1965-VIL-188-ALH-DT
ALLAHABAD HIGH COURT
Income-Tax Reference No. 87 of 1963
Date: 21.12.1965
BELA SINGH DAULAT SINGH
Vs
COMMISSIONER OF INCOME-TAX, U.P.
For the Assessee : R. K. Gulati
For the Commissioner : S. C. Das
BENCH
M. C. Desai (CJ) And R. S. Pathak, JJ.
JUDGMENT
M. C. Desai, CJ.
The Income-tax Appellate Tribunal, Allahabad Bench, has submitted under section 66(2) of the Indian Income-tax Act, 1922, this statement of case inviting this court to answer the following questions:
"1. Whether the instrument of partnership was executed within the accounting period relevant to the assessment year 1957-58?
2. Whether the application filed by the assessee for registration was made beyond limitation?
3. Whether there was material for the Tribunal to come to a finding that the firm was not genuine because the assessment was made on the assessee as an unregistered firm, which implies that there was a genuine firm in existence?
4. Whether, in the circumstances, the Tribunal was legally right in refusing registration to the assessee-firm under section 26A?
The facts, as we find from the statement, are as follows:
The business that the assessee is carrying on now was previously carried on by a registered firm known as Bela Singh Daulat Singh consisting of five partners. The firm was dissolved on November 27, 1953, and the assessee-firm is said to have been constituted and to have continued the business. A deed of partnership, however, was said to have been executed on November 25, 1954, and come into effect on November 28, 1954. The assessee-firm has not been registered under the Partnership Act and the deed of partnership also has not been registered under the Registration Act. The assessee has selected the year commencing on November 28 and expiring on November 27 of the next year as its accounting year. The first assessment year in which the assessee-firm became liable to be assessed to income-tax was 1955-56 and it was assessed on November 16, 1955, but not as a registered partnership. For that assessment year it could not and did not apply for registration at all. For the next assessment year 1956-57, it applied for registration on July 2, 1956, but the application was not accompanied by the deed of partnership, though said to be in existence, and a copy of it. The application could not be disposed of before the end of the assessment year and the next assessment year 1957-58 commenced during its pendency. So the assessee applied on March 23, 1957, for registration and, in the alternative, for renewal of registration for 1957-58. Since the application for registration for 1956-57 was pending, it was in a quandary and did not know whether the application for the next assessment year was to be for registration or for renewal; it made applications for both. On February 20, 1957, it filed the deed of partnership in the proceeding for registration for 1956-57; by that date the relevant accounting year had already ended. Since the deed had not been filed before the end of the relevant accounting year, the Income-tax Officer held that there was no genuine firm in existence during the accounting year and rejected the application for registration on August 31, 1957. His order was maintained on appeal by the Appellate Assistant Commissioner on December 30, 1957. Subsequently, the applications for registration and renewal for the assessment year 1957-58 came up for orders before the Income-tax Officer. By that date the deed of partnership had already been before him. The relevant accounting year had ended on November 27, 1956. Though the deed of partnership had been filed before the Income-tax Officer before the date on which the applications for registration and for renewal were made, it had been filed after the expiry of the relevant accounting year. The Income-tax Officer rejected the applications on December 23, 1957, because the deed had not been filed before the close of the accounting year, the applications for registration had not been filed before the close of the accounting year and it could not be held that the assessee-firm existed during the accounting year. An appeal from the order was dismissed by the Appellate Assistant Commissioner for the reasons given by him in his order dated December 30, 1957, in the appeal against the rejection of the application for registration for the assessment year 1955-56. He confirmed the Income-tax Officer's finding that the assessee-firm did not exist during the accounting year and that its application under section 26A for the assessment year 1957-58 was barred by time and there was no justification for treating it as within time under the proviso to rule 2 of the Income-tax Rules. The Tribunal dismissed a second appeal. The contentions advanced before it were that rule 2 applies to the first application under section 26A for any assessment year and not to any subsequent application even if for a subsequent assessment year, that no period of limitation is prescribed for a subsequent application for a subsequent assessment year, that there was sufficient cause within the meaning of the proviso to rule 2, because the application for the assessment year 1957-58 was made while the earlier application for the assessment year 1956-57 was still pending, that under a circular letter issued by the Central Board of Revenue, registration should have been ordered on the second application made during the pendency of the first application and that the assessee-firm really existed during the accounting year. All these contentions were rejected by the Tribunal. The assessee applied under section 66(1) for referring the case to this court but the Tribunal rejected the application. Then this court called for the reference.
