[1976] 102 ITR 560 (PAT.

)
HIGH COURT OF PATNA
Commissioner of Income-tax
v.
Sitaram Bhagwandas
S.N.P. SINGH, CJ.
AND S.K. JHA, J.
TAX CASE NO. 81 OF 1971
JANUARY 14, 1975
JUDGMENT
S.K. Jha, J.—In this reference under section 256(1) of the Income-tax Act, 1961
(hereinafter referred to as "the Act"), the ITAT, Patna Bench, has submitted a statement
of the case and referred the following question of law for the opinion of this court:
"Whether, in the facts and circumstances of the case, the order of Tribunal
allowing registration of the firm is legal and proper?"
The assessee was a registered firm. For the assessment year 1962-63, it filed a return of
its income on the 11th of February, 1963, but before the assessment was made, it
submitted a declaration under section 184(7) of the Act on the 27th of November, 1966,
for the continuation of the registration for the previous year. The Income-tax Officer
assessed the assessee as an unregistered firm on the ground that the declaration under
section 184(7) was filed late and not along with the return. Therefore, the final
assessment of the assessee was made by the assessing officer by treating it as an
unregistered firm and not allowing renewal to it on the belated submission of the
declaration in due form. The assessee preferred an appeal before the Appellate Assistant
Commissioner who refused to interfere holding that no appeal lay before him against the
order of refusal passed by the Income-tax Officer. The Appellate Assistant Commissioner
also held that the word "status" did not cover this aspect of the matter and that, therefore,
keeping in view the provisions of section 246 of the Act, the appeal before him could not
be entertained. The assessee then preferred a second appeal before the Appellate
Tribunal. The Tribunal while deciding in favour of the assessee held that the appeal was
maintainable also in the matter concerning the status of the assessee and further that
renewal could not be refused merely because the declaration in due form had not been
literally submitted along with the return filed by the assessee. The Tribunal held:
"Therefore, even though the necessary declaration under section 184(7) was filed
much after the filing of the return but before the assessment was taken up, it did
not alter the position, in any way, of the firm from enjoying registration. As the
effect of registration granted in the earlier year continued and the declaration was
filed before the assessment was taken up, it would not change the position in any
way. In this view of the matter, we hold that the firm should be assessed as a
registered firm for the year under appeal."
At the instance of the Commissioner of Income-tax thereafter, this reference under
section 256(1) has been made.
I may state at the outset that the question whether the declaration furnished by the
assessee was actually an application under section 184(1) of the Act or a declaration
under section 184(7) was not canvassed before any of the income-tax authorities. Had it
been an application for registration under section 184(1) of the Act, different
considerations would arise and different results may have followed. But since the parties
before the Tribunal have treated the case as being one of a declaration under section
184(7) of the Act and this reference has been made pursuant thereto, I refrain from
expressing any opinion regarding the applicability of section 184(4) of the Act which
prescribes the time limit for the filing of application for registration under section 184(1)
of the Act. Such a question does not arise from the order of the Tribunal nor has the
learned standing counsel for the revenue invited us to this aspect of the matter.
Learned standing counsel for the department has urged that the Tribunal has not taken a
correct view of the true intent and purport of sub-section (7) of section 184 of the Act and
the provisos thereto as it stood before the amendment of 1970, namely:
"184. (7) Where registration is 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, along with its return of income for the assessment
year concerned, a declaration to that effect, in the prescribed form and
verified in the prescribed manner."
The stand taken by the department is that when proviso (ii) to sub-section (7) of section
184 expressly says that a declaration in the prescribed form and verified in the prescribed
manner should be filed "along with its return of income for the assessment year
concerned", it must be so construed as to give full effect to all the words used by
Parliament in the words quoted above. That means, a strict literal adherence to the
statutory provision must be shown by submitting the declaration along with the return ;
both returns and the required declaration must be simultaneous and stitched up together
so as to enable an assessee to the benefits of recurring renewal so long as the constitution
of the firm and the shares of the partners were not changed under the provisions of
section 184(7). Although the matter is one of first impression, having considered the
point involved carefully, I think there is not much substance in the contention of learned
standing counsel for the department.
In this context I shall first refer to the necessary legislative changes in the provision with
regard to the renewal of registration as it stood before the 1961 Act came into force and
as it stood in the Act before the Amendment Act, 1970. Under section 26A of the Indian
Income-tax Act, 1922, registration of a firm was a ceremony to be performed every year.
Although registration was granted to a firm in a year it was required to apply for renewal
every year and the procedure for such renewal was not much different from the procedure
adopted for the original registration itself. By the 1961 Act the statutory provision was so
altered that where registration had already been granted to any firm for any assessment
year it was to have effect for every subsequent assessment year and all that the assessee
was enjoined to do was to submit a declaration in the prescribed form stating that there
had been no change in the constitution of the firm or the shares of the partners on the
fulfilment of which requirement renewal was to be granted as a matter of course. As has
been observed in a Bench decision of this court, to which I was a party, in the case of
S.P. Pandey v. CIT1:
 "The only requirement of the declaration given under the said provision of law is
that there is no change in the constitution of the firm or that the shares of the
partners as evidenced by the instrument of partnership on the basis of which
registration was granted had remained unchanged."
