TaxTMI 
TaxTMI 
1986 (1) TMI 59
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....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? " 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....
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....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....
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....fficer 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). As stated above, there is no controversy in the case before us as is borne out from question No. 1 formulated by the Tribunal that registration of the firm may be refused on the application of the assessee under section 185(5) of the Act. The words used in section 185(5) are " may refuse to register ". From these words, it is abundantly clear that secti....
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....ct was also examined by the Patna High Court in Durga Prasad Chandi Prasad v. CIT [1971] 79 ITR 553 (Pat). After referring to CIT v. Krishnamma & Co. [1955] 28 ITR 273 (AP), Narayana Chetty (Y.) v. ITO [1959] 35 ITR 388 (SC), Seth (J.M.) v. CIT [1965] 56 ITR 293 (Mad) and Trivandrum Tobacco Combines v. CIT [1967] 63 ITR 813 (Ker), it was held that the basis of an order for consideration of registration under section 23(4) is not that the firm which had been registered is a fictitious one, but that, though the registered firm was genuine, by its failure to comply with the requirement of law, it had incurred the penalty of having its registration cancelled. In the facts and circumstances of that case, the learned judges came to the conclusion that the Income-tax Officer was justified in refusing the renewal of registration of the firm under section 26A of the old Act while exercising the discretion vested in him under section 23(4) of the old Act. We respectfully follow the view taken by the Calcutta and the Patna High Courts in the aforesaid two decisions and in disagreement with the Tribunal hold that it is not necessary for the Income-tax Officer while taking action under secti....