Question No. 1 not only is a pure question of fact but also does not arise out of the Tribunal's order. The Tribunal never held that the deed of partnership was, or was not, executed within the accounting year ending on November 27, 1956. Sri Gulati as well as Sri Das agree that the question be not answered and we, therefore, refrain from answering it.
The answer to question No. 2 depends upon rule 2 of the Income-tax Rules which reads as follows:
"2. Any firm constituted under an Instrument of Partnership... may, under...section 26A...register with the Income-tax Officer...
Such application...shall, for any year of assessment up to and including the assessment for the year ending on the 31st day of March, 1953, be made before...and for any year of assessment subsequent thereto, be made--
(a) Where the firm is not registered under the Indian Partnership Act ...and the application for registration is being made for the first time under the Act,
(i) within a period of six months of the constitution of the firm or before the end of the 'previous year' of the firm, whichever is earlier, if the firm was constituted in that previous year,
(ii) before the end of the previous year in any other case;
(b) where the firm is registered under the Indian Partnership Act... before the end of the previous year of the firm, and
(c) where the application is for renewal of registration under rule 6 for any year, before the 30th day of June of that year:
Provided that the Income-tax Officer may entertain an application made after the expiry of the time-limit specified in this rule, if he is satisfied that the firm was prevented by sufficient cause from making the application within the specified time."
Rule 3 requires that an application referred to in rule 2 must be made in the prescribed form and be accompanied by the original instrument of partnership together with a copy thereof. Rule 4 lays down that if the Income-tax Officer, on receiving an application under rule 3, is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been made properly, he should grant a certificate of registration or otherwise refuse to recognise the instrument of partnership. A certificate of registration granted under rule 4 has effect only for the assessment year mentioned in it. Rule 6 lays down that "any firm to whom a certificate of registration has been granted under rule 4 may apply to the Income-tax Officer to have the certificate... renewed for a subsequent year" and that the application must be made before the 30th day of June of the assessment year unless the Income-tax Officer extends the time on being satisfied that the firm was prevented by sufficient cause from making it before that date.
It is clear that an application for renewal referred to in clause (c) of rule 2 is an application by a firm to whom a certificate of registration has already been granted. So long as no certificate of registration has been granted to a firm, it cannot apply for renewal even if its application for a certificate of registration is pending before the Income-tax Officer. The question of renewal arises only after the firm has actually been registered. Now, rule 2 deals with an application made for the first time under the Act for registration and with an application for renewal, i.e., by a firm to which a certificate of registration has previously been granted, and not with any other application. It is thus incomplete and does not deal with all possible circumstances. For instance, it does not deal with a firm whose first application under the Act for registration has been rejected or is pending on the date of commencement of a subsequent assessment year. The question that we have to answer is whether the assessee's application under section 26A made on March 23, 1957, for the assessment year 1957-58 was within time or not. If it could be treated as an application for renewal under rule 6, it would have been within time, because it was made before the 30th of June, 1957, but it cannot be treated as an application for renewal for the simple reason that no certificate of registration had been granted to it at all. It may be a matter of controversy whether it is an application made for the first time under the Act within the meaning of clause (a) of rule 2 or not, but there can be no controversy whatsoever about its not being an application for renewal within the meaning of clause (c). Similarly, there is no controversy about its not being an application governed by clause (b), because the assessee-firm has not been registered under the Indian partnership Act and the deed of partnership has not been registered under the Indian Registration Act.
