1982 (5) TMI 39 - HC - Income Tax

Court overturns cancellation of firm's registration under Income Tax Act, stresses rectification opportunities for taxpayers.

The Income-tax Appellate Tribunal's decision to uphold the cancellation of a firm's registration under section 263 of the Income Tax Act was overturned by ... Firm, Registration Issues:1. Interpretation of whether the Income-tax Appellate Tribunal was justified in holding the assessment order as prejudicial to revenue due to a partner signing on behalf of others without opportunity to rectify.Analysis:The case involved a firm with four partners initially registered under the Income Tax Act. However, during the relevant assessment year, the firm was dissolved before the assessment was completed. One partner, Jado Saran, did not personally sign the required Form No. 12 for the assessment year, but authorized another partner to sign on his behalf. The Income Tax Officer (ITO) allowed the renewal of registration without rectifying this defect. Subsequently, the Commissioner, under section 263 of the Act, canceled the registration, leading to an appeal by the assessee. The Tribunal upheld the Commissioner's decision.The key issue revolved around the requirement that all partners must personally sign the application for renewal of registration. Rule 24 of the Income Tax Rules mandates personal signatures of all partners for such declarations. Section 185(3) allows the ITO to intimate defects in the declaration and provide an opportunity to rectify them. In this case, although the defect was known to the ITO, he did not ask the firm to rectify it due to his satisfaction with the firm's genuineness. The court emphasized that the law mandates affording opportunities to rectify defects before rejecting registration applications.The court referred to precedents such as Sant Lai Kashmiri Lal v. CIT and Alankar Jewellers v. CIT, highlighting the importance of granting opportunities to rectify defects in registration applications. The court distinguished the case from Rao Bahadur Ravulu Subba Rao v. CIT under the 1922 Act, emphasizing the present Act's requirement for rectification opportunities. Ultimately, the court held that the defect in the application should have been allowed to be rectified by providing an opportunity to the assessee, ruling in favor of the assessee against the department.In conclusion, the judgment focused on the procedural aspect of rectifying defects in registration applications, emphasizing the necessity of providing opportunities to rectify such defects before rejecting registrations. The court's decision was guided by the legislative intent to ensure fairness and rectification opportunities for taxpayers, ultimately ruling in favor of the assessee in this case.