A. Krishnaswami Mudaliar and Others vs The Commissioner of Income Tax

The assessee firm consisted of three partners in its first year of assessment 1949-1950, the account period having ended on 2nd August, 1948.

The firm did not apply for registration u/s 26-A of the Income Tax Act at any time before the Income Tax Officer completed the assessment. The

firm, however, applied under Rule 2(c) of the Indian Income Tax Rules, 1922, to the Appellate Assistant Commissioner, before whom the appeal

preferred by the assessee against the order of assessment was then pending. The Assistant Commissioner eventually rejected that application. The

reasons for rejection and the order of rejection formed part of the order, the Assistant Commissioner passed on the appeal. The refusal of the

Assistant Commissioner to accord permission to the assessee under Rule 2(c) was one of the points raised by the assessee in the further appeal it

preferred to the Appellate Tribunal against the order of the Assistant Commissioner. On that issue, the order of the Appellate Tribunal was:

A second contention has been raised about registration of the firm. We are unable to entertain this contention in this appeal as the question of

registration can only be canvassed in a separate appeal.

It was on that portion of its order the Tribunal referred to this Court u/s 66(1) of the Act the following question:

Whether the assessee can agitate the question of registration of the firm u/s 26-A, before the Tribunal in the absence of a separate order of the

Appellate Assistant Commissioner in the matter?

The question as framed by the Tribunal does not bring out the read question for determination by us. The ground on which the Tribunal refused

to consider the correctness of the order of the Appellate Assistant Commissioner, who rejected the application preferred by the assessee under

Rule 2(c) was that the assessee had not preferred an appeal to the Tribunal, independent of the appeal against the order of the Assistant

Commissioner confirming the order of assessment. What was stressed in the question as framed by the Tribunal was the absence of an order of the

Assistant Commissioner, independent of his order on the appeal preferred to him against the Income Tax Officer''s order of assessment. Neither of

them is relevant in deciding the real'' question at issue, which, as Mr. Rama Rao Saheb, the learned Counsel for the department, pointed out was:

Whether an assessee had a right to appeal to the Appellate Tribunal against an order passed by the Assistant Commissioner on an application

preferred to him under Rule 2(c)?

Rule 2(c) of the Indian Income Tax Rules, as it stood when the assessee preferred his application under that provision, ran:

Any firm constituted under an Instrument of Partnership specifying the individual shares of the partners may, under the provisions of Section 26-A

of the Indian Income Tax Act, 1922...register with the Income Tax Officer the particulars contained in the said instrument on application made in

this behalf.

* * * * * *

(c) with the permission of the Appellate Assistant Commissioner hearing an appeal u/s 30 of the Act, before the assessment is confirmed, reduced,

enhanced or annulled....

All that an Appellate Assistant Commissioner, was in effect, empowered to do under Rule 2(c) was either to condone the delay or to refuse to

condone the delay in preferring an application for registration u/s 26-A of the Act to the Income Tax Officer. If the Assistant Commissioner

condoned the delay the application had still to be made only to the Income Tax Officer. Rule 2 itself made that clear, and that was what was

pointed out by the Supreme Court in Pratapmal Luxmichand Vs. Commissioner of Income Tax, Madhya Pradesh, at page 494:

...the only power which the Appellate Assistant Commissioner had under Rule 2(c) was to accord permission to the appellant to make the

application in proper form to the Income Tax Officer.... The Appellate Assistant Commissioner had, under the rue, no power to direct the Income

Tax Officer to register the firm....

