ORDER
SHEET ITA190OF2009IN THE HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE COMMISSIONER OF INCOME TAX, KOLKATA Versus M/S.S.R.BATLIBOI & ASSOCIATES BEFORE: The Hon'ble JUSTICE GIRISH CHANDRA GUPTA The Hon'ble JUSTICE ARINDAM SINHA Date : 24th February, 2015.
For Appellant/Petitioner : Mrs.Smita Das De,Advocate For Respondent/assessee : Mr.R.N.Bajoria,Sr.Advocate Mr.A.Gupta,Advocate Mr.M.Ghorawat,Advocate The Court : The subject matter of challenge in this appeal, at the instance of revenue, is a judgement and order dated 13th February, 2009 by which the learned Tribunal agreeing with the CIT (Appeal) held that omission to file certified copy of the instrument of change in the partnership deed along with the return was not fatal and therefore, did not attract the consequences laid down in Section 185 of the Income Tax Act.
Aggrieved by the order of the learned Tribunal, the revenue has come up in appeal.
The following question of law was framed at the time of admission of the appeal : “ Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in overlooking the factum of non-filing of reconstituted partnership deed along with the returns as required under section 184(4) of the Income Tax Act, 1961 ?.”.
The question may be reframed as follows : Whether the Income Tax Appellate Tribunal was justified in upholding the deletion of the disallowance amounting to a sum of Rs.4,49,60,000/- on account of remuneration of the partners under section 185 of the Income Tax Act when the instrument of change in partnership was not filed along with the return?.
It is not in dispute that the certified copy of the instrument of change in the constitution of the partnership was duly produced before the assessing officer at the time of assessment.
The assessing officer held that – “As per Sec.184(4) the assessee was required to submit certified copy of the Partnership Deed along with the return.
The assessee did not file any certified copy of the Deed along with the return but claimed remuneration to partners’ for Rs.4,49,60,000/-.” The aforesaid view of the assessing officer was reversed by the CIT(Appeals) who held that – “Mere omission to file the deed with the return cannot and should not be treated as fatal.” In an appeal preferred by the revenue, the learned Tribunal discussed the matter threadbare and expressed the following views : “We observe that there was a change in partnership deed with effect from 1st August, 2004 and the assessee was required to file a certified copy of the partnership deed along with the return as per section 184 (4) of the Act.
Section 185 of the Act provides that if a firm does not comply with the provisions of Section 184 for any assessment year, firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head "profit and gains of business or profession”.
There is no dispute to the fact that the assessee filed the certified copy of the deed during the couRs.of assessment proceedings.
The question arises as to whether non filing of the copy of the changes in partnership deed along with the return is a violation of substantive provision and make the return invalid or it is only a procedural default and is an irregularity in filing the return.
We are of the considered view that non-filing of the copy of the changes in partnership deed along with the return is only an omission and does not make the return filed by the assessee as invalid so as to disallow the claim of the assessee.
Section 292B of the Act provides that merely by reason of any mistake, defect or omission in such return of income, assessment, etc.shall not be invalid or shall not be deemed to be invalid.
The Hon'ble Kerala High Court has held in the case of CIT –versus Masoneilan (India) LTD.[242 ITR569 that section 292B provides that no return of income shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income if it is in substance and effect in conformity with or according to the intent and purpose of the Act.
It is further observed that section 139 also throws some light on the question, if there is any defect, the A.O.is required to give an opportunity to the assessee to rectify the defect within a stipulated time.
We are of the considered view that the purpose of filing the copy of the changes in the partnership deed before the A.O.is to enable the A.O.to examine as to whether there is a genuine partnership in existence and the remuneration being paid to the partners is properly distributed and paid in accordance with the partnership deed.
Furnishing of certified copy of the revised instrument of partnership deed as per section 184(4) of the Act is procedural in nature though the word “shall” is stated but the filing of the instrument of partnership deed is required by the A.O.as mentioned hereinabove to ascertain the genuineness of the existence of the partnership and to ascertain the share of each of the partner as to whether the remuneration being paid is in accordance with the deed of partnership deed and is also in accordance with the limit prescribed under section 40 (b) of the Act.
The defect in not filing the copy of the change in instrument of partnership deed along with the return is a curable defect only through section 184(4) provides that the same should be furnished along with the return of income.
In this regard, we find support from the decision of the Hon'ble Calcutta High Court in the case of CIT-versus Magnum Export (Pvt.) LTD.[262 ITR10.
In the above case, it has been held by Their Lordships that sub-section (4) of Section 80HHC consists of two parts.
The fiRs.part requires filing of the special audit report for claiming deduction without which the deduction is not admissible.
This part is mandatory.
However, the second part consists of the requirement that such audit report is to be filed along with the return.
Filing of the report is a condition precedent for claiming deduction.
It is purely a matter of procedure.
It was held by Their Lordships that the deduction under section 80HHC could not be disallowed simply because the audit report was not furnished along with the return.
The purpose of incorporation of sub-section (4) was to enable the A.O.to ascertain the claim for deduction on the basis of the authentication by the auditor that the goods or merchandise was really exported, which is otherwise admissible only on actual basis, a situation which is difficult for the A.O.to determine.
Their Lordships also held that the question whether is a statute is mandatory or directory depends about the intent of the Legislature and not upon the language in which the intent is clothed.
It was held that the word “shall” in a statutory though taken in a mandatory sense, does not necessarily have that effect in every case.
The intention of the legislature is to be ascertained not only from the phraseology of the provision but also by considering its nature, its design and the consequences that would follow from construing it one way or other.
