Commissioner of Income Tax vs Indian Medicine (Sales House)

Y.V. Anjaneyulu, J.—This reference arises under the Income Tax Act, 1961 ("the Act" for short). The Income Tax Appellate Tribunal referred the following question of law for the consideration of this court u/s 256(1) of the Act.

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the appeal filed before it by the firm of M/s. Indian Medicine (Sales House), Vijayawada, for the assessment year 1975-76 was a composite appeal both against the assessment as such and also against the order of registration u/s 185 of the Income Tax Act, 1961, and both the question of validity of assessment made on the assessee-firm and the question of refusal of registration could be decided buy it in this appeal ?"

The matter relates to the Income Tax assessment year 1975-76. The assessee is a partnership firm carrying on business in the purchase and sale of pharmaceuticals. It was constituted by a deed of partnership dated April 7, 1970. Up to and including the Income Tax assessment year 1974-75, the partnership firm was registered. For the Income Tax assessment year 1975-76, the firm filed a return accompanied by a declaration u/s 184(7) of the Act in the prescribed Form No. 12. It would appear would appear that the declaration in Form No. 12 was signed by only two partners. The remaining two partners did not sign the Form, as there were differences between the partners. The Income Tax Officer passed an order u/s 185 of the Act treating the status of the assessee-firm as an unregistered firm on the ground that the declaration u/s 184(7) did not contain the signatures of all the partners of the firm. The Income Tax Officer found that the firm was dissolved with effect from December 31, 1974. Consequently, the income up to December 31, 1974, relevant to the assessment year 1975-76 was determined. The Income Tax Officer further held that the entire income was liable to be taxed in the hands of only one of the partners, Lakshminarayana, as an individual and not in the hands of the firm.

Against the order of assessment and also the order refusing registration, appeals were filed before the Appellate Assistant Commissioner who confirmed the Income Tax Officer''s orders. The assessee carried the matter in further appeal to the Tribunal. It appears that before the Tribunal only one appeal was filed against the order of the Appellate Assistant Commissioner challenging the assessment of the income in the hands of Lakshminarayana and also questioning the refusal to register the firm for the assessment year 1975-76. Before the Tribunal, a preliminary objection was taken by the Department as well as counsel appearing for Lakshminarayana. That objection was to the effect that two appeals should have been filed - one against the order refusing registration of the firm and the other against the order u/s 143(3) of the Act determining the income for the purpose of assessment. Inasmuch as only one appeal was filed, it was contended that that appeal could be related to the refusal to register the firm u/s 185 of the Act with the result that no appeal subsists so far as the determination of income u/s 143(3) was concerned. The Tribunal rejected this preliminary objection and held that one single appeal filed accords with law, relying on certain decisions of the Calcutta and Bombay High Courts. Aggrieved by the aforesaid order of the Tribunal, the Revenue asked for and obtained this reference for consideration of the question of law we have already extracted above.

It seems to us that there is a misconception in the mind of the Revenue both as regards facts as well as law. This case really did not call for two orders. If an assessee filed a declaration u/s 184(7), which is not valid, the Income Tax Officer is not supposed to pass an order u/s 185 refusing to register the firm. The scheme of registration of a firm is very clear. Once a firm is registered u/s 185, the registration would enure for the year for which it was initially granted. For each subsequent assessment year all that has to be done by a partnership firm is to file a declaration along with its return u/s 184(7) signed by all the partners specifying the required particulars. Once this declaration is filed, registration granted for the preceding assessment year shall take automatic effect for the subsequent assessment year without the Income Tax Officer being under an obligation or duty to pass a fresh order granting continuation of registration u/s 184(7). It is only in cases where the Income Tax Officer comes to a conclusion that notwithstanding the declaration u/s 184(7) being in order, the firm is not entitled to registration on grounds of genuineness, etc., that a separate order can be passed and that too following the requirements of section 186 of the Act. In the present case, it is common ground that the declaration filed u/s 184(7) along with the return for the assessment year 1975-76 did not contain the signatures of two of the partners. Therefore, there is no valid declaration u/s 184(7). In terms of section 184(7) of the Act, continuation of registration for the assessment year 1975-76 does not take effect. It was unnecessary for the Income Tax Officer to pass an order u/s 185. It was because of the superfluous order passed by the Income Tax Officer, it was thought that assessee-firm has to file two separate appeals - one against the refusal of the registration of the firm and the other against the determination of income u/s 143(3). If, on the aforesaid facts, we bear in mind that there is no need to pass an order u/s 185, as was done in the present case, and the order passed by the Income Tax Officer, being a superfluity is non est in law, no blame can be attached to the assessee on the ground that an appeal was not filed against a non-existent order. The appeal filed before the Tribunal is referable obviously to the computation of income u/s 143(3) and no objection could be taken either factually or legally to the filing of only one single appeal before the Tribunal. The preliminary objection was obviously taken by the Revenue as well as counsel for Lakshminarayana on an erroneous impression that a separate order u/s 185 having been passed, there must be a separate appeal against it. In the circumstances, there is no factual basis for the contention raised before the Tribunal.

The Tribunal is also right in relying on two decisions of the Calcutta and Bombay High Courts, although on different facts one single appeal would meet the requirements of the case.

Having regard to the fact and circumstances, the Tribunal was right in coming to the conclusion that one single appeal met with the requirements of the case and we accordingly answer the question referred in the affirmative, that is to say in favour of the assessee and against the Revenue. No costs.