If, on a proper application presented under Rule 2(c) to the Appellate Assistant Commissioner, he condoned the delay in the presentation of the

application for registration u/s 26-A, the Income-lax Officer would have to receive the application for registration u/s 26-A and dispose it. If the

Income Tax Officer rejected that application, the assessee could prefer an appeal to the Assistant Commissioner against that order of rejection u/s

30 of the Act. If the Assistant Commissioner refused to accord permission, that is, if he refused to condone the delay, there could thereafter be no

application u/s 26-A and therefore no order u/s 26-A. An application under Rule 2(c) is not itself an application for registration, for which

registration Section 26-A of the Act provided The Assistant Commissioner, to whom alone an application could be preferred under Rule 2(c), has

himself no authority to order registration, except, of course, on an appeal against an order of the Income Tax Officer refusing registration. An

appeal is a creature of statute, and the Act itself did not specifically provide for any appeal against an order passed by an Appellate Assistant

Commissioner on an application preferred to him under Rule 2(c). There was provision made in the Act only for an appeal against an order passed

on an application for registration u/s 26-A of the Act.

Proceedings for registration of a firm u/s 26-A of the Act are really independent of the proceedings to assess the firm, though of course, grant of

registration or refusal to register has a considerable bearing on the basis of the liability and the ultimate quantum of the tax, both of which are

features of the order of assessment.

That distinction is kept in view in Section 30 of the Act which provides separately for an appeal against the refusal of registration u/s 26-A and

for an appeal against the order of assessment, both of which the Income Tax Officer has to pass. Rule 2(c) is a rule of procedure to regulate

further the period within which an application could be made for registration of a firm u/s 26-A. It is true that if an application under Rule 2(c) is

rejected, that would largely affect the order the Assistant Commissioner eventually passes u/s 31(3)(i) of the Act, ""to confirm, reduce, enhance,

amend or set aside the assessment"", but nonetheless the proceedings on an application under Rule 2(c) are really distinct from the proceedings in

an appeal against the order of assessment. Rule 2(c) is not a rule of procedure to regulate the disposal of the appeal itself. If the application under

Rule 2(c) is granted, obviously the Assistant Commissioner has to await the disposal of the application permitted by him to be preferred to the

Income Tax Officer u/s 26-A, before the Assistant Commissioner disposed of the appeal. If the Assistant Commissioner rejects the application, he

can proceed with the disposal of the appeal. Rejection of the application preferred under Rule 2(c) would, not amount to an order u/s 31(3)(i) of

the Act; nor could it be brought within the scope of any of the other orders for which Section 31 provides. In other words, Rule 2(c) merely

specifies one of the stages at which an assessee could prefer an application for which Section 26-A provides. That does not make such an

application a part of the appeal itself, the appeal against the order of assessment.

If as the Appellate Commissioner should have done in this case, he had passed a separate order on the application preferred to him by the

assessee under Rule 2(c), without disposing of the appeal at that stage, could such an order be brought within the scope of Section 31 of the Act?

The answer to that question should obviously be only in the negative. Unless there is an order u/s 31, no right of appeal to the Appellate Tribunal

could be claimed by the assessee u/s 33(1) of the Act.

Learned Counsel for the assessee pointed out that factually in this case, the Assistant Commissioner made the rejection of the application

perferred to him under Rule 2(c) part of his order confirming the order of assessment. Learned Counsel urged that the order, which, in fact, the

Assistant Commissioner did pass, was one which came within the scope of Section 31(3)(i) of the Act. We are unable to accept that contention. A

composite order of that kind will still have to stand the test of Section 31(3)(i). A refusal to accord permission under Rule 2(c) is not itself an order

confirming the assessment.

Learned Counsel for the assessee referred to the observations of Venkatarama Ayyar, J., in Mela Ram and Sons Vs. The Commissioner of

Income Tax Punjab, :

There is thus abundant authority for the position that Section 31 should be liberally construed so as to include not only orders passed on a

consideration of the merits of the assessment but also orders which dispose of the appeal on preliminary issues, such as limitation and the like.

Even a liberal construction cannot warrant an addition to the list of orders specificed in Section 31 of the Act. An order passed on an application

preferred under Rule 2(c) is not one of the orders, for an appeal against which the Act provided. As we have already pointed out, an application

under Rule 2(c) has to be treated really as incidental to proceedings u/s 26-A of the Act, which are distinct from the order of assessment and the

appeal against that order of assessment.

