SAHDEO VIJAY KUMAR Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF RAJASTHAN
SAHDEO VIJAY KUMAR
COMMISSIONER OF INCOME TAX
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RANAWAT, J. -
(1.)THIS is a reference under S. 66(1) of the Indian IT Act by the Tribunal, Delhi Bench. The following
question has been referred :
"Whether, on the facts and in the circumstances of this case, it was incumbent on the ITO to give 14 days' notice of his intention to refuse the claim for renewal of registration in accordance with the proviso to S. 23(4) of the Indian IT Act ?"
(2.)THE facts and circumstances of this case have been described in detail in the statement of the case and we need not reproduce them. It may be mentioned that Sahdeo Vijay Kumar,
Kesrisinghpur, is a partnership firm constituted under an instrument of partnership dt. 5th Jan.,
1953. The firm started functioning on 2nd March, 1951. It was registered under S. 26A of the Indian IT Act for the asst. yrs. 1953 -54 and 1954 -55. The assessee -firm made an application for
renewal of registration for the asst. year 1955 -56 on 30th June, 1955. The assessee failed to file a
return of income in response to a notice under S. 22(2) of the IT Act which was served upon it on
4th July, 1955. Income -tax was assessed under S. 23(4) for the reason that the assessee failed to make a return of its income and also to appear and produce its books of account before the ITO.
While assessing income -tax to the best of his judgment, the ITO also refused to renew the
registration of the assessee -firm. The firm went in appeal but did not succeed. It filed a second
appeal to the Tribunal which was also dismissed on 8th Oct., 1957. On an application for referring
the case to this Court, the Tribunal has made a reference as mentioned above.
The counsel for the assessee -firm has contended that before the application for renewal of registration was dismissed, a notice should have been given to the firm and in the absence of such
a notice, the order of refusal to register was bad in law. He has relied upon the decision in Agarwal
& Co. vs. ITO (1956) 29 ITR 342 (All) : TC 34R.629.
(3.)AN application for registration of a partnership firm has to be made under the provision of S. 26A of the IT Act and is governed by the rules made under the Act. Under S. 26A an ITO has also been
authorised to refuse to register or to refuse to renew registration in case he is not satisfied that
such a partnership firm did or does exist. Such officer has also been further authorised to refuse to
register or to cancel registration if it is already registered in a case falling under the proviso to s.
23(4), but if he contemplates to cancel the registration, he shall serve 14 days' notice. In the instant case, registration was not cancelled and no notice under the proviso to S. 23(4) was,
therefore, necessary. The learned counsel has contended that because the order is adverse to the
firm a notice should have been given on the ordinary principles of natural justice. It may be noted
that by making an application for registration, a firm cannot be regarded to have acquired a right
in its favour, and refusal to register or renew registration cannot, therefore, be considered to affect
its rights. In such a case principles of natural justice do not call for the issue of a notice before
refusing to register under S. 26A. The decision in Agarwal & Co. (supra) which has been referred to
by the learned counsel cannot be considered to be of any help to the petitioner for the reason that
in that case an order cancelling the registration retrospectively was passed without issue of a
notice and it was in that context that the Court observed that a notice was necessary in the
interest of justice. It was also observed that cancellation of registration amounted to deprivation of
property and under the principles of natural justice, a notice was necessary. It that case renewal of
registration was refused for the reason that previous registration was also thereby cancelled. It
was in that context that certain observations regarding issue of notice were made in a case of
refusal or renewal of registration. In our opinion, mere refusal to register or renew registration
cannot be regarded to involve deprivation of property, and no notice is necessary like the one
contemplated in a case of cancellation of registration. The application for renewal of registration, in
the instant case, has been refused under S. 23(4) for the reason that the firm made default in filing
a return and in producing its books of account and also in putting appearance before the ITO.
Under these circumstances, no further notice was necessary. The ITO was well within his rights to
refuse to renew registration under S. 23(4) without issue of a further notice. Answer to the
reference is in the negative. It was not incumbent on the ITO to give 14 days' notice of his
intention to refuse the claim for renewal of registration under the proviso to S. 22(4) of the Indian
IT Act. The reference is answered accordingly.
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