Clauses (b) and (c) being out of the field, clause (a) is the only clause which may apply, if at all. It applies only to an application made "for the first time under the Act." It is said that the words in italics are capable of two interpretations, (1) "made for the first time under the Act for any assessment year" and (2) "made under the Act for the first time for the assessment year in question." According to the former interpretation, if two applications (say numbers (1) and (2) are made under the Act for one assessment year and an application (say number (3)) is made under the Act for the subsequent assessment year, only the application No. 1 is an application made "for the first time under the Act" whereas under the latter, applications numbers (1) and (3) are both made "for the first time", (application No. (1) being made for the first time for the former assessment year and application No. (3) being made for the first time for the subsequent assessment year). Thus, while according to the former interpretation, in the whole career of a firm there is only one application which can be said to have been made for the first time, under the other interpretation there is for each assessment year one application made for the first time. Now, there is nothing in clause (a) to suggest that the question whether an application is made for the first time under the Act or not has to be decided with reference to each assessment year. The plain meaning of clause (a) is that there is only one application made for the first time out of several applications made for several assessment years. After the very first application is made (regardless of the assessment year for which it is made), every subsequent application, whether for the same assessment year or a subsequent assessment year, is other than an application made for the first time under the Act. There is nothing in the clause to suggest that the question is to be considered with reference to each assessment year separately, forgetting what happened in the past. There was no reason for the Central Board of Revenue to contemplate more than one application for registration for one assessment year. There is no provision for the limitation of a second application for the same assessment year. If clause (2) prescribed the period of limitation for the first application for an assessment year and not merely for the first application in a series of applications for a series of assessment years, one would have expected a provision for the limitation for a second application for an assessment year and the absence of such a provision indicates that the clause is meant for the first application in a series of applications for a series of assessment years. It seems that the Central Board of Revenue contemplated that an application for registration would be decided before limitation began to run for an application for the subsequent assessment year. If registration was granted on that application, the second application made in point of time, which must be for renewal, would be governed by clause (c). If it was refused, the second application made in point of time, whether for the same assessment year or for a subsequent assessment year, must be governed by clause (a); it cannot be governed by clause (c) for the simple reason that there is no previous registration and is undisputedly not governed by clause (b). There must be a period of limitation for such an application, at least for an application for registration for a subsequent assessment year and the Central Board of Revenue could not have refrained from providing for it. It seems that what is meant by "made for the first time" is that it is an application made before the grant of registration; every application made before the grant of registration is deemed to be made for the first time under the Act and every application made subsequently is for renewal. If in the above example only application No. (1) were intended to be meant by the words "made for the first time", there would have been a rule for application No. (2) for registration. It would have been meaningless to prescribe a period of limitation for application No. (1) and not for application No. (2), which has not been prohibited. Clause (a)(i) applies when the firm was constituted in the previous year relating to the assessment year in question and clause (a)(1) when it was constituted prior to the commencement of the previous year relating to the assessment year. When a firm is constituted, clause (a)(i) applies if an application is made for the assessment year relevant to the previous year in which lies the date of the constitution of the firm and clause (a)(ii) applies if an application is made for a subsequent assessment year. If clause (a)(i) applies, the application must be made within six months of the constitution, or before the end of the previous year, whichever is earlier, and if clause (a)(ii) applies, it must be made before the end of the previous year. What is meant by a firm being constituted is its being constituted under a deed of partnership. The question of registration under section 26A arises only when a firm is "constituted under an instrument of partnership". The assessee-firm in the instant case came into existence prior to November 25, 1954, but under the deed of partnership it was constituted with effect from November 28, 1954, i.e., in the previous year relating to the assessment year 1956-57 and we are concerned with an application made for the assessment year 1957-58; if it can be said to be a first application under the Act, it was governed by clause (a)(ii) and should have been made before November 28, 1956. It was, however made on March 23, 1957, and was, therefore, barred by time even according to clause (a)(ii).
