Decided on November 24,1971



Chinnappa Reddy, J. - (1.) "Sree Rama Talkies", a firm consisting of three partners, (1) T. Aswarthanarayana, (2) Venkaiah Naidu, and (3) Audinarayana, and registered under the Income-tax Act, was carrying on business from 1953. The instrument of partnership was dated April 1, 1953, and it provided that the partnership was to be for a period of twenty years and in the event of the death of any partner the partnership was not to dissolve but was to continue with the heir of the deceased partner taking his place. The registration of the firm was continued year after year by the income-tax department till the assessment year 1964-65. The account ing year which corresponded to the assessment year 1964-65 was October 29, 1962, to November 15, 1963. Aswarthanarayana, one of the partners, died on October 15, 1963, and he was succeeded in the partnership by his widow, Mangamani. On September 26, 1964, the firm, instead of applying for fresh registration as required by Section 184(8) when there was a change in the constitution of the firm, applied in Form No. 12, for continuation of registration under Section 184(7) as if there was no change in the constitution of the firm. The Income-tax Officer thereupon issued a notice to the firm to show cause why registration should not be refused as its declaration in Form No. 12 that there was no change in the constitution of the firm was not true and as no fresh partnership deed had been submitted. The firm sent a reply saying "Form No. 12 filed along with the return of income is quite in order till October 15, 1963". The firm also prayed for a month's time to produce the deed of partnership. This was on March 29, 1964. No deed was, however, produced and the Income-tax Officer finally passed an order on October 12, 1970, refusing registration on the ground that the application was not in proper form as what was submitted was only an application for continuation and not a fresh application for registration and also on the ground that the deed of partnership had not been produced. The order was confirmed by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal, however, directed the Income-tax Officer to grant continuation of registration up to October 15, 1963. According to the Tribunal the Act did not prohibit the grant of registration for part of, a previous year. At the instance of the Commissioner of Income-tax the following question has been referred to us : "Whether, on the facts and in the circumstances of the case, continuation of registration for a part of relevant 'previous year', namely, from October 29, 1962, to October 15, 1963, for the assessment year 1964-65 was maintainable in terms of the provisions of Section 187(1) of the Income-tax Act, 1961 ?"
(2.) SECTION 184 deals with application for registration, SECTION 185 with procedure on receipt of application and SECTION 186 with cancellation of registration. SECTION 184(4) states : "The application shall be made before the end of the previous year for the assessment year in respect of which registration is sought." Section 184(7) provides that where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year. Section 184(8) provides that where there is any change in the constitution of the firm, the firm shall apply for fresh registration for the assessment year concerned. Section 185 empowers the Income-tax Officer, if the requisite conditions are satisfied, to pass an order registering the firm for the assessment year. Section 186 empowers the Income-tax Officer to cancel the registration for the assessment year if he is satisfied that the firm is not genuine. These provisions clearly show that what is contemplated by the Act is registration of a firm for the entire assessment year. The registration no doubt relates to the previous year but where the assessee claims to be the same firm throughout the previous year and submits a single return as if there was only one assessee during the whole of the previous year, there is no escape from the position that the registration for the assessment year can be granted in relation to the whole of the previous year and not for a part of the previous year. Of course, where a firm ceases to exist or is succeeded by a different firm during the course of the previous year it may be permissible to grant registration for the assessment year in relation to the part of the previous year during which it existed. But, in a case like the present we do not see how the firm can be granted registration for part of the previous year and refused registration for the other part. It would be most anomalous to do So. It would mean that the firm would be both a registered firm and an unregistered firm for the same assessment year--a two-faced firm. How then is the firm to be assessed ? How is its income to be computed ? How are the losses and incomes to be set off ? Who is to pay the tax and in what proportion ? What is the accounting year of the registered "face" of the firm and that of the unregistered "face" of the firm ? The assessee itself did not divide the previous year into two periods and make up its accounts to show the profits or losses separately for the two periods. The income returned by the firm cannot be apportioned between the two periods when accounts are not so made up. Sri T. Ananta Babu urged that there was no change in the constitution of the firm. All that had happened was that one partner had died and his hem had taken his place without the firm being dissolved, as provided by the terms of the deed of partnership. He submitted that a mere change of partners was not sufficient to hold that there was a change in the constitution of the firm. According to him, constitution of the firm did not mean the constituent partners of the firm but meant the set of rules and regulations governing the firm and its partners. We do not think that the expression "change in the constitution of the firm" is used in any such limited sense in Section 184(7). To ordinary understanding a firm is constituted by its partners and if, in accordance with the terms of, the deed, a partner is replaced by another, there is a change in the constitution of the firm. That is also the meaning given to the expression in Section 187(2). The view taken by us on these questions is generally supported by the view taken by our brothers, Kondaiah and Sriramulu JJ., in R. C. No. 34/1968.
(3.) THE question referred to us is answered in favour of the department and against the assessee. THEre will be no order as to costs.;

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