The question then is as to whether it should be held that the term "along with its return of
income" means a literal stitching-up of the declaration with the return and is mandatory,
or is the provision of its being so filed along with the return merely directory. If we look
to the spirit and substance of the legislative provision in question, it is clear to me that the
term "along with its return of income" is merely directory and not mandatory. The law
must be so construed as to not make it in any way illogical or ridiculous. The spirit of the
legislative change was that if the Income-tax Officer while dealing with the assessment of
a firm had before him the return filed by the firm and a declaration in due form at the
time when he was applying its mind to the return, that is, during assessment proceedings,
the assessee was entitled to automatic renewal provided for in section 184(7). The
Income-tax Officer at the time of assessment, if the assessee wants to avail of the benefit
of section 184(7), must be satisfied at the time when he is making the assessment that a
return has been duly filed and that the firm is actually continuing without any change in
shares of partners or the constitution of the firm as is said by the assessee in the
declaration in due form at any time before the assessment is made. For, giving too literal
a construction to the provision would lead to absurdities. For example, if an assessee-firm
files a declaration in due form, say on the 29th of June in any particular year, for the
previous accounting year, but files the return for the same previous year on the 30th of
June, that is the day which is the next succeeding, can it be held that the legislature has
intended to deprive the assessee of the benefits of section 184(7)? It would be putting a
premium upon technicality and would be piling unreason thereon to hold that the
legislature had so intended the consequences to ensue. It is for this reason that in my view
the provisions of proviso (ii) to sub-section (7) of section 184 cannot be so read to mean
that a physical accompaniment of the return and the declaration in the prescribed form
must be held to be a necessary concomitant before an order of automatic renewal can be
passed. All that the legislature intended was that the return should be duly filed and that
the declaration should be duly made and both the documents must be before the assessing
authority at the time when he is applying his mind to the assessment of any particular
firm. If he is then satisfied that the return has been duly filed and that there has been no
change in the constitution of the firm and no change in the shares of the partners and the
firm was registered during the previous year then the necessary advantage of renewal as
conferred by sub-section (7) of section 184 must automatically flow to the assessee-firm.
There is another aspect of the matter. An assessee, although it was a firm, could have
filed a return under sub-section (1) or sub-section (2) of section 139 within the time
prescribed or extended. It could also file a return under sub-section (4) of section 139 if it
had not furnished a return within the time allowed to it at any time before the end of four
assessment years from the end of the assessment year to which the return relates. And
again under sub-section (5) of section 139, if any assessee, having furnished a return
under sub-section (1) or sub-section (2) of section 139, discovered any omission or any
wrong statement therein, it was entitled to furnish a revised return at any time before the
assessment was made. If a return under sub-section (4) of section 139 could be filed at
any time before the end of four assessment years from the end of the relevant assessment
year along with the declaration in due form then according to the stand taken by the
department, the relief under section 184(7) could be granted to the assessee-firm but not
so to a more alert and honest firm which had filed its return within the time prescribed
under sub-section (1) or (2) of section 139 but it had furnished the declaration in the
prescribed form not literally along with the return but say only two or three days later.
Such a construction would be defeating the very object of the legislative provisions.
Section 184(7) of the Act before its amendment by the Taxation Laws (Amendment) Act,
1970, which came into effect from the 1st of April, 1971, was in my view not intended-to
specify any rigid time limit for the declaration in due form to be submitted after due
verification; for, it is obvious from the perusal of the different sub-sections of section 184
that wherever any rigid time limit was fixed for complying with any of the statutory
provisions within a specified time limit, provisions have been made for the Income-tax
Officer to condone the delay in appropriate cases on his being satisfied that the firm was
prevented by sufficient cause from complying with the statutory requirements within the
time specified. For example, sub-section (4) of section 184 lays down that the application
for registration of a firm shall be made before the end of the previous year for the
assessment year in respect of which registration is sought but at the same time the proviso
to that sub-section empowers the Income-tax Officer to entertain an application made
even after the end of the previous year on his being satisfied that there was sufficient
cause preventing the firm from making the application before the time specified. So also
when sub-section (5) of section 184 has made it mandatory that the application shall be
accompanied by the original instrument evidencing the partnership, the proviso to that
sub-section also gave the corresponding power to the Income-tax Officer in appropriate
cases to accept a certified copy of the instrument with a duplicate copy of the original
instrument being accompanied with the application. If, therefore, in my view, any rigid
time limit were to be laid down or specified by the legislature, merely by inserting the
words "along with its return of income for the assessment year concerned", as mentioned
in proviso (ii) to section 184(7), there would have been in case of such rigidity conferred
on the Income-tax Officer a power to condone the delay in suitable cases. This reinforces
the view that I have taken with regard to the true meaning and purport of the term "along
with its return" independently of the provisions of sub-section (4) or sub-section (5) of
section 184.
