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Miscellaneous I. T. R. No. 389 of 1958, decided on 21st January 1964.

Firm‑Registration‑Renewal‑

Failure to distribute profits not brought into the account books‑Officer whether entitled to refuse renewal of registration‑Appeal to Appellate Assistant Commissioner from refusal to renew registration‑Reference‑Question of law arising out of order of' Appellate Tribunal‑Order made under S. 33(4)‑Meaning‑Indian Income‑tax Act, 1922, Ss. 26‑A, 30, 31, 33 & 66‑Indian Income‑tax Rules, 1922, rr. 6 & 6A.

If a firm makes profits which are not shown in the books of accounts and the undisclosed profits are not distributed among the partners, then the Income‑tax Officer has discretion to refuse to renew the registration of the firm under section 26‑A of the Indian Income‑tax Act, 1922.

Although under rule 6‑A of the Income‑tax Rules, 1922, the Income‑tax Officer is bound to refuse renewal of registration to a firm if he is not satisfied that the application was in order or that there was a firm in existence constituted as shown in the instrument of partnership, he is not bound to renew registration if he is so satisfied. Even if the application for renewal of regis tration is in order and there is or was a firm in existence constituted as shown in the deed of partnership, there may be circumstances justifying the refusal of renewal. For instance, if the application is withdrawn by some of the partners or if it is proved that the signatures of some of the partners were obtained under duress or by fraud it would be wrong to renew registration and the Income‑tax, Officer should not be bound to renew registration. Further, the satisfaction required under rule 6‑A is only about the application being "in order". "In order" means "correct in form" and not necessarily "true", and an application may be in order even though the particulars contained in it are untrue. The benefits arising out of registration have connection with the substance of the application and not with its form and therefore that the statements made are or the certificate given in the application is incorrect would be a ground for refusing renewal of registration. The word "may" in rule 6 has been deliberately used. If the application is in order, in the sense that it is correct in form, but is incorrect in substance, the Income‑tax Officer may exercise his discretion against renewal. It may be an untrue statement when a part of the correct profits is not distributed among the partners and yet there is a statement in the applica tion for renewal that the profits have been so distributed.

Barring the case in which there is a bona fide doubt as to what the actual profits are, if the partners distributed or credited amongst themselves their shares in what they bona fide believed to be the actual or real profits they can be said to have certified the fact as required by the form of application, But if they dishonestly concealed certain profits and did not distribute or credit them among themselves they cannot truthfully certify that they had distributed or credited the profits.

Concealment of a portion of the profits will not render a certificate that the profits have been distributed or credited incorrect if it in fact had been distributed or credited among the partners in accordance with their shares in the partnership deed. Registration or renewal may not be refused only because a portion of the profits was concealed from the accounts though it was distributed or credited among the partners in accordance with their shares.

Renewal of registration is nothing but registration for a subsequent year, and therefore an appeal lies to the Appellate Assistant Commissioner' under section 30 against an order refusing to renew registration of a firm. The Appellate Tribunal will therefore have jurisdiction under section 33 from an order passed by an Appellate Assistant Commissioner under section 31 in an appeal against an order refusing to renew the registration of a firm.

Commissioner of Income‑tax v. Arokiaswami Chetty and Co. (1948) 16 I T R 404; R. C. Mitter and Sons v. Commissioner of Income‑tax (1959) 36 I T R 194; Hajie ‑Saeed and Sons v. Commissioner of Income‑tax (1947) 15 I T R 51 and Firm Raghunandan Prasad v. Commissioner of Income‑tax (1957) A I R 1957 All. 75 fol.

If the Appellate Tribunal purports to pass an order under section 33, that is enough to give it jurisdiction to refer to the High Court a question of law arising from its order. Whether an order is made under section 33 (4) or not depends upon what, the Appellate Tribunal professes to do ; if it professed to make an order under section 33 (4), it is such an order even if it could not legally be made under that provision. Correctness of the order, which includes correctness of the exercise of the jurisdiction to make it, is irrelevant.

[Cases referred to.]

STATEMENT OF CASE

By this application the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law said to arise out of the order of the Tribunal in I. T. A. No. 3223 of 1953. As in our opinion a question of law does arise out of the said order, we hereby draw up a statement of the case and refer it to the High Court of Judicature at Allahabad under section 66 (1) of the Income‑tax Act, 1922.

