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I . I. A. No. 1289/ KB of 1978-79, decided on 23rd February, 1980.

---S. 26-A--Firm--Change in constitution of--Registration renewal of- Natural justice, principles of, application of old firm from which one of the partners retired--Genuineness of firm not open to doubt-- assessee had clearly indicated in return of income about change in constitution of firm by mentioning names of continuing partners with their shares though no application for registration was filed--Held, it was a fit case where before outright rejection of assessee's registration an opportunity should have been provided to explain reason for not filing the application for registration.

(1962) Tax 89 (Trib); (1962) Tax 271 and P L D 1980 Kar. 122 ref.

Muhammad Zaki Ahmad for Appellant

S.A. Khan D.R. for Respondent.

Date of hearing: 12th February, 1980.

The appellant, a registered firm dealing in paints and varnish etc. has disputed the refusal of claim under section 26A by the learned Appellate Assistant Commissioner.

2. Registration under section 26A was allowed to the appellants for the first time in the assessment year 1972-73 on the basis of a Deed of Partnership executed on 1st April, 1971. The partnership "comprised four partners. The firm was also registered with the Registrar of Firms on 30-9-1971. The accounting period of the appellant ended on 31st March each year. Renewal of registration was granted or the assessment year 1973-74 and 1974-75. On 1-4-1974 the first day of the accounting period for the assessment year 1975-76, a change took place in the constitution of the firm on account of the retirement of one of the partners, On the same day a new partnership deed was executed between the three remaining partners with equal shares.

3. The Return of Income for the year under consideration was riled on 13-9-1975 and in Part-III of the Return, the appellant also indicated the names of the three partners alongwith their shares as her the new deed of partnership but no application for Registration/ Renewal of Registration was filed alongwith the Return of Income. The Income-tax Officer, while considering the appellant's claim under action 26A noted that in the first instance the appellant failed to make an application for renewal of Registration, which according to the Rules, should have been filed alongwith the Return of Income. 'Secondly, he noted that no application was made by the appellant to the Registrar of Firms for recording the change in the constitution of firm. On account of these two reasons the Income-tax Officer did not allow renewal of Registration and assigned the status of in unregistered firm (URF) to the appellant.

4. The appellant assailed this order of the Income-tax Officer before the learned Appellate Assistant Commissioner, who also confirm that order on the ground that according to the Finance ordinary 1974, which became effective from 1-7-1974, the appellant had to file an application for registration within six months of the start of accounting period since there was a change in the constitution of firm. The appellant should have filed this application for registration, by 1-10-1974, which it failed to do. According to the learned Appellant, Assistant Commissioner, the Finance Ordinance, 1974 expressly, provided in section 26A that with the change in the constitution of firm Registration application was necessary. The learned Appellant Assistant Commissioner considered the appellant's objection that before refusing the appellant's claim an opportunity should have been providers to it. This plea of the appellant did not find favour with the learned Appellate Assistant Commissioner because according to him there was nothing in law to warrant the necessity of allowing such an opportunity. He was further of the opinion that in the appellant's case no purpose could be served for allowing such an opportunity as it did not lie within the discretion of the Income-tax Officer to allow registration, without their being are application for the same.