The aforesaid view of mine that a declaration in the prescribed form and verified in the
prescribed manner should be filed along with the return of income of the firm for the
assessment year concerned is merely directory in nature finds support from a decision of
the Supreme Court in the case of Lakshmiratan Engineering Works Ltd. v. Assistant
Commissioner (Judicial)2 I, Sales Tax. In that case the Supreme Court was seized with
the true construction of rules 66 and 67 of the U.P. Sales Tax Rules, 1948. Sub-section
(2) of rule 66 of the Rules aforesaid laid down that "the memorandum of appeal shall be
accompanied by............. a challan showing deposit in the Treasury of the tax admitted by
the appellant to be due or of such installments thereof as might have become payable".
Their Lordships while construing the term "shall be accompanied by" held that the
provision in the rule was directory and all that was necessary was that at the time of the
consideration of the appeal there should be satisfactory proof that the admitted tax had
been deposited and, it page 162, their Lordships laid down:
"To hold otherwise would put a premium upon a technicality which we do not see will
advance the case either for the collection of the tax or for the administration of justice".
So also a Bench of the Allahabad High Court while dealing with the provisions of section
66(1) of the Indian Income-tax Act, 1922, and rule 22A of the Income-tax Rules, 1922, in
the case of Chatarbhaj Chogalal v. CIT3, held that the substance of section 66(1) of the
Income-tax Act was that the application should be made and the fee paid within the
period of limitation and "accompanied by a fee of Rs. 100" (lid not mean a literal stitch in
up of the fee with the application for reference and in that sense the provision was held to
be merely directory. On a parity of reasoning, therefore, I have no hesitation in holding
that the term "along with its return of income" used in proviso (ii) to section 184(7) is
merely directory and all that is necessary, as I have stated earlier, is that at the time when
the Income-tax Officer is applying his mind for the purpose of assessment to the return of
the firm there must also be before him a declaration in the prescribed form and verified in
the prescribed manner stating that there has been 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. The Tribunal, I should say, has rightly taken the view
that in the absence of any specific provision having been provided in Section 184, either
in sub-section (7) or in other sub-sections for refusal to continue the registration of the
assessee-firm for its failure to file the declaration along with the return in the absence of
any punitive results following the non-compliance of the statutory provisions regarding
the filing of the declaration along with the return literally, it could not be held that the
aforesaid provision was mandatory in nature.
Learned standing counsel for the department next urged that the intention of the
legislature could not be held to be so if it be compared with the amendment as introduced
by the Taxation Laws (Amendment) Act, 1970. Learned standing counsel contended that
by the aforesaid amendment the entire proviso (ii) was substituted by a new proviso (ii),
which reads thus:
"the firm furnishes, before the expiry of the time allowed under sub-section (1) or
sub-section (2) of section 139 (whether fixed originally or on extension) 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 Income-tax 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 in made."
It was submitted that by this amendment greater liberty had been given to the assessee-
firm in appropriate cases. The Income-tax Officer has now been authorised to condone
the delay and extend the time on his being satisfied that the firm was prevented by
sufficient cause from furnishing the declaration within this time so allowed and enabling
the assessee to furnish the declaration at any time before the assessment is made. In my
view, assuming that the subsequent legislative changes were validly to be taken into
consideration, this amendment rather shows the intent of the legislature contrary to what
the learned standing counsel persuaded us to hold. As I have already shown above, before
the 1970 amendment the provision in proviso (ii) was not intended to specify any rigid
time limit and, therefore, the Income-tax Officer had not been given any specific power
for the condonation of any delay if the due declaration duly verified were to be submitted
before the assessment was made. It is only when under the amended provision the time
limit has been rigidly fixed, as before the expiry of the time allowed under section 139(1)
or (2), for furnishing return of income that the corresponding jurisdiction has been
conferred on the Income-tax officer to extend the date so rigidly fixed. There could not be
any scope for the exercise of any such power by the Income-tax Officer in case no rigid
time limit was specified. I do not see any difficulty in construing proviso (ii) as it stood
before the 1970 amendment as requiring merely that the return as well as the declaration
must be filed before the Income-tax Officer before the assessment was made. The
amendment, if in any way relevant, reinforces the view I have taken independently of it
and does not in any way strengthen the case of the department.
For the aforesaid reasons, I answer the question referred for the opinion of this court in
the affirmative and hold that on the facts and in the circumstances of the case the order of
the Tribunal allowing continuance of the registration of the firm is legal and proper.
The question is thus answered in favour of the assessee and against the department. In the
circumstances of the case, however, the assessee is not entitled to costs of this reference.
S.N.P. Singh CJ.—I agree.