S.K. Mal Lodha, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short "the Tribunal" hereinafter), has referred the following two questions for the opinion of this court which are said to arise out of its order dated February 23, 1979, passed in I. T. A. No. 75/ JP/1979 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer having assessed the assessee-firm under Section 144 of the Act, for default attracting the provisions thereof, and while rejecting its application for registration under Section 185(5) of the Act for the said default, should have given a finding (i) that no genuine firm was in existence, or (ii) that no valid firm was in existence, or (iii) that the firm did not work in accordance with the partnership deed ?
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order of the Appellate Assistant Commissioner through which he set aside the order of the Income-tax Officer and directed him to decide the assessee-firm's application for registration on merits ?" 2. The assessee, M/s. Faiz Mohd., Hasim Ali, Taj Mohd., Noor Mohd., Nagaur, submitted an application in Form No. 11 for grant of registration to it. The application was in order. The assessment year involved is 1973-74. The application in Form No. 11 was submitted for the previous year relevant to the assessment year under consideration. The Income-tax Officer by his order dated February 11, 1976, passed under Section 185 of the Income-tax Act, 1961 (No. XLIII of 1961) ("the Act" herein), refused to grant registration to the firm and took its status as that of an unregistered firm. The reason given by the Income-tax Officer in the aforesaid order was that the assessment has been completed under Section 144 of the Act and there is no proof whether the profits have been divided in the ratio specified in the deed. The assessee went in appeal. It was, inter alia, contended that on the basis of the material that was filed by the assessee, the Income-tax Officer could have ascertained as to whether the profits of the firm were divided or not according to the profit-sharing ratio as specified in the partnership deed and that the firm is genuine and the Income-tax Officer was not justified in refusing to grant registration. The Appellate Assistant Commissioner taking the aforesaid facts into consideration, opined that it was not a proper case for refusal to grant registration for the same reason that an ex parte order has been made. He, therefore, by his order dated November 8, 1978, directed the Income-tax Officer to consider the application and to decide the matter in accordance with law. The consequence of this was that the status of the assessee as found by the Income-tax Officer, namely, unregistered firm, was set aside. Being dissatisfied, the Income-tax Officer, "B" Ward, Hanumangarh, went in appeal. The order of the Appellate Assistant Commissioner was, inter alia, assailed on the ground that as the assessee failed to comply with the notice, the Income-tax Officer was within his rights to reject the application for registration under Section 185(5) of the Act. The Tribunal, while agreeing with the order of the Appellate Assistant Commissioner, observed as under : "It is correct that if an assessment order is made under Section 144 of the Act, the learned Income-tax Officer is empowered to refuse the application for registration. The application for registration can be rejected provided the learned Income-tax Officer on the basis of the evidence on record comes to the conclusion that no genuine firm was in existence. In the present case, the learned Income-tax Officer did not give a finding in clear words that no genuine firm is in existence. The Appellate Assistant Commissioner pointed out that the assessee filed material along with the return from which it could be ascertained whether the profits and losses were divided or not according to the specified ratio detailed in the partnership deed. The Appellate Assistant Commissioner only directed the Income-tax Officer to decide the matter on merits and in accordance with law. Looking to the provisions of Section 185 of the Act, the evidence on record and the order of the learned Appellate Assistant Commissioner, it is correct that the Income-tax Officer did not decide the matter properly. The directions given by the learned Appellate Assistant Commissioner are quite justified." According to the Tribunal, from the material that was filed before the Income-tax Officer, he could very well determine whether the profits were divided in accordance with the profit-sharing ratio as specified in the deed or not and that the Income-tax Officer did not record the finding that no valid firm was in existence. On an application under Section 256(1) of the Act, the Tribunal has referred the aforesaid two questions as, according to it, they are questions of law arising out of its order. We have heard Mr. B.R. Arora, learned counsel for the Revenue, as well as Mr. D.K. Parihar, learned counsel for the assessee. We propose to answer the questions ad seriatim. Question No. 1.--It was not in dispute before the Tribunal as appears from its order as well as from the statement of the case and question No. 1 formulated for opinion that the application for registration of the firm was rejected by the Income-tax Officer under Section 185(5) of the Act as the Income-tax Officer had assessed the assessee under Section 144 of the Act. It will be relevant here to read Sections 144 and 185(5) of the Act: "144. If any person- (a) fails to make the return required by any notice given under Sub-section (2) of Section 139 and has not made a return or a revised return under Sub-section (4) or Sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under Sub-section (1) of Section 142 or fails to comply with a direction issued under Sub-section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under Sub-section (2) of Section 143, the Income-tax Officer, after taking into account all relevant material which the Income-tax Officer has gathered, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment. 185. (5) Notwithstanding anything contained in this section, where, in respect of any assessment year, there is, on the part of a firm, any such failure as is mentioned in Section 144, the Income-tax Officer may refuse to register the firm for the assessment year."
(3.) SECTION 184 provides for application for registration and the procedure on receipt of application has been provided in SECTION 185. The material part of SECTION 185 for the present purpose is as quoted above. In order to appreciate the contention raised by the learned counsel for the Revenue, it may be stated that under Section 185(1), after the receipt of the application for registration, the Income-tax Officer has to hold an enquiry regarding the genuineness of the firm and its constitution as specified in the instrument of partnership and if he feels satisfied that there was during the previous year a genuine firm with the constitution so specified, was in existence, he may order registration of the firm for that assessment year. If he is not so satisfied as specified in Sub-section (1) of Section 185, he may refuse registration of the firm. A perusal of Section 185(1)(b) and Section 185(5) shows that the Income-tax Officer has full powers to refuse registration of the firm. These two powers are distinct and independent. The scope of the two powers is also different and different conditions govern the exercise of the two powers. Under Section 185(1)(b) of the Act, the Income-tax Officer has been empowered to refuse registration to a firm if he forms an opinion that the application for registration has not been made in accordance with the provisions of law or that the applicant-firm is not a genuine firm. However, refusal under Section 185(5) follows only when there is one or more of the defaults specified in Section 144. Though the Income-tax Officer has power to refuse registration either under Section 185(1)(b) or under Section 185{5), he can refuse registration under Section 185(1)(b) or in the exercise of discretion under Section 185(5) or simultaneously under Section 185(1)(b) and under Section 185(5). Reference in this connection may be made to CIT v. Jekisondas Bhukandas [1967] 66 ITR 515 (Guj), CIT v. Krishnamma & Co. [1955] 28 ITR 273 (AP) and Meerasahib Tharaganar v. CIT [1963] 48 ITR 950 (Mad). ;