2. The assessee is a firm constituted under an instrument of partnership dated the 30th April 1947, showing the following constitution :

	Rs. As. Ps.
1. L. Khanjan Lal	0‑4‑0
2. L. Lalloo Ram	0‑2‑0
3. L. Dwarka Prasad	0‑2‑0
4. L. Ram Lal	0‑2‑0
5. L. Sewak Ram s/o Jagannath Prasad	0‑4‑0
6. Smt. Jagrani Devi, wife of L. Jagannath Prasad and mother of partner No. 5	0‑2‑0

The firm was registered for the assessment year 1947‑48. An application for renewal of registration for the assessment year 1948‑49 signed by all the partners was preferred on the 12th of July 1949. The application was on the prescribed form and in paragraph 3 of the application, the certificate given was as under:

"We do hereby further certify that the profits of the previous year were divided or credited as shown below:"

On November 5, 1949, the partnership was dissolved and a document of dissolution of the partnership was drawn up on November 9, 1949. One of the clauses in the document of dissolution was as under:

"But if an amount which was not entered in the books at the time of settlement is found then only that person will be accountable for it through whom the money was received or paid. None of the .parties will have any objection to it."

On October 5, 1950, the first four partners made a disclosure to the Income‑tax Officer that the firm had earned Rs. 15,000 by way of profits outside the books. It was also stated that these profits had been divided between the partners. A copy of the disclosure application is part of the case and is annexure "A". On December 9, 1950, partner, L. Sewak Ram, appeared before the Income‑tax Officer and made a statement on oath stating that he and the other partner, Smt. Jagrani Devi, were not given full share of profits in gur business earned by the firm in Samvat year 2005. It was also stated that the entire profits earned in the gur business carried on in the previous year were not recorded in the books and that the first four partners had given them their shares of only those profits which were recorded in the books. He also stated:

"For this reason I want to withdraw the application for registration because the profits have not been divided according to the shares."

A copy of the statement of L. Sewak Ram is part of the case and is annexure "B". On September 10, 1951, Sewak Ram gave a list of the black market transactions of the firm carried on by the first four partners and the profits earned by the firm in those transactions. According to L. Sewak Ram, the profits earned by the firm outside the books amounted to Rs. 1,13,571. On March 31, 1951, L. Sewak Ram filed a civil suit for rendition of accounts and claimed as his share of profits a sum of Rs. 50,000 The suit was ultimately compromised and a compromise petition was presented to the Court stating as under:

"Seva me savinay nivedan hai ki ukt mukadama ki halat dekhkar vadigan is natije par pahunche hain ki unko prativadigan se kuch milna nahin hai. Athaiva vadigan prarthi hain ki unka vad kharij parmaya jave;"

meaning thereby that "looking to the progress of the suit the plaintiffs had reached the conclusion that they could realise nothing from the defendants and therefore the plaintiffs pray that their suit be dismissed and the parties would bear their costs." The Civil Judge accepted the compromise and dismissed the suit.

4. On March 15, 1952, the two partners, L. Sewak Ram and Smt. Jagrani Devi, gave an application to the Income‑tax Officer stating that they had withdrawn their signatures on the application for renewal of registration as the profits were not distributed according to the deed of partnership and the certificate of registration required under rule 4 (1) of the Income‑tax Rules, 1922, had never been granted as required by law on the back of the partnership deed. It was also stated that as the certificate under rule 4 had not been granted under law, the firm was not entitled for registration under rule 6 of the Income tax Rules. A copy of that application is part of the case and is annexure "C".

5. On these facts, the Income‑tax Officer making the assess ment held that the assessee‑firm had earned black market profits which were not distributed amongst all the partners according to the partnership deed and the firm was not, therefore, entitled for registration. He also held that the application for registra tion of firm was duly withdrawn. On these facts, the Income‑tax Officer refused to grant registration of the firm and made an assessment on the firm in the status of an unregistered firm and included in the total computation of the assessee's income, the profits earned by the firm in the black market in addition to the profits entered in the books. Copies of the assessment order made by the Income‑tax Officer as also the order refusing renewal of registration are parts of the case and are annexures "D" and "E" respectively.

6. The assessee's appeal before the Appellate Assistant Commissioner against the refusal to renew the registration was unsuccessful and a second appeal was preferred before the Appellate Tribunal. Before the Tribunal, it was contended that, on facts, there was evidence to hold that L. Sewak Ram and Smt. Jagrani Devi had been given their due share in the entire profits earned by the firm, namely, those entered in the books and those not entered in the books. It was also stated that the two partners, L. Sewak Ram and Smt. Jagrani Devi, had no power to withdraw the application for registration of the firm already given under the signatures of all the partners. It was further stated that all the conditions prescribed by rule 6‑A of the Income tax Rules were duly fulfilled and the refusal to renew the registra tion was not proper and legal. The Tribunal heard the appeal and felt it necessary to record the statement of L. Sewak Ram in respect of the quantum and distribution of the black market profits in gur business earned by the firm. A copy of the state ment of L. Sewak Ram along with a copy of the accounts referred to in the statement is part of the case and is annexure "F". At this stage, it is necessary to mention that the appeal preferred by the firm against the quantum of assessment was heard and dis posed of by the Tribunal and the Tribunal held in that appeal that the firm had earned black market profits to the tune of Rs. 1 lakh which were not entered in the books. A copy of the order of the Tribunal in quantum appeal is part of the case and is annexure "G".

