MITRA, J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act, 1922. The assessee is a firm of three partners under a deed of partnership dt. 20th Aug., 1947. Registration had been granted to the firm from 1948-49 till the asst. yr. 1955-56. For the asst. yr. 1956-57 the assessee filed an application for renewal of registration in time. There was no compliance, it appears from the statement of the case, with the notices issued under ss. 22(2) and s. 22(4) of the Act. The assessment was made under the provisions of s. 23(4). The ITO said : "Assessed under s. 23(4) on a total income as indicated above. For reasons recorded by the separate order under s. 26A registration is refused to the firm. The firm is to be treated as unregistered firm and should pay tax directly." Below that in a separate paragraph the ITO has stated : "Order under s. 26A-- Application for renewal of registration has been filed in time. The assessee-firm has not complied with notices under ss. 22(2) and 22(4) issued from this office. Registration is a concession granted to assessees under certain circumstances detailed in the Rules and in the Act prescribed for the same. THIS concession is not surely meant for recalcitrant assessees. THIS is one of such cases where return under s. 22(2) has not been filed though the scheduled time for the same is long over. I, therefore, refuse to grant registration to this firm under s. 23(4) of the IT Act."
(2.) THE assessee made an application under s. 27 which was rejected by the ITO. THE assessee appealed against it. THE AAC did not interfere with the order of the ITO. THE assessee also appealed to the AAC against the order refusing renewal of registration. It contended that the ITO's refusal to grant renewal of registration was based on irrelevant considerations. THE AAC found that there had undoubtedly been default in compliance with the notice under s. 22(2); but sufficient time had not been granted to the assessee for complying with the notice issued under s. 22(4). THE AAC held that since the firm had been granted registration from 1948, the invocation of the penal provisions of s. 23(4) for refusing renewal of registration was improper. In his view the order passed by the ITO was not justified and he directed the granting of renewal of registration. The Department preferred an appeal to the Tribunal. It contended that the AAC having come to the conclusion that the assessee had committed default in compliance with the notice under s. 22 (2), the assessment under s. 23(4) had been properly made and it was upto the ITO to invoke the penal provisions of that section and refuse registration. And in the circumstances, the AAC's interference with the order of the ITO was not correct. The Tribunal found that if the s. 23(4) order stood as it must because the s. 27 appeal had been dismissed by the AAC, the ITO's discretion to refuse renewal of registration could not be assailed. The Tribunal also held that though the ITO should have decided the s. 26A application on its merits and then as a penalty under s. 23(4) refused registration; on the facts the registration had been refused as a penalty in the assessment under s. 23(4) which held the field and it did not make any difference. On the above facts the following question of law has been referred to this Court by the Tribunal for its opinion : "Whether in view of the fact that the AAC by confirming the order of the ITO refusing to reopen under s. 27, upheld the assessment under s. 23(4) for the year 1956-57 he was competent to examine the merits of the ITO's refusal to register the firm under s. 23(4)?"
(3.) MR. Balai Pal, learned counsel for the Commissioner, contends before us that in the present case the order under s. 23(4) refusing registration was passed only for one default or one contumacy namely, non-compliance with the notice under s. 22(2) for filing the return. The assessee thereafter preferred its appeal against the order under s. 23(4) refusing renewal of registration and not against any order passed under s. 26A. The AAC, continues MR. Pal, had come to the finding that this default, that is, non compliance with the notice under s. 22(2) on the part of the assessee, was there, there being no sufficient grounds for such non-compliance. Having come to that finding, the AAC had no option but to affirm the order under s. 23(4). He had no jurisdiction to go into the question whether for any particular reason the assessee could not comply with the requirements of s. 26A. No matter concerning s. 26A was the subject-matter of the appeal before him and he was, therefore, precluded from going into it. Mr. Pal has submitted to us that the question referred by the Tribunal should be reframed by this Court as follows : "Whether in view of the fact that the AAC came to the finding that the assessee had committed default in complying with the notice under s. 22(2) of the Indian IT Act, 1922, he was justified in interfering with the order of the ITO passed under s. 23(4)?" In case the question suggested by Mr. Pal did not appeal to us, he submitted further, as an alternative that, at least the words "and was justified in reversing the order of the ITO refusing registration" should be added to the question framed.;