The Hon'ble Kerala High Court has also held in the case of CIT-versus G.
Krishnan Nair [259 ITR727 that filing of the audit report to claim deduction under section 80HHC (4A) of the Act is only directly in name and it can be filed at any time before the completion of the assessment.
We are also of 7 the considered view that the filing of the revised/changed instrument of partnership deed along with the return is directory in nature and it can be filed at any time before completion of the assessment by the A.O.We do not agree with the Ld.
D.R.that after the amendment by the Finance Act, 2003, non filing of instrument of partnership deed along with the return will make the claim of the assessee illegal so as to deny the claim of the assessee though the requisite details and the evidence is made available to the A.O.before he completes the assessment.
The Hon’ble Delhi High Court has also held in the case of Remfry & Sons – vs.- CIT [276 ITR – 1].that non filing of the partnership deed is an irregularity and is a curable defect, which gets cured by filing the same in the assessment proceedings.
Further the Hon’ble jurisdictional High Court in the case of Joshi And Co.– Vs – CIT [162 ITR268].has observed that nonaccompanying of the instrument of partnership could only be held to be defective and the Income Tax Officer ought to have called upon the assessee to make the defect, the Hon’ble Gujrat High Court in the case of Billimora Engineering Mart – Vs – CIT153 observed as under Head Note : “In the Act of 1961, the requirement is that a partnership deed should be evidenced by an instrument and the application shall be accompanied by the original instrument evidencing the partnership at the date of the application.
The words, “evidenced by an instrument of partnership” do not indicate necessarily that the evidence should be a contemporaneous 8 evidence when the application is made, because, in the ultimate analysis, the purpose of any evidence, and for that matter the instrument of partnership, is to satisfy the authority that there was a genuine and valid partnership in existence in the accounting year.
Procedural law is always to be construed and applied in a manner so as to make it a hand maid to the cause of justice, and it cannot be treated as a substantive provision so as to defeat the rights of the parties.
Therefore, we do not find any reason to interfere with the finding of the Ld.
CIT(A) to hold that the non-filing of the instrument of change in the partnership deed along with the return filed by the assessee but filed during the couRs.of assessment proceedings will disentitle the assessee to claim the remuneration paid to the partneRs.which is paid in accordance with the provisions of the deed of partnership and the provisions of the Act.
In view of the above, we hold that the Ld.CIT(A) has rightly deleted the disallowance of Rs.4,49,60,000/- made by the A.O.Hence, we reject the Ground No.1 of the appeal taken by the Department.” It is this order which is under challenge.
Mrs.Das De, learned advocate appearing for the appellant reiterated the submissions advanced before the learned Tribunal that section 185 is emphatic and also starts with a non-obstante clause.
Therefore, omission on part of the assessee to comply with the requirement of sub-section 4 of section 184 precludes the assessee from claiming any deduction by way of salary paid to the partneRs.She contended that the learned Tribunal erred in taking a view which is plainly contrary to the section namely Section 185.
We have not been impressed by such submission.
We are of the opinion that the view taken by the learned Tribunal is the correct view.
We may add further reasons why the view taken by the learned Tribunal is unimpeachable.
The assessee is required to file return under subsection 1 of Section 139 within the time prescribed therein.
What is the time prescribed has been dealt with in Explanation 2 appended to sub-section 1 of section 139.
This requirement of law has to be held subject to the provision of sub-section 4 which permits an assessee to file a return at any time before the expiry of one year from the end of relevant assessment year or even before the completion of the assessment whichever is earlier.
The Apex Court in the case of 10 CIT, Punjab v.
Kulu Valley Transport Co.P.Ltd., reported in 77 ITR518held that sub-section 3 of section 22 is to be read as a proviso to sub-section 1 of section 22.
Sub-section 1 of section 22 is in pari materia with sub-section 1 of section 139.
The relevant portion of the said judgement reads as follows : “It can well be said that section 22(3) is merely a proviso to section 22(1).Thus, a return submitted at any time before assessment is made is a valid return.
In considering whether a return made is within time sub-section (1) of section 22 must be read along with sub-section (3) of that section.
A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3).In other words if section 22(3) is complied with section 22(1) must also be held to have been complied with.
If compliance has been made with the latter provision the 11 requirements of section 22(2A) would stand satisfied.” Mrs.Das De has not disputed before us that the assessee could have filed his return along with the certified copy of the instrument of change within the period prescribed by sub-section 4 of section 139.
In that case, the return would have been perfectly valid and there would have been no violation of sub-section 4 of section 184.
But because the assessee filed the instrument of change before the day on which the assessee could have filed under sub-section 4 of section 139, the return is to be treated as invalid, is a submission which we are in a position to accept.
The records reveal that a prayer was made before the assessing officer on behalf of the assessee to treat the return as a defective return because the instrument of change in the partnership deed was not annexed to the return.
In that case, the assessee would be entitled to an opportunity to cure the defect.
The assessing officer refused to treat the return as a defective return.
Once he refused to treat the return as 12 a defective one he could not have also held that the return was in derogation of sub-section 4 of section 184 of the Act nor could he in that case have refused to allow the deductions.
If, on the contrary, he had held that the return was defective, then under sub-section 9 of section 139 the assessee would get a chance to cure the defect.
In either case, the result is that section 185 read with section 184, although worded in emphatic terMs.is not intended to be a mandatory provisions.
For the aforesaid reasons, the question is answered in the affirmative and in favour of the assessee.
The appeal is, thus, disposed of.
(GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) ssaha AR(CR)