The assessee relied upon a circular said to have been issued by the Central Board of Revenue. The circular is not a law; it may bind the income-tax authorities but cannot be said to be law merely because it does so. A party is bound by a decree passed against him and a Government is bound by a mandamus issued against it but neither the decree in the first instance nor the mandamus in the second instance amounts to law. Consequently, the Tribunal was not, and this court is not, bound to take judicial notice of the circular. If the assessee relied upon it, it should have got it made a part of the statement of the case or got its contents incorporated in it. What we find is that the statement does not state what are its contents and has not made it a part of it. There is no fact stated in respect of the circular at all; all that is stated is that there was a submission on behalf of the assessee that under the circular the income-tax authorities were directed "to accord registration on the basis of...a renewal application." The assessee's submitting to the Tribunal that the circular contained the direction is no proof of the fact that it did contain it; the submission could be made even though it did not contain it. Even in its order it did not state what the circular contains. In the absence of any reference to the contents of the circular in the statement, it is impossible for us to hold that under the circular the application for registration should have been treated as having been filed in time. What are the contents of the circular is a question of fact, which cannot be answered by this court and has not been answered by the Tribunal. This court would have been bound by the Tribunal's finding that such and such are its contents but it has not given such a finding. Since this court has no jurisdiction to find facts for itself and is, on the other hand, required to find all facts necessary for its judgment from the statement, it cannot refer to the circular to find what its contents are. The assessee referred to Patny & Co. v. Commissioner of Income-tax [1955] 28 I.T.R. 414. Misra and Balakrishna Rao JJ. said at page 423 that it is open to a High Court, when answering a reference under section 66, to look into the documents in the record even though not made a part of the statement. They relied upon an observation of the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. [1954] 25 I.T.R. 529 ; [1955] 1 S.C.R. 185 to the effect that a new argument of law can be based upon facts, if they are on the record, though not in the order of the Tribunal and its statement of the case. This observation of the Supreme Court does not mean that a High Court has jurisdiction to find facts for itself. What seems to have been meant by the Supreme Court by the facts being on the record is that they exist on the record and are admitted or are not disputed. In any case, the decisions do not help the petitioner, because the circular is not on the record at all; it has not been produced in the assessment proceedings. Parimisetti Seetharamamma v. Commissioner of Income-tax [1965] 57 I.T.R. 532 (S.C.) laying down that a finding of fact reached by the Tribunal after placing the burden of proof upon a wrong party is not binding on the High Court is irrelevant because there is no scope for applying this principle in the instant case.
Under section 5(8) "all officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Central Board of Revenue" provided that they do not interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions. The proviso to rule 2 confers discretion upon an Income-tax Officer to entertain an application for registration or renewal which is time-barred, on his being satisfied that there was sufficient cause for its not being made within the specified time. The assessee did not rely upon the circular before the Income-tax Officer and did not invite him to exercise his discretion in the manner supposed to have been laid down in the circular. It did not rely upon it even before the Appellate Assistant Commissioner and of course he was not bound by it in exercising the discretion conferred by the proviso. It was relied upon for the first time before the Tribunal which was still less bound by it than the Appellate Assistant Commissioner. The Tribunal cannot be said to be "employed in the execution of this Act."
Out of sheer curiosity we have looked into the circular which bears No. 43 (xxv-6) of 1954. It refers to an application for renewal for an assessment year during the pendency of an application for registration for an earlier assessment year and lays down that it is strictly correct to dismiss it, because there cannot be an application for renewal prior to registration, that an application for registration should be decided by an Income-tax Officer before taking up the assessment for a subsequent year, that if, for any reason, an application for registration is rejected after an application for renewal is filed for a subsequent assessment year, he should, instead of summarily rejecting the latter application as incompetent, allow the partners of the firm an opportunity to file an application for registration within a reasonable time, say 7 or 10 days, provided the application for renewal was itself filed in time and that the application for registration so filed should be decided on its merits. The Central Board of Revenue has no jurisdiction to alter rule 2 or to direct an Income-tax Officer to interpret it wrongly or not to enforce its provisions. If, according to its correct interpretation, an application is barred by time, the Central Board of Revenue has no jurisdiction to call upon an Income-tax Officer not to hold that it is barred by time. It has no jurisdiction to direct him to interpret the words "for the first time under the Act", "the application is for renewal of registration" or any other words occurring in the rule incorrectly. It could give a direction, if at all, only to an Income-tax Officer in the matter of his exercising the discretion conferred by the proviso and the circular should be interpreted as laying down nothing more. The circular, however, is not applicable to the facts of the instant case because the assessee had filed a separate application for registration for the assessment year 1957-58. Had it filed only the application for renewal, the circular would have applied and the Income-tax Officer would have called upon it to apply for registration within 7-10 days. The application for renewal was made before the 30th day of June of 1957. Since an application for registration also had been filed, there was no necessity for the Income-tax Officer's giving 7-10 days' time to the assessee to file an application for registration before rejecting his application for renewal. It may, however, be said, and be said with much force, that the assessee should not be in a worse position on account of his taking the precaution of applying for registration simultaneously with applying for renewal and that his application for registration should not be rejected as time-barred if an application for registration made subsequently and within the time allowed by the Income-tax Officer under the circular would have been treated as made within time. If an application for registration made within 7-10 days allowed by an Income-tax Officer under the circular would have been treated as made within time, an application made earlier should all the more be treated as having been made within time. So the application for registration made by the assessee on March 23, 1957, should have been treated by the Income-tax Officer as made within time provided his attention was drawn to the circular. If, in spite of his attention having been drawn to it, he had refused to treat it as having been made within time, the Appellate Assistant Commissioner or the Tribunal might have been justified in setting aside his order on the ground that he had failed to carry out the direction contained in the circular and, therefore, infringed the provision of section 5(8) of the Act. But this did not happen and the Appellate Assistant Commissioner could not for the first time be asked to give effect to the circular for the reason already stated. He could be asked to correct the Income-tax Officer's mistake in not giving effect to it but could not be asked to give effect to it himself. The assessee's case before the Tribunal was still weaker. The circular, therefore, does not help the petitioner and, even if it helped, it has not been placed before us.
