Tue Steel Products vs Commissioner of Income Tax

D.N. Baruah, J.—In this reference u/s 256(1) of the Income Tax Act, 1961, the following question has been referred for the opinion of this court :

" Whether, under the facts and circumstances of the case, the Tribunal is justified in not accepting the claim for granting registration to the firm ?"

An application for registration in Form No. 11 together with a copy of the partnership deed was filed on March 30, 1984, before the Income Tax Officer, F-Ward, District-II, Guwahati. The Income Tax Officer, on a scrutiny of the deed noticed that the partnership-firm was originally constituted with three members as per the deed of partnership dated March 24, 1977. The partners were, namely, (1) Muralidhar Rajkhowa, (2) Smt. Anuradha Barooah, and (3) Sri Ranjit Bora. The new partnership was formed with effect from April 1, 1983, in the same name and style. As per the said partnership deed dated April 1, 1983, Sri Muralidhar Rajkhowa and Smt. Anuradha Barooah decided and agreed to admit Smt. Nirupama Barooah and Sri Pradip Kumar Kalita as new partners in the said partnership with effect from April 1, 1983. Accordingly, an application for registration of the said new partnership-firm was filed on March 30, 1984. The Income Tax Officer found that Sri Ranjit Bora was a partner in the original partnership deed and he retired from the partnership only on August 16, 1983. Therefore, by a notice dated June 5, 1986, the Income Tax Officer asked the assessee to explain how the two partners could decide and induct the said two new partners, viz., Smt. Nirupama Barooah and Sri Pradeep Kumar Kalita, in the business with effect from April 1, 1983, without the consent of the third partner, Sri Ranjit Bora, who was still a partner. In reply the assessee stated that in the partnership deed dated April 1, 1983, the date of retirement of Sri Ranjit Bora was wrongly written as August 16, 1983, instead of March 31, 1983, and this was rectified subsequently by a deed of rectification dated June 23, 1986, and, therefore, no consent was necessary. The Income Tax Officer held that the assessee could not remove the defect from the partnership deed inasmuch as the rectification deed was executed and filed beyond the accounting period.

Being aggrieved by this order dated September 19, 1986, the applicant preferred an appeal before the Commissioner of Income Tax (Appeals), Guwahati. The Commissioner of Income Tax also, after considering the facts and circumstances, was of the view that the rectification deed was executed beyond the accounting period and, therefore, it could not cure the defect in the original partnership deed and that defect remained as it was. The Commissioner of Income Tax accordingly held that the Income Tax Officer rightly refused the registration of the firm.

Against that decision, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Guwahati. The Tribunal also was of the opinion that the Income Tax Officer rightly refused registration. While passing that order, the Tribunal relied on a decision of this High Court in Singh Brothers and Co. Vs. Commissioner of Income Tax,

We have heard learned counsel appearing for the parties. Mr. K.H. Choudhury, appearing for the applicant, submits that the Tribunal rejected the deed of rectification only on the ground that the rectification was made after the expiry of the accounting year and thereby confirmed the conclusion arrived at by the Commissioner of Income Tax (Appeals). In this connection, Mr. Choudhury has drawn our attention to Sections 184 and 185 of the Income Tax Act and submits that as per the provisions contained in Sub-section (2) of Section 185 of the Act if there is any defect in the application for registration this could be rectified within the time prescribed therein. In the instant case, when the defect was detected immediately the assessee wrote to the Income Tax Officer stating about the typographical mistake and executed documents to show that there had been some mistakes mentioning the date as August 16, 1983, instead of March 31, 1983. If that is rectified within the time by the assessee, the assessee is entitled to registration.

Dr. A.K. Saraf, learned special counsel for the Revenue, on the other hand, submits that the Tribunal was justified in holding that the assessee was not entitled to registration in the facts and circumstances of the case. He has drawn our attention to a decision of this court in Singh Brothers and Co. Vs. Commissioner of Income Tax, This decision was relied on by the Commissioner of Income Tax as well as by the Tribunal. In the said decision, a partnership was made in which a minor was taken as full partner. As per the provisions of law a minor could not be taken in the partnership-firm as full partner, therefore, the deed was void ab initio. This court, in the said decision, held that subsequent rectification beyond the accounting year could not be allowed and the Tribunal was correct in law in upholding the order of refusal of registration for the assessment year. But the present case is somewhat different so far as the facts are concerned. Here, the deed cannot be said to be void if the mistake is corrected and the correction is accepted by the authority. Therefore, in our opinion, it was not proper for the Tribunal to reject the prayer for registration of the firm without first considering as to whether there was a genuine mistake and whether the explanation given by the assessee in respect of the said mistake was acceptable or not. If the Tribunal finds on enquiry that the mistake was genuine and the explanation given by the assessee is acceptable, the Tribunal should direct the Income Tax Officer to grant the prayer for registration. Accordingly, we answer the question in favour of the assessee and against the Revenue. The matter is remanded to the Tribunal to consider the case afresh in the light of the observations made hereinabove.