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Judgment
B.A. Khan, J.—Whether the Income Tax Officer's order refusing o condone the delay in filing a declaration in Form No. 12 u/s 184(7) of
the Income Tax Act, 1961, is appealable u/s 246. This is the all important question posed for our opinion by the Appellate Tribunal. To answer
this, it has to be seen whether the crucial order has been passed u/s 184(7) or u/s 185(1)(b) or u/s 185(3). No appeal will lie in the former case as
any order passed u/s 184(7) is not appealable u/s 246 but it would certainly lie if it is concluded that the order falls u/s 185.
We are conscious that we are not traversing any virgin field. Most of the High Courts, barring our court, have already pronounced on the point
in issue and held in favour of maintainability of the appeal. All the same it becomes necessary to deal with the matter and answer the reference,
though for different reasons, but in a repeat exercise.
The facts leading to the controversy are that in respect of the assessment year 1974-75, the respondent (assessee) filed a declaration for
continuation of registration beyond the prescribed time. He submitted it on January 6, 1975, when he should have done it by June 30, 1974. The
income tax Officer refused to condone the delay and vide order dated January 8, 1976, treated the assessee as an unregistered firm. The assessee
went in appeal to the Appellate Assistant Commissioner and challenged before him only one part of the order, i.e., refusal of condonation of delay.
The appeal was allowed and the Income Tax Officer was directed to condone the delay and grant registration to the firm. The Revenue felt
aggrieved and took an appeal to the Tribunal taking the plea that the income tax Officer's order passed u/s 184(7) was not appealable before the
Appellate Assistant Commissioner. The Tribunal, relying upon Additional Commissioner of Income Tax Vs. Chekka Ayyanna and Others, ,
rejected the contention holding that as the order refusing condonation of delay amounted to refusal to continue registration, it was thus appealable
u/s 246(j). The Revenue felt dissatisfied and sought reference u/s 256(1) to this court. Consequently, the Tribunal has drawn up a statement of the
case and referred the following question for our opinion :
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the Income Tax Officer's order refusing to
condone the delay in filing the declaration in Form No. 12 is an order passed u/s 185(1)(b) of the Act of 1961 and is appealable u/s 246(j) of the
Act of 1961 ?
Mr. Thakur, learned counsel for the Revenue, urged before us that the Income Tax Officer's order should be held to have been passed under
proviso (ii) to Section 184(7) which empowered him to condone, the delay or to refuse it in a case where the declaration is filed beyond the
prescribed time. Since the Income Tax Officer had exercised his discretion against the assessee in the present case, his order should be construed
to be one passed under the aforesaid proviso and as Section 246 provided no appeal against such order, it was obviously not appealable.
According to him, it would consequently neither fall u/s 185(1)(b) nor u/s 185(3). Analysing the two provisions, he contended that the former dealt
with the application seeking registration of the firm for the first time and the latter envisaged rectification of defects in the declaration under Form
No. 12 other than the one related to period of limitation. He submitted that the bar of limitation could not be termed a defect capable of
rectification by the assessee and, as such, Section 185(5) had no application in the case.
Mr. Gupta, representing the assessee, on the contrary argued that niceties of interpretation of the provisions apart, the net effect of the Income
Tax Officer's order amounted to refusal of registration to the assessee and increase in its tax liability. That being so, the order fell u/s 185(1)(b) and
was appealable. He invited our attention to the relevant order which concludes thus :
I treat the assessee as an unregistered firm.
It is in this scenario that examination of the relevant statutory provisions becomes necessary to appreciate the respective contentions. Section
184 deals with applications for registration and declaration for continuation of such registration and Section 185 with the procedure to be followed
in dealing with such matters. The provisions so far as necessary for our purpose read thus :
Application for registration.-
(7) Where registration is granted or is deemed to have been 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) of Section 139 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
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.
Procedure on receipt of application.--(1) On receipt of an application for the registration of a firm, the Assessing Officer shall inquire into the
genuineness of the firm and its constitution as specified in the instrument of partnership, and-
(a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order
in writing registering the firm for the assessment year ;
(b) if he is not so satisfied, he shall pass an order in writing refusing to register the firm . . .
(3) Where the Assessing Officer considers that the declaration furnished by a firm in pursuance of Sub-section (7) of Section 184 is not in order,
he shall intimate the defect to the firm and give it an opportunity to rectify the defect in the declaration within a period of one month from the date of
such intimation ; and if the defect is not rectified within that period, the Assessing Officer shall, by order in writing, declare that the registration
granted to the firm shall not have effect for the relevant assessment year ...
