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1978 Supreme(Cal) 600
High Court Of Calcutta
Dipak Kumar Sen, Bimal Chandra Basak
COMMISSIONER OF INCOME-TAX - Appellant
Versus
HARNANDRAI BADRIDAS - Respondent
Income-Tax Reference 560 Of 1977
Decided On : 11/08/1978
AJIT SEN GUPTA, PRABAN KR.PAL, R.N.Dutt, SUHAS SEN
The ITO has the discretion to refuse registration of a firm under Section 23 (4) of the Indian Income-tax Act, 1922, even after the assessment has been completed.
Headnote:
INCOME TAX - REGISTRATION OF FIRM - RENEWAL - DISCRETION OF INCOME-TAX OFFICER - EXERCISE OF - TIME - SECTION 23 (4) AND SECTION 26A OF THE INDIAN INCOME-TAX ACT, 1922.
Fact of the Case:
The assessee, a firm, was assessed to income-tax for the assessment year 1949-50 under Section 23 (4) of the Indian Income-tax Act, 1922, as it failed to file its return of income or produce its books of account. The assessee filed an appeal against the order of the Income-tax Officer (ITO) refusing to grant registration, contending that an application for renewal of registration had been duly filed. The Appellate Assistant Commissioner (AAC) found that the assessee's application for renewal of registration had been received by the revenue authorities and directed the ITO to dispose of the application according to law. The ITO issued a notice to the assessee to show cause why registration should not be refused. The assessee submitted that its account books were adjusted and that the profit and loss statement as also the partners' capital account had been prepared and, therefore, the registration should be renewed. The ITO held that the assessment had become final and refused to renew the registration of the assessee by exercising his discretion under Section 23 (4) of the Act. The assessee preferred an appeal to the AAC and produced the account books of the relevant period which showed that the profit of the relevant year had been distributed in accordance with the respective shares of the partners and credited to their accounts. The AAC found that the only ground on which the ITO had rejected the claim for renewal of registration was satisfied by the assessee and allowed the appeal. The revenue preferred an appeal to the Income-tax Appellate Tribunal (ITAT), which held that the ITO had rightly refused registration to the assessee by exercising powers conferred under Section 23 (4) of the Act for non-production of the books of account and non-filing of return. The assessee preferred an appeal to the High Court.
Finding of the Court:
The High Court found that the ITO had not exercised his discretion under Section 23 (4) of the Act when he made the assessment under Section 23 (4). The High Court also found that it was open to the ITO to exercise his discretion under Section 23 (4) when he was considering the assessee's application under Section 26a de novo.
Issues: 1. Whether the ITO had exercised his discretion under Section 23 (4) of the Act when he made the assessment under Section 23 (4). 2. Whether the ITO was competent to exercise the discretion vested in him under Section 23 (4) of the Indian Income-tax Act, 1922, while refusing the renewal of registration to the assessee-firm long after the assessment is completed.
Ratio Decidendi: The High Court held that the ITO is empowered to exercise his discretion under Section 23 (4) of the Act to refuse registration of a firm on grounds which ex facie do not appear in Section 26a. The High Court also held that an order refusing renewal of registration under Section 23 (4) is separate from the assessment made thereunder and also separate from an order passed under Section 26a and such orders can be passed simultaneously or separately.
Final Decision: The High Court answered the second question in the negative and in favor of the revenue.
( 1 ) THE facts found and/or admitted in these proceedings are rather unusual. Messrs. Harnandrai Badridas, the assessee, was assessed to income-tax for the assessment year 1949-50, the relevant previous year being Diwali 2004-2005. As the assessee did not file its return of income or produce its books of account at the assessment, the ITO made the assessment under Section 23 (4) of the Indian I. T. Act, 1922, in the status of an unregistered firm. It was recorded in the order of assessment as follows : " The question of renewal of registration does not arise since there is no application for the same. "
( 2 ) THE assessee preferred an appeal against the said order of the ITO refusing to grant registration and contended in the appeal that an application for renewal of registration had been duly filed. The AAC found that the assessee's application for renewal of registration had been received by the revenue authorities on the 27th February, 1953. He, therefore, directed the ITO to dispose of the application for renewal of registration according to law and allowed the assessee's appeal. He construed the order of the ITO to be a consolidated order under Section 23 (4) and Section 26a of the said Act.
( 3 ) BEING aggrieved by the order of the AAC, the revenue went up in appeal before the Income-tax Appellate Tribunal. The Tribunal found that the ITO had not considered the question of the registration at all inasmuch as he was under the belief that no application for the renewal of registration had been made by the assessee.
( 4 ) THE Tribunal found further that as no order refusing registration had been passed either under Section 26a or under Section 23 (4) no appeal lay before the AAC and hence no further appeal could lie before the Tribunal. The Tribunal, accordingly, dismissed the appeal of the revenue observing that it had no power to interfere with an administrative matter, as it became, by reason of the order of the AAC.
( 5 ) IN compliance with the order of the AAC, the ITO took up the application of the assessee under Section 26a of the Act for consideration. He issued a notice on the, 19th July, 1963, to the assessee to show cause why registration should not be refused. The assessee submitted in reply that its account books were adjusted and that the profit and loss statement as also the partners' capital account had been prepared and, therefore, the registration should be renewed. The assessee, however, did not file any return of income. The ITO held that the assessment had become final and he refused to renew the registration of the assessee by exercising his discretion under Section 23 (4) of the Act.
( 6 ) BEING aggrieved by the said order the assessee preferred an appeal and produced before the AAC the account books of the relevant period which showed that the profit of the relevant year had been distributed in accordance with the respective shares of the partners and credited to their accounts. The AAC found that the only ground on which the ITO had rejected the claim for renewal of registration was satisfied by the assessee. Accordingly, he allowed the appeal and directed the ITO to grant registration.
( 7 ) THE revenue preferred an appeal to the Income-tax Appellate Tribunal against the order of the AAC. It was contended in the appeal that the ITO had rightly refused registration to the assessee by exercising powers conferred under Section 23 (4) of the Act for non-production of the books of account and non-filing of return. On behalf of the assessee, it was contended that the only basis on which the ITO refused renewal of registration was non-production of the books of account. Such infirmity having been remedied at the appellate stage it was open to the AAC to determine the issue of registration on merits, which he did determine.
( 8 ) THE Tribunal held that it was open to the ITO to refuse registration of the firm either under Section 23 (4) or under Section 26a. If the ITO intended to refuse re
