MAHABIR PRASAD KISHANLAL AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961. The following question of law as arising out of the income -tax Tribunal's order has been referred:

(2.) AGAINST the order of cancellation of the registration the assessee preferred an appeal before the AAC, who cancelled the order of the ITO and allowed the appeal. The AAC found that the assessment for the year 1955 -56 was completed under S. 23(3) and registration was allowed under s. 26A of the 1922 Act and, therefore, the ITO in cancelling the registration should have proceeded under the 1922 Act as per provisions of S. 297(2)(a) of the 1961 Act. The AAC further observed that he could not cancel the order of the ITO on this point alone as the word used in S. 297(2)(a) was "may" while at other places the word "shall" had been used and so in such a case if the order was passed under the new Act the order would not be bad. On the other point, the AAC found that the partnership deed was clearly defective to the extent that it made the minors also liable for losses and, therefore, registration could be refused for such a defect in the partnership deed. But he further held that in cancelling the registration already allowed, the ITO had to show that there was no genuine firm in existence and in the instant case the partners, as shown in the partnership deed, shared profits and losses as agreed upon and none of the partners was bogus and, therefore, it could not be held that there was no genuine firm in existence. The order of the ITO cancelling the registration was accordingly set aside.

(3.) RULES 2 and 3 of the Indian IT Rules, 1922 (hereinafter referred to as "the 1922 Rules") prescribe the requirements of an application for registration as well as the form in which the application is to be made. Rule 4 provides that if, on receipt of the application for registration, the ITO is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and the application has been properly made, he shall register the firm and issue necessary certificate of registration and if he is not satisfied he will refuse to recognise the instrument of partnership. Rule 5 provides that the certificate of registration granted under r. 4 shall have effect only for the assessment to be made for the year mentioned therein. Rule 6 provides that a firm to whom a certificate of registration has been granted under r. 4, may apply to the ITO to have the certificate of registration renewed for a subsequent year. Rule 6A provides that if the ITO on receipt of an application for renewal of the certificate of registration is satisfied that the application is in order and there is or was a firm in existence constituted as shown in the instrument of partnership, he may grant to the assessee a certificate of renewal of the registration of the firm. If he is not satisfied the ITO shall refuse to renew the registration of the firm. Rule 6B is in the following terms: