A. Pasayat, J.
1. At the instance of the Revenue, the following question has been referred to this court under Section 256(1) of the Income-tax Act, 1961 (in short 'the Act'), by the Income tax Appellate Tribunal, Cuttack Bench (in short 'the Tribunal') :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that, in the absence of compliance from the assessee's side, the question of refusal of continuation of registration can only be considered under Section 186(2) ?'
The facts as indicated in the statement of case drawn up by the Tribunal are as follows :
M/s. Builders Union (hereinafter referred to as 'the assessee') is a partnership firm which was granted registration in terms of Section 185 of the Act for the assessment year 1963-64. Since the' assessee complied with the requirements of Section 184(7) for continuance of the grant, such registration was effective for the subsequent assessment years, i.e., 1964-65 to 1976-77. For the assessment years 1977-78 and 1978-79, it was held by the Income-tax Officer, Special Investigation Ward 'A', Bhubaneswar, that the registration shall have no effect, primarily on the ground that the assessments were completed under Section 144 of the Act, for the assessee's failure to comply with the notices issued under Section 142(1) of the Act. In appeal, the Commissioner of Income-tax (Appeals), Orissa, cancelled the orders passed by the Income-tax Officer. He noticed that, originally, for the assessment year 1977-78, the Income-tax Officer had allowed continuance of registration by his order dated March 28, 1980. The assessments which had been completed under Section 144 were set aside on the assessee's making an application under Section 146. The Commissioner of Income-tax (Appeals) also observed that Section 185 of the Act had no application. He found that the Income-tax Officer had not specified the particular sub-section of Section 185 under which he purported to act. It was concluded that, even if the assessment was under Section 144, the Income tax Officer was not authorised to refuse registration without invoking the provision contained in Section 186(2). It was held that Section 185(5) which may have been pressed into service by the Income-tax Officer had no application because that related to the first year for which registration is sought for under Section 185, and did not apply to a case of continuance of registration. Referring to the provisions contained in Section 186(2), it was held that, in the case of an assessment under Section 144, cancellation of registration can be made provided due notice and opportunity as prescribed is granted. On a perusal of records, the Commissioner of Income-tax (Appeals) found that no such notice had been issued. The views of the Commissioner of Income-tax (Appeals) were upheld by the Tribunal in appeals preferred by the Revenue. It came to hold that the order of the Commissioner of Income-tax (Appeals) wasirreversible and did not warrant any interference. It specifically noticed that the orders were passed by the Income-tax Officer under Section 185 and there was no scope for acceptance of the Revenue's stand that the mention of Section 185 was a mistake. The Tribunal observed that even if it is accepted that the mention of Section 185 in place of Section 186 was a mistake, yet, in view of want of notice and grant of opportunity as postulated in Section 186(2), the orders of the Income-tax Officer had no legal sanction. The Tribunal accordingly affirmed the order of the Commissioner of Income-tax (Appeals).
On being moved under Section 256(1) of the Act, the Tribunal has referred the question as indicated above.
2. We have heard Mr. Ray for the Department. In spite of notice, there is no appearance on behalf of the assessee. For effective adjudication of the question referred to us, it is necessary to refer to the relevant provisions contained in sections 184, 185 and 186. They read as follows :
'184. Application for registration.--(1) An application for registration of a firm for the purposes of this Act may be made to the Assessing Officer on behalf of any firm, if-
(i) the partnership is evidenced by an instrument ; and
(ii) the individual shares of the partners are specified in that instrument . . .
(7) Where registration is granted or is deemed to have been granted to any firm for any assessment year, it shall have effect for every subsequent assessment year :
Provided that-
(i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted ; and
(ii) the firm furnishes, before the expiry of the time allowed under Sub-section (1) of Section 139 for furnishing the return of income for such subsequent assessment year, a declaration to that effect, in the prescribed form and verified in the prescribed manner, so, however, that where the Assessing Officer is satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time so allowed, he may allow the firm to furnish the declaration at any time before the assessment is made ...'
'185. Procedure on receipt of application.--(1) On receipt of an application for the registration of a firm, the Assessing Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and-
(a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year ;
(b) if he is not so satisfied, he shall pass an order in writing refusing to register the firm.
Explanation.--For the purposes of this section and Section 186, a firm shall not be regarded as a genuine firm if any partner of the firm was, in relation to the whole or any part of his share in the income or property of the firm, at any time during the previous year, a benamidar-
(a) of any other partner to whom the first-mentioned partner does not stand in the relationship of a spouse or minor child, or
(b) of any person, not being a partner of the firm, and any of the other partners knew or had reason to believe that the first-mentioned partner was such benamidar and such knowledge or belief had not been communicated by such other partner to the Assessing Officer in the prescribed manner . . .
(5) Notwithstanding anything contained in this section, where, in respect of any assessment year, there is, on the part of a firm, any such failure as is mentioned in Section 144, the Assessing Officer may refuse to register the firm for the assessment year.'
'186. Cancellation of registration.--. . . (2) If, where a firm has been registered or is deemed to have been registered or its registration has effect under Sub-section (7) of Section 184 for any assessment year, there is, on the part of the firm, any such failure in respect of the assessment year as is mentioned in Section 144, the Assessing Officer may cancel the registration of the firm for the assessment year, after giving the firm not less than fourteen days' notice intimating his intention to cancel its registration and after giving it a reasonable opportunity of being heard.'
Section 184 of the Act deals with application for registration. In respect of the assessment year relating to which the assessee seeks registration for the first time, an application has to be made before the end of the previous year relevant to the assessment year in terms of sub-section (4) of Section 184. The proviso to the said sub-section, however, permits entertainment of an application after the stipulated time, if the Assessing Officer is satisfied that the applicant was prevented by sufficient cause from making the application before the stipulated time. The formalities to be complied with before the registration is granted are enumerated in Section 184 of the Act and Rule 22 of the Income-tax Rules, 1962 (in short 'the Rules'). The procedure on receipt of an application for registration is prescribed in Section 185. Registration once granted continues to be effective for every subsequent assessment year, provided there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which registration was granted, and within the stipulated time a declaration in the prescribed form and verified in the prescribed manner is submitted. The Assessing Officer has the discretion, on being satisfied that the applicant was prevented by sufficient cause from furnishing the declaration form within the time stipulated, to allow the firm to furnish the declaration at any time before the assessment is made and act on it. Sub-section (5) of Section 185 on which great emphasis has been laid by learned counsel for the Revenue permits refusal to register the firm where there is such failure as mentioned in Section 184. Mr. Ray submits that there being undisputedly an assessment in terms of Section 144, the Assessing Officer was free to refuse registration. We find no substance in this argument.
3. The provisions contained in Sub-section (5) of Section 185 clearly indicate that, notwithstanding anything contained in Section 185, the Assessing Officer may refuse to register the firm for the 'assessment year'. Obviously, the assessment year referred to relates to the first assessment year for which the application for registration has been made. The provisions have no application to a case where the assessee seeks continuance of benefit of registration granted for the previous assessment year.
4. In Section 185, the Income-tax Officer has two powers to refuse registration. The said section deals with the procedure on receipt of an application for initial registration. The refusal may be made in terms of either Section 185(1)(b) or 185(5) or both. The powers are distinct and independent, the scope is different and the conditions envisaged are also different. Under the former, refusal can be made if the Income-tax Officer is of the opinion that the application has not been properly made in accordance with the provisions of law or if he is of the opinion that the applicant is not a genuine firm. In the case of the latter, the refusal can be on the ground of defaults enumerated in Section 144. The use of the words 'may refuse to register' in Section 185(5) shows that automatic refusal is not prescribed. So far as Section 186(2) is concerned, it is relevant to note that Section 184 makes a distinction between initial registration and continuance of registration for subsequent years. The opening words of Sub-section (5) of Section 185 make it clear that the sub-section overrides other provisions of Section 185, The said sub-section applies at the stage of initial registration of granting or recognising registration. Subsequently, the Income-tax Officer could, if at all, pass an order of cancellation of registration under Section 186(2) of the Act, after requisite notice and opportunity. Use of the expression 'cancel' in Section 186(2) clearly implies previous grant of registration. A combined reading of Section 185(5) and Section 186(2) makes it clear that, while Section 185 deals with the assessment year for which the registration is sought for the first time, Section 186(2) deals with subsequent assessment years for which the assessee seeks to have effect of registration under Section 184(7). Section 186(2) clearly provides that where a firm has been registered or its registration has effect under Sub-section (7) of Section 184 for any assessment year, and there has been any such failure as is mentioned in Section 144, the Assessing Officer may cancel the registration for the assessment year.
5. The alternative stand of the Department is that, even if the nomenclature of the order in question was Section 185, in effect and in essence that was one under Section 186. This stand is untenable. Cancellation of registration authorised under Section 186(2) is hedged in by the conditions laid down therein. It is fairly accepted that, where there is any such failure in respect of the assessment year as mentioned in Section 144, the Assessing Officer can cancel the registration for the assessment year after giving the firm not less than fourteen days' notice intimating his intention to cancel its registration and after giving it a reasonable opportunity of being heard. Admittedly, in the instant case, no such notice or opportunity was granted.
6. In these premises, our answer to the question is in the affirmative, in favour of the assessee and against the Revenue. No costs.
S.K. Mohanty, J.
7. I agree.