SHEODUTTRAI BHOLANATH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two references under S. 66(1) of the Indian IT Act deal with the same question and are disposed of in one judgment. The question referred to this Court by the Tribunal in S.J.C. No. 37 of 1962 is as follows :

(2.) IN S.J.C. No. 36 of 1962, the same question has been referred to for the asst. year 1959 60 instead of 1958 59. The material facts are thes : A partnership firm consisting of (1) Bholanath Saha, (2) Bhagirath Saha and (3) Mohanlal Saha was registered as a firm under the Indian Partnership Act on 28th Jan., 1946, bearing No. 3 of 1946. It was also registered under S. 26A of the Indian IT Act in due course and was assessed as a firm for the asst. yrs. 1947 48 to 1957 58. The accounting year for the firm was the dewali year. Hence, for the asst. year 1956 57, the "previous year" ended on 2nd Nov., 1956, being the date of dewali of that year. On 17th Nov., 1956, a new deed was drawn up reconstituting the said firm with retrospective effect from 3rd Nov., 1956. Bholanath withdrew from the partnership. The other two partners, Bhagirath and Mohanlal, however, continued to remain, and Bhagirath's grandsons who were minors were admitted to the benefits of the partnerships. Though, as pointed out already, the reconstitution of the firm was effected by a deed dt. 17th Nov., 1956, the issue of the notice to the Registrar of Firms under S. 63(1) of the Partnership Act was made only on 14th Oct., 1957, nearly 11 months later. Having sent that notice on that date, the assessee filed an application before the IT authorities for registration of the reconstituted firm on 18th Oct., 1957. The dewali for that year was on 23rd Oct., 1957. The actual order of the Registrar of Firms filing the due intimation of reconstitution of partnership under S. 63(1) of that Act was made only on 21st Oct.1959, nearly two years later. But on 12th Aug., 1958, he ITO had to decide the question as to whether the application under S. 26A of the Indian IT Act filed on 18th Oct., 1957, was time barred or not. Rule 2 of the IT Rules, 1922, is the relevant rule for this purpose. Clause (a) of that Rule (omitting immaterial portion) says that any firm constituted under an instrument of partnership shall apply for registration under S. 26A of the Indian IT Act within a period of six months from the date of the constitution of the firm where the firm is not registered under the Indian Partnership Act, 1932. Clause (b) however says that if the firm is registered under the Indian Partnership Act, 1932, it may apply for registration under S. 26A of the Indian IT Act, 1922, before the end of the previous year of the firm. Thus the two clauses of r. 2 fixed two different periods of limitation for applying under S. 26A according as whether the firm is registered nder the Indian Partnership Act or not. But both the clauses require that the firm must be constituted under an instrument of partnership. The ITO held that the reconstituted firm was an entirely new firm, the old firm having been dissolved and that as the new firm was admittedly not registered till 21st Oct., 1959, by the Registrar of Firms, clause (a) of r. 2 of the Indian IT Rules should apply and the application for registration under S. 26A of the Indian IT Act should have been made within six months from the date of the constitution of the firm. According to him the new firm was constituted on 3rd Nov., 1956, and six months period from that day expired on 3rd May, 1957. Hence he rejected the application as time barred. On appeal, the AAC also upheld his view observing that the reconstituted firm was a new and distinct firm created after dissolution of the old firm of 1946. The learned Tribunal was inclined to agree with the view of the counsel for the assessee that the old firm was not dissolved, but that there was a mere change of the constitution of the old firm consequent on the retirement of one of the partners and the admission of two minors to the benefits of the partnership and alteration of their shares. To that extent the Tribunal disagreed with the findings of the two lower authorities. But it held that even an old registered firm which is reconstiuted must apply for fresh registration under the Indian Partnership Act and that as the order of the Registrar was passed only on 21st Oct., 1959, the reconstituted firm was not a firm registered under the Partnership Act on the date of the application under S. 26A of the Indian IT Act. Hence, it agreed with the lower authorities that the period of limitation would be as prescribed in cl. (a) of r. 2 of the Indian IT Rules.

(3.) THE question which arises for consideration now is, where an old firm registered under the Indian Partnership Act was reconstituted and notice of such reconstitution was given to the Registrar of Firms under S. 63(1) on 14th Oct., 1957, that firm can be held to be "a firm registered under the Indian Partnership Act, 1932" on the date of the application under S. 26A, namely, 18th Oct., 1957, even though the actual order of the Registrar under S. 63(1) of the Partnership Act was passed on 21st Oct., 1959.