5. The appellant has, now come before this Tribunal against the order of the learned Appellate Assistant Commissioner and contend that before the amendment made in the relevant section w.e.f. 1-7-1974 the law was that in case of change in constitution etc. only application, for renewal was to be filed with the Return of Income, and in support of his contention he cites a decision of this Tribunal reported as (1962) Tax 89 (Trib.). After the amendment in the law the requirement of filing of renewal application was dispensed with but simultaneous it was provided that if there was a change in the constitution of firm, an application was to be filed. The learned Counsel appearing on behalf of the appellant contends that change in law was made after the reconstitution of the firm because on the day the Deed was drawn i.e. 1-4-1974, the old law was operative. Although when the return was filed the law on the point stood changed. He contends that so far as the genuineness of the firm was concerned there co be no doubt in that regard because only one of the old business, partners had retired from the business and the remaining three were continuing with the firm. As such the main thing, namely the genuineness of the firm could not be disputed. He vehemently argued that the appellant had clearly indicated on the Return of Income, the status of a Registered Firm (RF) and on the relevant, page of the Return has also given the names of the three continuing partners together with their shares, the mere reason that the formality of making an application for registration was not completed, alongwith the Return of Income, did not justify an outright rejection of the appellant's claim. According to the learned Counsel it to the appellant for registration procedural defect for which the Income-tax Officer should have written to the appellant or issued a show-cause notice for refusing the claim under section 26-A. The learned Counsel also cites a decision of an Indian High Court reported in (1962) Tax 271 where the Honourable Court held that although the Rules do not provide for the issue of notice before refusing renewal of registration but since the Income Tax Officer has power to entertain belated applications also, he should have exercised his discretion judicially by providing an opportunity to the appellant. The learned Counsel also relies on ratio of decision of our own High Courts where it has been repeatedly held by them that principles of natural justice have to be kept in mind by the judicial, and even administrative authorities before taking any action prejudicial to the interests of a person. In support of his contention he cites a decision of the Karachi High Court reported as PLD 1980 Karachi, 122 (Feb. Part). The Hon'ble Court has held that the rule of Natural justice is to be read into every statute in the absence of express provisions to the contrary, where statutory authority is vested with the powers to pass orders, affecting interest of any citizen. Orders passed without providing an opportunity would be without jurisdiction and nullity in law." In the facts of the appellant's case the learned counsel contends that it was an old firm to which Registration was allowed in the past three years. The change in the constitution comprised only the retirement of one of the partners. Further, the appellant had also indicated the names of three remaining partners and their shares. In this background, the learned Counsel vehemently urges, that a duty was cast on the Income Tax Officer to have provided an opportunity for explaining as to why a fresh application under section 26A was not made. He submits that had such an opportunity been provided the appellant, in view of the amended law, would have immediately complied with the legal requirement. Since the Income Tax Officer and the learned Appellate Assistant Commissioner failed to appreciate the pending facts of the case, they simply violated the principles of natural justice and their orders could not be considered as sustainable in law.

6. The learned Departmental Representative op the other hand contends that the amended law demanded that an application should be filed if there was a change in the constitution. Since the appellant failed to comply with this legal requirement, the Income Tax Officer was justified in refusing the claim without providing any opportunity because the law does not cast any responsibility on him for providing an opportunity before refusing the claim. The learned Departmental Representative also contends that soon after the change in constitution the appellant should have informed the Registrar of firm also for recording the change. It appears that this change was recorded by the Registrar after the close of the accounting period. The learned Authorised Representative's contention in this regard is that in the case of a change in the constitution the Registration No. and everything else in the records of the Registrar remains the same. On receipt of application the Registrar simply records the change effective from the date mentioned in the application. According to the learned Counsel this formality was also not important enough for rejecting the appellant's claim.

7. I have given my earnest consideration to the facts of the case and the legal issues involved in the matter. It was the case of an old firm from which one of the partners retired. There could, therefore be no doubt so far as the genuineness of the firm was' concerned. The appellant had clearly indicated in the Return of Income (although he did not file an application for registration) about the change in the constitution by mentioning the names of these continuing partners with their shares. In my opinion, it was a fit case where before outright rejection of the appellant's claim, an opportunity should have been provided to it to explain the reason for not filing the application etc. There is no express provision in section 26A or the Rules made there under for providing an opportunity to the assessee' in such cases but there is enough law by our Superior Courts regarding the observance of the principles of natural justice wherever the rights of a person were likely to be affected In my opinion this was a fit case where an opportunity should have been provided before refusing the claim. This order therefore does not appear to be sustainable in law. Accordingly, the orders of the Departmental Office's are vacated on the issue with the direction that an opportunity may be allowed to the appellant to explain its position and then the claim should be disposed of in accordance with the law.

8. In the result, the appeal is disposed of as indicated above.

M.B.A/422/T. Order accordingly.

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