assessment year, ITO is to record such certificate for the relevant subsequent assessment year. Section 185 (3) envisages that before a certificate for continued effect of registration for subsequent year is endorsed, the Income-tax Officer, while considering the declaration furnished by a firm in pursuance of sub-sec. (7) of sec. 184, is found to be defective in any manner, he is required to give a notice to intimate defect to the firm and give opportunity to rectify the defects. On failure to rectify the defects, he is to order in writing and declare that the registration granted to the firm shall not have effect for the relevant assessment year. ( 8 ) PARENT provision also requires that declaration shall contain prescribed particulars. Such particulars have been prescribed by way of prescribing form of application or declaration as the ase may be. In this connection, we may consider relevant particulars which the forms in question are required to contain. ( 8 ) PARENT provision also requires that declaration shall contain prescribed particulars. Such particulars have been prescribed by way of prescribing form of application or declaration as the ase may be. In this connection, we may consider relevant particulars which the forms in question are required to contain. In case of application for registration of a firm for the first time, the simple requirement is that the form contains a prayer for registration of the firm for the purposes of the Income-tax Act for the relevant assessment year, and the original or certified copy of the instrument evidencing the partnership together with a copy or duplicate copy is to be enclosed and the particulars as to the name of partnership and particulars as to partners, their names, date of their admittance to the partnership, the share in the balance of profits in percentage etc. need to be annexed to the schedule. It should also contain a declaration that none of the partners of the firm was at any time during the previous year upto the date of the application was a benamidar of any other partner to whom he is not related as spouse or minor child, and also certification to the effect that the profits and loss of the previous year will be or upto the date of dissolution will be divided or credited as shown in the schedule and that information given in the application to the schedule is correct. ( 9 ) IN contrast to this, Form No. 11a, which is applicable to applications where there has been a change in the constitution of the firm or in the share of the partners, apart from all the requirements of Form 11, a further requirement is to produce the instrument or instruments evidencing the partnership in existence from time to time during the previous year upto the date of the application or during the previous year and upto the date of application, as the case maybe, together with a copy or duplicate copy of each of such instruments is to be enclosed, and the prescribed particulars are to be given in schedule which include the particulars of the firm as constituted at the date of application and of the shares of the partners in the income or loss of the firm and the particulars of the apportionment of the income or loss of the firm for the relevant previous year between the partners who in that previous year were entitled to share in such income or loss, in accordance with change or changes that have taken place during the previous year concerned. ( 10 ) FORM No. 12 which prescribes the form of declaration u/s 184 (7) when there is no change in the constitution of the firm during the previous year and for continuation of the registration for the previous year in question the relevant declaration with which we are concerned reads as under:"there has been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the assessment year 19. . .-19. . . up to the last date of the previous year relevant to the assessment year 19. . .-19. . . [or to the date (. . . . . . 19. . . . . .) of dissolution of the firm. ] ( 11 ) IT may not be out of place to notice here the distinction in treatment for the purposes of income tax between (i) a firm which is not dissolved but reconstituted or (ii) a firm which is dissolved and (iii) a firm where there is change resulting in succession by any other firm. Section 187 envisages that where there is change in the constitution of the firm at the time of making assessment u/s 143 or sec. Section 187 envisages that where there is change in the constitution of the firm at the time of making assessment u/s 143 or sec. 144 the assessment has to be made on the firm as constituted at the time of making the assessment provided that the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same, and when the tax assessed upon a partner cannot be recovered from him, it can be recovered from the firm as constituted at the time when making the assessment. It envisages one assessment for the whole previous year. Section 188 provides that where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by sec. 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of section 170 that is to say it envisages more than one assessment for the previus year concerned. Sec. 189 provides for, where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Income-tax Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty, etc. shall be applied. However, the assessment is made in respect of dissolved firm or in the case of a business that is discontinued only up to the date of dissolution or the discontinuance of the business, as the case may be. ( 12 ) FROM the aforesaid scheme it is apparent that once a firm is registered, the registration enures for succeeding years without any requirement of fresh registration but subject to declaration required to be submitted in the prescribed Form No. 12 that no change has occurred in the constitution of the firm or no change in the shares of the partners had taken place from the last date of the preceeding to the last day of the previous year relevant for assessment year and also to the date of making of the application. Thus, the declaration is required to be made for continued existence of the firm for the whole of previous year in question. The certificate that is required to be entered u/s 185 (4) on the deed of partnership for each succeeding year in that regard also speaks about continued registration for the whole of previous year and not for the part of the previous year. In the case of dissolution of the firm or discontinuance of the firms business, declaration is made showing the date upto which the business continued or the firm stood dissolved. Section 184 (7) envisages that registration granted to any firm to continue for every subsequent assessment year. The provision is not to envisage continuance of registration until there is change in the constitution of the firm. The distinction between continuance of the registration up to the date of dissolution in the case of dissolution of the firm and for whole of the previous year in question becomes relevant in view of the scheme that where there is change in constitution of a firm as distinct from dissolution of the firm u/s 