Appealable orders.--(1) Subject to the provisions of Sub-section (2), any assessee aggrieved by any of the following orders of an Assessing
Officer (other than the Deputy Commissioner) may appeal to the Deputy Commissioner (Appeals) against such order ...
(c) an order u/s 154 or Section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim
made by the assessee under either of the said sections ;...
(j) an order under Clause (b) of Sub-section (1) or under Sub-section (2) or Sub-section (3) or Sub-section (5) of Section 185.
We feel it unnecessary to undertake an elaborate analytical survey of the provisions extracted. Suffice it to say that Section 184(7) deals with
the effect of registration already granted to a firm for an assessment year and provides that such registration should have effect for every
subsequent year, provided there is no change in the constitution of the firm or the shares of its partners as evidenced by the instrument of
partnership on the basis of which registration was granted for any assessment year and provided it files a declaration before the prescribed time to
that effect in the prescribed form and verified in the prescribed manner. It also provides that if the Income Tax Officer is satisfied that the firm was
prevented by sufficient cause from furnishing the declaration within the time allowed, he may allow the firm to furnish the declaration at any time
before the assessment is made.
Section 185 prescribes the procedure to be followed by the Income Tax Officer on receipt of an application for registration and also the
declaration u/s 184(7). Sub-section (1) requires of the Income Tax Officer to enquire into the genuiness of the firm and its constitution as specified
in the instrument of partnership and depending upon his satisfaction, he may order registration of the firm for the assessment year or refuse its
registration. Sub-section (2) lays down that if he finds the application not in order, he shall intimate the defect to the firm, give it an opportunity of
rectifying it within one month and on its failure reject the application.
Sub-section (3) however, deals with a declaration made by the firm in Form No. 12 u/s 184(7). It lays down if the Income Tax Officer finds it
defective, he shall inform the firm and call upon it to rectify it within one month and on its failure pass an order in writing to declare that registration
granted to it would have no effect for the relevant assessment year.
Likewise, Section 246 provides for appeal to the Appellate Assistant Commissioner against the Income Tax Officer's orders. Clauses (c) and
(j) are relevant for our purpose. The first provides for an appeal where an assessee objects to the status in which he is assessed and the second
against an order passed under Clause (b) of Sub-section (1) or Sub-section (2), (3) or (5) of Section 185. Admittedly, no appeal is provided
against an order passed u/s 184(7).
Conflict of judicial opinion on the point has raised doubts about the appealability of the Income Tax Officer's order. Perhaps, that is why the
majority of the High Courts have ruled in favour of maintainability of the appeal in consonance with the principle that the right of appeal should be
liberally construed. Judgments which have held that an appeal lies are numerous. For constraint of space, reference is made only to (i)
Commissioner of Income Tax Vs. Nagarmal Bisheshar Lal, ; (ii) Grafik India Vs. Commissioner of Income Tax, New Delhi, ; (iii) Additional
Commissioner of Income Tax Vs. Chekka Ayyanna and Others, ; (iv) Madhur Jalpan Vs. Commissioner of Income Tax, ; (v) Commissioner of
Income Tax Vs. Jabalpur Transport Development Co., ; (vi) Mela Ram and Sons Vs. The Commissioner of Income Tax Punjab, ; (vii)
Commissioner of Income Tax Vs. Mothooram Premchand, ; (viii) Commissioner of Income Tax Vs. Manuram Babulal, . All these hold that the
Income Tax Officer's order, in similar facts and circumstances as in the present case, falls either u/s 185(1)(b) or 185(3) and becomes appealable
u/s 246(c) or (j).
On the other side of the fence stand (i) Ashwani Kumar Maksudan Lal and Others Vs. Additional Commissioner of Income Tax and Others, ;
(ii) A.S.S.S.S. Chandrasekaran and Brothers Vs. The Commissioner of Income Tax, Madras, ; (iii) Commissioner of Income Tax Vs. Pohop
Singh Rice Mill, , which lay down that the order is passed u/s 184(7) and is not appealable. Of these Ashwani Kumar Maksudan Lal and Others
Vs. Additional Commissioner of Income Tax and Others, , stands overruled by Commissioner of Income Tax Vs. Nagarmal Bisheshar Lal, and
A.S.S.S.S. Chandrasekaran and Brothers Vs. The Commissioner of Income Tax, Madras, , deals with unamended provisions. The judgment of
the Orissa High Court stands alone as against the preponderance of opinion in favour of the maintainability of the appeal.
