V.S.DESAI, J. - (1.) THE reference arises out of the assessment made upon the assessee -firm for the assessment year 1956 -57 in the status of an unregistered firm and a penalty of Rs. 3,400 imposed by the Income -tax Officer under the provisions of section 46(1) on account of the assessee's default to pay the amount of tax as demanded by the Income -tax Officer.
(2.) THE relevant account year for the assessment year 1956 -57 was S. Y. 2011 from October 27, 1954, to November 14, 1955. The partnership firm in the name and style of M/s. Bhausa Ganusa Pawar and Co., which carried on business during the whole of this account year as well as certain prior years, consisted of four partners, who were : (1) Shri R. S. Pawar, (2) Shri D. S. Pawar, (3) Shri A. S. Pawar and (4) Shri G. R. Pawar. Ever since its formation in the year 1946, or thereabouts, this firm had been granted registration under section 26A of the Indian Income -tax Act up to the assessment year 1955 -56. On 3rd February, 1956, that is, some time after the close of the account year with which we are concerned in the present case, one of the four partners, viz., Shri R. S. Pawar, died. The surviving partners formed another partnership firm in the same name and style taking up a major son of Shri R. S. Pawar as a partner and admitting two other minor sons of him to the benefits of the partnership. They also took up a major son of another partner, Shri A. S. Pawar, as a partner in the fresh partnership. An agreement of partnership in respect of this partnership was duly executed on 28th June, 1956, and it stated in terms that it was operative from the very day on which Shri R. S. Pawar had died, viz., 3rd February, 1956. It is the new partnership firm which is the assessee in the present case. On the 30th June, 1956, it made an application under section 26A for registration on the basis of the instrument of partnership dated the 28th June, 1956. The application was made in the form prescribed under rule 3 of the Indian Income -tax Rules, 1922. It was signed by the five major partners of the new firm and in the schedule, on the reverse of it, it was clearly indicated what were the individual shares of the four partners, who were actually partners in the account year and what were the shares of the partners in the new firm. The Income -tax Officer refused to grant registration on the ground that the instrument of partnership dated 28th June, 1956, on the basis of which the application under section 26A was made, was not the one which was operative in the year of account and the firm as constituted by that instrument of partnership was not entitled to obtain registration for the said year of account; that the firm to be registered for the assessment year 1956 -57 was the firm, which was in existence during the account year 2011, and that the proper procedure for the assessee was to apply for the renewal of registration of the said old firm and inasmuch as the application, which the assessee had made, could not be treated as an application for the renewal of registration of the old firm as it had not been signed by all the living partners and the legal representatives of the deceased partner, renewal of registration could not be granted for the old firm on the basis of the present application. According to the Income -tax Officer, since there was no recital in the deed governing the old firm that the business would be continued in the event of the death of any of the existing partners of the said firm, it was not a case of the old firm continuing but the case of a new firm formed after the dissolution of the old firm and, consequently, the assessee ought to have applied for the registration or the renewal of registration of the old firm and not of the new firm. Against the order of the Income -tax Officer refusing registration, the assessee appealed to the Appellate Assistant Commissioner. He allowed the appeal of the assessee and cancelled the Income -tax Officer's order refusing registration and directed him to grant registration to the firm as applied for. According to him, since the newly constituted firm had come into existence immediately after the death of one of the partners of the old firm taking up one major son of the deceased partner as a partner and admitting his two minor sons to the benefits of the partnership and since the business of the firm had continued without a break, there was in fact no dissolution of the old firm and the formation of a new firm, but merely a change in the constitution of the firm. Under section 26(1) the assessment was to be made on the newly constituted firm and it was, therefore, entitled to ask for its registration under rule 2 of the Income -tax Rules. According to him, since the assessee -firm was the firm on which the assessment had to be made in respect of the year of account, it was entitled to be registered for the said year of account. In his opinion, therefore, the Income -tax Officer had erred in refusing registration to the firm. Against this decision of the Income -tax Appellate Assistant Commissioner, the department went in appeal to the Income -tax Appellate Tribunal. The Tribunal agreed with the view taken by the Income -tax Officer and held that inasmuch as the firm of which registration could be obtained for the relevant account year was the old firm and inasmuch as there was no application made by the assessee for the registration of the said firm, it was not entitled to registration of that firm. The Tribunal, accordingly, allowed the department's appeal, set aside the order of the Appellate Assistant Commissioner and restored that of the Income -tax Officer. At the instance of the assessee it has referred the following question to us as arising out of its order under section 66(1) of the Indian Income -tax Act, 1922 : 'Whether the new firm that was in existence at the time of making of the assessment for the assessment year 1956 -57 is entitled to registration for that assessment year on the basis of the deed made on June 28, 1956, when in the material account year, S. Y. 2011, the old firm was really in existence ?' Now, in the meanwhile, after having refused registration, the Income -tax Officer had completed the assessment upon the assessee for the relevant assessment year in the status of an unregistered firm and had raised a demand of Rs. 37,800 and odd. The payment under this demand fell due on or before the 6th July, 1958. The assessee asked for installments for making the payment but did not pay the installments regularly. Ultimately, after calling upon the assessee to make up the payment by a given date, the Income -tax Officer held that the assessee was in default and impose a penalty on it of Rs. 3,400 under section 46(1) by his order dated 7th November, 1958.
(3.) THE assessee, who had already appealed against the order of the Income -tax Officer refusing to grant registration, filed an appeal against the order of penalty also. The appeal was filed on 21st November, 1958, but either at the time of the filing of the appeal nor until it came up for hearing before the Appellate Assistant Commissioner on the 26th of October, 1959, the assessee paid the amount of tax. The Appellate Assistant Commissioner rejected the appeal of the assessee against the order of penalty on the 23rd November, 1959, on a preliminary point that it was incompetent since the amount of tax had not been paid. On the same day, however, the Appellate Assistant Commissioner also decided the assessee's appeal against the Income -tax Officer's order refusing registration and allowed the said appeal and directed the Income -tax Officer to grant the assessee registration as was prayed for by it. The assessee appealed to the Tribunal against the order of the Appellate Assistant Commissioner rejecting its appeal against the penalty imposed by the Income -tax Officer. The Tribunal dismissed the said appeal and, thereafter, at the instance of the assessee, referred the following question to us under section 66(1) of the Indian Income -tax Act, 1922 : 'Whether the assessee's appeal against the penalty imposed under section 46(1) was properly rejected by the Appellate Assistant Commissioner as being incompetent ?';