Mote Shah and Co. v. Commissioner of Income Tax, (1952) 22 ITR 39 (Bom) , was the next case on which learned Counsel for the assessee

relied. In that case the assessee firm preferred an application under Rule 2(c) but the Appellate Assistant Commissioner disposed of the appeal

against the order of the assessment, without passing any orders on the application preferred to him under Rule 2(c). The learned Judges held:

As the grievance with regard to the non-disposal of the application by the Appellate Assistant Commissioner affect the merits of the assessment

order, it would be quite competent to the Appellate Tribunal to direct that the assessment order should be set aside and the matter should go back

to the Appellate Assistant Commissioner to dispose of the application before he passes the final assessment order.

The main feature of that case was that the Assistant Commissioner did not pass any orders on the application preferred to him under Rule 2(c).

This was stressed by the learned Judges at page 43:

We are not concerned in this reference with what would be the position if permission had been refused by the Appellate Assistant Commissioner.

We are concerned with the narrow question as to whether the Appellate Tribunal has any power given to it under the statute judicially to correct

the Appellate Assistant Commissioner when he refuses to make an order on an application made to him under Rule 3(c).

At page 44 again the learned Judges pointed out:

It is not the contention of the assessee that an appeal lies from a refusal on the part of the Appellate Assistant Commissioner to pass an order on an

application under Rule 2(c). What the assessee contends is that he is entitled to make a grievance of this fact when he has made a proper appeal

u/s 33 against the assessment order passed by the Appellate Tribunal.

What we have to consider in this case is a rejection of an application preferred under Rule 2(c), which class of cases was specifically excluded

from consideration by the learned Judges who disposed of Mote Shah and Co. v. Commissioner of Income Tax, (1952) 22 ITR 39 (Bom) it is riot

an authority for the position, that, if the order of rejection is part of the order of the Appellate Assistant Commissioner who confirmed the order of

assessment, the correctness of the rejection could be canvassed in the appeal preferred against the order of the Assistant Commissioner confirming

the order of assessment.

Learned Counsel for the Department drew our attention to the observations of Bhagwati, J., in Pratapmal Luxmichand Vs. Commissioner of

Income Tax, Madhya Pradesh, at page 494, where the learned Judge pointed out:

As matter of fact the appellant did not ask for such permission from the Appellate Assistant Commissioner nor was any revision taken by the

appellant before the Commissioner u/s 33-A of the Act against the said order of the Appellate Assistant Commissioner.

Learned Counsel contended that the only remedy open to an assessee whose application under Rule 2(c) was rejected by the Appellate Assistant

Commissioner, was to move the Commissioner to exercise his revisional powers u/s 33-A of the Act. Learned Counsel for the assessee referred

to (1937) 5 ITR 44 (Lahore) . That case, however, was before the Income Tax Act was amended and Section 33 was enacted providing for

appeals to an Appellate Tribunal. In that case the learned Judges of the Lahore High Court held:

On general principles, however, we are disposed to think that we are competent to determine whether the jurisdiction which vested in the Assistant

Commissioner had been perversely refused.

We are not really called upon to decide in this case what is the remedy of an assessee firm, whose application under Rule 2(c) is rejected by

the Appellate Assistant Commissioner. The narrow question before us is, whether such an assessee has a right to appeal to the Appellate Tribunal,

against the order of the Assistant Commissioner rejecting the application made to him under Rule 2(c). That question has to be answered only with

reference to the provisions of Section 31(3)(i) and Section 33(1) of the Act. The answer, in our opinion, must be in the negative.

We answer the question as re-formulated by us in the negative and against the assessee. As the assessee has failed, he shall pay the costs of

this reference. Counsel''s fee Rs. 250.