COMMISSIONER OF INCOME TAX Vs. RAMAKRISHNA MOTOR TRANSPORT

JUDGEMENT

(1.) : By a partnership deed dated January 1, 1957, fourteen persons, including a minor, Sri Kameswara Rao, agreed to Carry on the business of running buses and lorries in partnership. The minor was represented by his mother and guardian, and he was treated as a full-fledged partner, liable for losses, among other things. Registration of this partnership firm was applied for, for the asst. yr. 1958-59, and for the next asst. yr. 1959-60, renewal was applied for. According to the law as it was understood then, such a partnership was not invalid. The ITO granted registration, and also renewal, by his order dated March 18, 1960. The Supreme Court held in CIT vs. Dwarkadas Khetan and Co. (1961) 41 ITR 528 (SC) a decision rendered on December 1, 1960--that a partnership deed in which a minor is admitted as a full partner, is not valid and cannot be registered under S. 26A of the Indian IT Act, 1922. The decisions of the Madras High Court and the other High Courts to the contrary were overruled. Pursuant to this decision, the ITO proposed to cancel the registration granted by him for the asst. yrs. 1958-59 and 1959-60, invoking his power of rectification under s. 154. Meanwhile, the minor, Sri Kameswara Rao, became a major on October 27, 1958, and opted to continue as a partner, as contemplated by S. 30 of the Partnership Act. A rectification deed was executed on October 29, 1958 recording the said fact. Though this fact was brought to the notice of the ITO when he proposed to exercise his power of rectification, the ITO cancelled the registration for the asst. yr. 1958-59, as also the renewal granted for the asst. yr. 1959- 60. On appeal, however, the AAC took the view that the ITO was not competent to cancel the registration under S. 154 and accordingly set aside his order. The Revenue filed an appeal before the Tribunal contending that, in view of the Supreme Court decision, it must be held that the partnership deed executed on January 1, 1957, was invalid and could not have been registered under S. 26A of the (1922) Act and that the said error constituted an error apparent on the face of the record liable to be rectified under S. 154. It was argued that S. 186(1) (of the 1961 Act) was not available in such a case inasmuch as a cancellation can be effected under that section only on one ground, viz., that there was "no genuine firm in existence as registered". The Tribunal, however, dismissed the appeal holding that the power under S. 154 did not extend to rectifying, an order granting registration to a firm. The words "any other order" occurring in S. 154 were sought to be construed ejusdem generis with the preceding words "order of assessment or of refund" and, on that basis, it was held that the said words could not take in every type of order passed by the ITO. Another principle pressed into service by the Tribunal in support of the same conclusion is "special excludes general". The Tribunal held that the power to cancel the registration granted to a firm is contained in S. 186, which is a special provision ; and if so, the general power under S. 154 is not available for the purpose of cancelling the registration of a firm, once granted. It was of the opinion that the legislature has designedly confined the power of cancellation of the registration of a firm, once granted, only to one ground, viz., non- genuineness; and, therefore, the cancellation cannot be effected on any other ground. May be that an erroneous order granting registration can be corrected by the CIT under S. 263, or probably the ITO may himself invoke S. 147; but, in any event--the Tribunal observed the power under S. 154 was not available for such a purpose. So far as the asst. yr. 1959-60 is concerned, the Tribunal referred to the further fact that the erstwhile minor became a major on October 27, 1958, and opted to continue as a full-fledged partner, which was recorded by a rectification deed, dated October 29, 1958, and the further fact that an independent application for registration of the firm was made for this assessment year it, therefore, held that so far as the asst. yr. 1959-60 is concerned, there is absolutely no ground for cancelling the renewal. Thereupon, the Department applied for and obtained this reference under S. 256(1) of the 1961 Act. The question referred for our opinion is:

(2.) SRI M. S. Murthy, the learned standing counsel for the Department, assailed the correctness of the interpretation placed by the Tribunal upon the words "any other order" in S. 154. He contended that there is no scope for applying the rule of ejusdem generis to give a restricted meaning to the said words. According to him, the words "any other order" must be given their full effect, and must be held to cover all types of orders. He contended further that the decision of the Supreme Court in CIT vs. Dwarkadas Khetan and Co. (supra), which overruled the decision of the Madras High Court, does constitute a valid and sufficient ground for invoking the power of rectification under S. 154. Even with respect to the asst. yr. 1959-60, learned counsel submitted, the position cannot be different, because no fresh partnership was entered into by the partners after the erstwhile minor, SRI Kameswara Rao, attained majority. According to the learned counsel, the rectification deed executed on October 29, 1958, is not sufficient compliance with the requirements of S. 26A.

(3.) WE will now refer to the provisions relating to the registration of firms, and the cancellation thereof. Sec. 184 provides for the application for registration of a, firm. The application has to be made to the ITO by a firm, provided the partnership is evidenced by an instrument, and the individual shares of the partners are specified in that instrument. Such an application has to be signed by all the partners, and has to be made before the end of the previous year for the assessment year, in respect of which the registration is sought. The application has to be made in the prescribed form, containing the prescribed particulars. Registration once granted shall enure for every subsequent assessment year, provided there is no change in the constitution of the firm, and the firm furnishes, before the prescribed date, a declaration in the prescribed form containing the prescribed particulars. Sub-s. (1) of S. 185 prescribes the inquiry to be made by the ITO on receipt of an application for registration of a firm. In so far as it is relevant for the present purpose, it reads :