Why should the majority of the High Courts have held in favour of the appeal? The reason is not far to seek. A perusal of the relevant
provision would show that even when the Income Tax Officer acts under the proviso to Section 184(7) the consequence is either grant or refusal
of registration. Once he receives a declaration under the proviso, he has two options available. If he finds it in order, he will place it on record and
extend the registration. But if he finds it defective, the only course open to him is to intimate the defect to the assessee and provide him an
opportunity to rectify it. While doing so, he only follows the provisions of Section 185(3) which deals with rectification of defects in the declaration.
But should the bar of limitation be construed to be a defect within the meaning of the aforesaid provision is the question and if so, is it liable to be
rectified.
""Defect"" has been defined as ""want or absence of something necessary for completeness, perfection or adequacy in form or function. In the
Concise Oxford Dictionary, it has been held to mean ""lack of something essential to completeness ; shortcoming, failing"". Keeping this in view, can
it be said that delay caused in filing the declaration renders it incomplete and functionless. If it does, it is a defect. But it still remains to be seen how
such a defect can be rectified. The answer is that it can be explained away either by taking the stand that the declaration is not barred by time or
that there is sufficient ground to condone the delay. If the delay is not condoned, it means that the defect has not been rectified and then the Income
Tax Officer has to pass an order in writing stating that the registration granted to the firm shall not have effect in the relevant assessment year. Once
he passes such an order, he acts only in exercise of power vested in him u/s 185(3). If that be so, which in fact it is, the order becomes appealable
u/s 246(j).
This should answer the contentions raised by Mr. Thakur with regard to applicability of Section 185(3). However, his submission in respect of
the scope of Section 185(1)(a) and (b) is not wholly without substance. According to him, these provisions deal with initial applications for
registration and it cannot be said that merely because the Income Tax Officer had refused registration to the firm, he had passed the order u/s
185(1)(b). He maintains that the Income Tax Officer could not have passed the order under the aforesaid provision because he was dealing with
the assessee's declaration in Form No. 12 u/s 184(7).
We feel that Mr. Thakur has a point to make. It can hardly be overemphasised that Sections 184 and 185 contemplate grant or otherwise of
two types of registration. One is the initial application seeking grant of registration to the firm and the other is continuation of registration already
granted for the relevant assessment year. The provisions in both Sections make a distinction between the two types and provide for different
procedure and manner of dealing. For example, Sub-section (2) deals with defects in the first type of applications and Sub-section (3) envisages
rectification of defects in the declaration for continuation of registration. This distinction is apparent on the face of both sets of provisions and
appears to cater to two kinds of situations.
A cursory look at the contents of Section 185(1) (a) and (b) and subsection (2) would show that these provisions deal with receipt and
manner of disposal of applications for grant of initial registration. On receipt of such applications, the Income Tax Officer is authorised to enquire
into the genuineness or otherwise of the firm and its constitution and in case he feels satisfied, he will pass an order in writing registering the firm or
else refuse to register it. Sub-section (2) provides for rectification of a defect in such an application and its rejection if the defect is not cured.
These provisions significantly use the word ""application"" which means application for registration for the first time in contradistinction to the word
declaration"" used in Section 184(7) or Section 185(3) connoting request for continuation of registration already granted and its refusal. Keeping
this in mind it becomes clear that where the Income Tax Officer deals with the application for first registration and refuses' registration to the firm,
he acts u/s 185(1)(b) and where he processes a declaration in Form No. 12 u/s 185(7) for continuation of registration and refuses it, he passes an
order u/s 185(3). In other words, all types of refusal of registration do not necessarily fall u/s 185(1)(b) and consequently do not become
appealable u/s 246(c). It may as well be that the Income Tax Officer's refusal to extend time under proviso (ii) to Section 184(7) may
consequently amount to refusal to registration, but it will always be deemed to be covered by Section 185(3) rather than Section 185(1)(b) which,
as already noticed, deals with the application for initial registration. There is no need to stretch the provisions of Section 185(1)(b) to cover a
situation which is adequately taken care of by Section 185(3).
The foregoing discussion leads to the inescapable conclusion that where the Income Tax Officer is seized of a declaration in Form No. 12
under the proviso to Section 184(7) and he refuses to extend time, he shall be deemed to have passed the Order u/s 185(3) which is appealable
u/s 246(j) and not u/s 185(1)(b) as already noticed. To that extent, we uphold the contention of Mr. Thakur while finding ourselves in respectful
disagreement with the view taken by various High Courts on the point. This, however, does not make any difference to the result of this reference.
We, therefore, are of the opinion that the Tribunal was justified in holding that the Income Tax Officer's order was appealable though u/s
246(j) and answer this reference in the affirmative.