Question No. 2 must be answered in the affirmative and against the assessee. There were two applications, one for registration and the other for renewal. Though the application for renewal was made within time, it was not competent at all, as explained above. The other application for registration was barred by time because the limitation was governed by rule 2(a)(ii). As the firm was constituted before the relevant previous accounting year, the application should have been made on or by November 27, 1956, the last day of the relevant accounting year. Being made on March 23, 1957, it was barred by time.
Question No. 3 is answered in the affirmative. Though under rule 3 of the Rules made under section 59 of the Income-tax Act an application for registration must be accompanied by the original instrument of partnership under which the firm is constituted together with a copy thereof, the application made on July 2, 1956, was not accompanied by the deed of partnership and its copy and the deed was filed on February 20, 1957, for the first time. It has not been explained why it was not filed earlier if it existed. It has not been explained why rule 3 was not complied with. These facts were the material for the finding that the deed did not exist prior to February 20, 1957, and that, consequently, there was no firm in existence as constituted by a deed of partnership prior to that date. There is no inconsistency in the Income-tax Officer's refusing registration on the ground that the firm was not genuine at the same time assessing the assessee as a firm. The firm, of which registration was sought, was a firm claimed to have been constituted under a partnership deed dated November 25, 1954. The Income-tax Officer, upon the material before him, came to the conclusion that the coming into existence of such firm had not been established. But that does not mean that no other firm at all could have come into existence. The Income-tax Officer, when he made the assessment order, must be taken to have considered that the assessee was a firm, although not the firm, registration of which had been applied for. We are not called upon to find in this reference whether the firm which has been assessed existed or not. Nor are we called upon to weigh the material in support of the finding that the firm as alleged to be constituted by the deed of partnership did not exist during the relevant accounting year with the material showing that it did exist and find where the balance lies. No question of fact can be referred to us. How two opposing materials should be weighed and where the balance lies are essentially questions of fact and the only question of law that arises is whether a certain finding of fact can be given on a certain material. So the only question of law that could be referred to us is whether the material on which the Tribunal found that the firm of which registration was sought did not exist during the relevant accounting year could justify the finding, and in answering it, we are not concerned with evidence to prove the contrary. If there is any material which can sustain a finding of fact, the question whether the material can sustain the finding of fact must be answered in the affirmative even though there is material to rebut it or to prove the contrary. If there was material to prove that the firm as constituted by a deed of partnership did not exist during the relevant accounting year, it was for the Tribunal to weigh it together with other material relevant to the issue and to determine where the balance lay. Its finding that the balance lay on one side or the other cannot be assailed before the High Court in a reference.
Question No. 4 is, as it ought to be, a question of law. As the application for registration for the assessment year 1957-58 was barred by time and as the other application for renewal, though within time as such, did not lie, the Tribunal acted legally in refusing registration and renewal. The refusal of registration was also justified by its finding that the firm as constituted by a deed of partnership did not exist during the relevant accounting year. Question No. 4 is answered in the affirmative.
A copy of this judgment shall be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal as required by section 66(5) of the Act. The assessee shall pay the costs of this reference which we assess at Rs. 200. Counsel's fee is assessed at Rs. 200.
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