187, the assessment entity continues to be the same and exist during the whole of previous year and only one assessment is contemplated for the whole of the period covered under the assessment year. There is no truncated assessment for the period up to the reconstitution of the firm or after the reconstitution of the firm. The only difference which it makes about the assessment of the firm is in the apportionment of profits or loss amongst partners during the year as per changes for the purpose of assessment of partners and about the continued responsibility of firm to make payment in case the partners have failed to make payment of tax in respect of shares allotted to them , as a result of reconstitution of the firm, notwithstanding that such persons may have ceased to be partners after reconstitution. On the other hand, in case of dissolution of the firm the assessment as well as source of income itself comes to an end on a particular date and the question of any assessment of such entity after that date does not arise except in accordance with special provisions relating to it; so also in case where, as a result of any alteration in the affairs of the firm, it does not amount to change in the constitution of the firm but results in succession of the firm by another firm, that is to say, a new entity, two separate assessments for the different periods of the same previous year are contemplated u/s 188. It is precisely for this reason, if one looks at the rules and forms prescribed thereunder. Form No. 12, except in the case of dissolution of the firm, requires an unequivocal declaration as under:-"there has been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the assessment year 19. . .-19. . . . upto the last date of he previous year relevant to the assessment year 19. . .-19. . . . "in the case of dissolution of he firm the declaration required under Form No. 12 is to be"there has been no change in the constitution of the firm or the shares of the partners since the last day of the previous year relevant to the assessment year 19. . . .-1. . . . up to date of the dissolution of the firm. "we mark the difference that while declaration of no change in the constitution of the firm or in the shares of the partners is required for the whole of the previous year, in the latter case declaration is required only up to the date of dissolution. If there is any change not amounting to dissolution at any time during the previous year, declaration of continued existence upto the date of change only and there is continued existence of the firm for the whole of yer is not in accordance with the requirement of sec. 184 (7) read with rules and forms prescribed thereunder. If there is any change not amounting to dissolution at any time during the previous year, declaration of continued existence upto the date of change only and there is continued existence of the firm for the whole of yer is not in accordance with the requirement of sec. 184 (7) read with rules and forms prescribed thereunder. If the declaration is not in accordance with the statutory provisions, there cannot be any endorsement about continued registration for that year u/s 185 (4) of the Act, or in other words, there cannot be automatic continuance of registration within the meaning of sec. 184 (7) of the Act. As soon as change occurs in the constitution of the firm, the provision u/s 184 (8) springs into operation requiring a fresh application of registration in Form No. 11a read with rule 22 of the Income-tax Rules. Therefore, in our opinion, the tribunal was not correct when it said that at the time of considering the application for continued registration, it is not relevant to consider whether the change that has occurred during the previous year amounts to change in constitution of the firm or amounts to dissolution of the firm. The tribunal also erred in not appreciating the distinction which was brought to its notice that exists between a case of dissolution with which the Madras High Court was concerned in the case of Abdul Kareem and Co. (supra) and the case of change of constitution with which we are concerned. ( 13 ) IT is not in dispute that the firm continued to maintain one account, it filed one return for the whole of previous year and did not put forward any claim of the dissolution of the firm. Without laying any claim for the dissolution of the firm, in our opinion, there could not have been any application for continued registration for the part of the previous year and leaving it to be determined thereafter whether change in the constitution of the firm has taken place or death of a partner has amounted to dissolution of the firm. ( 14 ) IN the present case agreement to the contrary has been found to be there in the deed of partnership of the firm, that was enjoying benefit of registration under the Act of 1961, that death of a partner shall not result into dissolution of he firm. ( 14 ) IN the present case agreement to the contrary has been found to be there in the deed of partnership of the firm, that was enjoying benefit of registration under the Act of 1961, that death of a partner shall not result into dissolution of he firm. Therefore, there was nothing before the tribunal to presume that as a result of death of one of the partners the firm is to dissolve and the declaration could be made of continued existence of the firm only up to the date of death of the partner which ordinarily would have been the date of the dissolution of the firm to secure registration only upto the date of existence of the entity. The evidence points to other direction. In fact, it is not being seriously disputed either at any stage of proceedings that it was only a change in the constitution of the firm and was not dissolution. On the other hand, it has been suggested at one stage that for the first part of the previous year registration may be granted as a matter of course and for the balance part it may be treated as registered firm though unregistered u/s 183b of the Income-tax Act and the income of two periods be clubbed together for the purposes of assessment. We have not been able to understand the rationale behind the suggestion. If it was a case of dissolution and thereafter constitution of a new firm, the question of clubbing of the income would not arise merely by altering the status from registered to unregistered and if that was not a case of dissolution of the firm, there cannot be two separate assessments for period up to the date of death of the partner and thereafter by treating the firm to be in two different stages differently for the same previous year namely registered for the earlier part of the year and unregistered for the latter part of the year. ( 15 ) AS a result of the aforesaid discussion, we answer the question referred to us in the negative, that is to say, in favour of the revenue and against the assessee by holding that the firm was not entitled to continued registration for the part of the year on the basis of declaration made by it under sec. 184 (7) read with rule 24 and Form 12. 184 (7) read with rule 24 and Form 12. There shall be no order as to costs. .