7. The two members who heard the appeal held that the assessee‑firm had in fact earned black market profits which were not entered in the books. They also held that these profits were not distributed amongst the partners according to the instrument of partnership. They however differed on the other issues that arose for consideration. The Accountant Member held : (1) that it was not open to the partners, L. Sewak Ram and Smt. Jagrani Devi, to withdraw the application for renewal of registra tion which they had already given. (2) He also held that inasmuch as all the profits recorded in the books had been distributed according to the instrument of partnership, the firm was entitled for registration although the black market profits were not so dis tributed. The Judicial Member, on the other hand, held that as the partners, L. Sewak Ram and Smt. Jagrani Devi, had stated that they had given their signatures on the application for renewal of registra tion on a misrepresentation of facts, they had every right to withdraw the application for renewal of registration and as the application had been withdrawn by two of the six partners, the firm was not entitled for registration. He further held that as all the profits namely, those entered in the books and those earned in the black market, had not been distributed according to the instru ment of partnership, the firm was not entitled for registration. Relying upon the decision of the Madras High Court in Commis sioner of Income‑tax v. Arokiaswami Chetti & Co. ((1948) 16 I T R 404), the Judicial Member further held that every renewal of registration was in fact registration for that year and the conditions to be fulfilled in both the proceedings were practically the same.

The Judicial Member held that as all the profits had not been distributed according to the instrument of partnership and in accordance with the certificate given in the application for renewal of registration, the claim for renewal of registration was not tenable.

8. As there was difference of opinion amongst the two members, the case was referred to the President of the Tribunal under section 5‑A (7) of the Income‑tax Act and the following question was referred for his opinion

"Whether the assessee‑firm is entitled for renewal of the registration in the circumstances of the case

The President who heard the appeal concurred with the opinion expressed by the Judicial Member and held that as the entire profits had not been distributed the Income‑tax Officer had properly exercised his discretion in refusing to register the firm. The President did not express any opinion as to whether L. Sewak Ram and Smt. Jagrani Devi could or could not in law withdraw the application for renewal of registra tion of the firm. As the majority of opinion was that the firm was not entitled to registration, the Tribunal passed an order dismissing the appeal on the 11th of March 1957. A copy of the order of the Tribunal (including orders passed by the Accountant Member, Judicial Member and the President) is part of the case and is annexure "H".

9. On these facts we refer the following question of law for the opinion of their Lordships:

"Whether the assessee‑firm which had distributed the book profits amongst the partner s according to the instrument of partnership but which had not distributed the profit earned by it in the black market amongst the six partners in accordance with the instrument of partnership was entitled for renewal of registration for the assessment year 1948‑49 "

10. The draft statement of the case was placed before the parties. Some minor suggestions made by the asssesee have been accepted and duly incorporated in the statement of the case. The assessee desired that a copy of the compromise .petition filed by L. Sewak Ram before the civil Court be made part of the case. That suggestion is accepted and a copy of the com promise petition is accordingly made part of the case and is annexure "I". At the request of the assessee a copy of the deed of dissolution of the firm is also made part of the case and is annexure "J". The assessee referred to other documents and requested the Tribunal to make those documents part of the case. 'These documents referred to in paragraph 6 of the written sug gestions of the assessee relate to the question as to whether the black market profits were divided amongst the partners in propor tion to their shares. The Tribunal has held that the black market profits were not divided according to the instrument of partner ship. The finding is one of fact, and it is not necessary to annex the documents as part of the case The assessee also raised some More questions besides the one set out by the Tribunal, In our opinion the only question that arises out of the order of the Tribunal is the one set out in this statement of the case.

11. The Commissioner of Income‑tax has no suggestion to make. The statement is finalised.

R. K. Gulati, N. N. Gulati and R. L. Gulati for the Assessee.

S. C. Das for the Commissioner.

JUDGEMENT

M. C. DESAI, C. J.

‑This statement of case has been sub mitted to this Court at the assessee's instance by the Income tax Appellate Tribunal, Allahabad Bench, under section 66 (1) of the Indian Income‑tax Act inviting it to answer the following question, said to be a question of law arising out of it:

"Whether the assessee‑firm which had distributed its book profits amongst the partners according to the instrument of partnership but which had not distributed the profits earned by it in the black market amongst the six partners in accordance with the instrument of partnership was entitled for renewal of registration for the assessment year 1948‑49 "

The assessee is a firm consisting of two groups of partners, one consisting of Khanjan Lal having four annas share and his three sons having two annas share each and the other, consisting of Sewak Ram having four annas share and his mother having two annas share. The firm was registered under section 26‑A for the assessment years 1942‑43 to 1947‑48. For the assessment year 1948‑49 the partners applied for renewal of registration which was refused. A firm if it is registered under the Act has certain advantages in the matter of assessment to income‑tax and section 26‑A lays down the procedure to be followed by a firm in order to bet registered. It is as follows:

"(1) Application may be made to the Income‑tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration . . .

(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed ; and it shall be dealt with by the Income‑tax Officer in such manner as may be prescribed."

Rules 2 to 6‑11 of the Income‑tax Rules deal with registration of firms, Rule 2 lays down that a firm is entitled to registration if it is constituted under an instrument of partnership specifying the individual shares and makes an application signed by all the partners personally and before the end of the previous year in the case of the first application for registration or before the 30th day of June of the assessment year if it is for renewal of registration. Rule 3 prescribes the form in which an application should be made. It has three clauses, clause 2 being a statement to the effect that the instrument of partnership specifying the individual shares of the partners is enclosed and that "the prescribed particulars are given in the Schedule attached to the instrument" and clause 3 being a certificate to the effect that "the profits of the previous year were/will be divided or credited as shown in section B of the Schedule and that the information given in the application and the Schedule is correct." The Schedule is in two sections, section A relating to the firm as constituted at the date of the application and section B relating to the apportionment of the income in the previous year (applic able where the application is made after the end of the relevant previous year) and having several columns including column 1 of names of partners and column 6 of shares in the balance of profits "(annas & pies in the rupee)". Rule 4 lays down that if the Income‑tax Officer is satisfied on receipt of the application referred to in rule 3 that "there is or was a firm in existence constituted as shown in the instrument of partnership and that the applica tion has been properly made " he "shall" endorse a certificate on the instrument or its certified copy to the effect that it has been registered with him under section 26‑A and that the certificate will have effect for the assessment for the year ending on such and such date. The rule further requires that "if the Income‑tax Officer is not so satisfied, he shall‑ pass an order . . . refusing to recognize the instrument of partnership." Rule 5 is to the effect that a certificate of registration granted under rule 4 "shall have effect only for the assessment to be made for the year mentioned therein." Rule 6 refers to renewal of registration and provides that a firm may apply to the Income‑tax Officer to have the certificate renewed for a subsequent year, that the application "shall be signed personally by all the partners . . . and accom panied by a certificate in the form set out below" and shall be made before the 30th day of June of the assessment year. There is a form of application given in the rule which has three clauses, clause 2 being the statement that the instrument of partnership was registered on such and such date and the certi ficate that the constitution of the firm and the individual shares of the partners as specified in it remain unaltered and clause 3 being a certificate that "the profits of the previous year were divided or credited as shown below", followed by a statement showing particulars of the appointment of the income, profits or gains. The statement has several columns including column 1 and column 6 as in the Schedule of the prescribed form for an application under section 4. On receipt of an application under rule 6 "the Income‑tax Officer may, if he is satisfied that the application is in order and that there is or was a firm in existence constituted as shown in the instrument of partnership, grant to the assesssee a certificate" in a certain firm and "if the Income‑tax Officer is not so satisfied, he shall pass an order in writing refusing to renew the registration"; this is rule 6‑A. Rule 6‑B empowers an Income‑tax Officer on being satisfied that a certificate granted under rule 4 or rule 6‑A had been obtained "without there being a genuine firm in existence", to cancel it.

The application made by the assessee was in time and in order to this extent that in column 6 of it the share held by each partner was given and not the amount of the income pertain ing to his share and that there was a certificate about the profits of the previous year having been divided or credited "as shown below". Neither the income of the previous year was shown in the statement nor the amount apportioned to each partner. The partnership was dissolved on November 5, 1949, and the deed of dissolution provided that if an amount not entered in the books at the time of the settlement of accounts was found only the partner through whom it was received or paid would be accountable for it. On October 5, 1950, the partners of the first group disclosed to the Income‑tax Officer that the firm had received Rs. 15,000 by way of profits which were not shown in the accounts of the firm and that they had been distributed among the partners. Sewak Ram, partner of the other group, made a statement to the effect that he and his mother were not given full shares in the profits of a certain business carried on by the firm, that the entire profits earned by it in the previous years were not recorded in the account books and that they themselves had received their shares only in those profits which were entered in them. On March 15, 1952, Sewak Ram and his mother made an application to the Income‑tax Officer saying that they had withdrawn their signatures from the application for renewal because the profits were not distri buted according to the deed of partnership. The Income‑tax Officer made enquiries about the business activities of the firm and discovered that it had reaped extra profits in its business which were not recorded in its books during the accounting year. He observed that "it is . . . nothing surprising if the profits had not been properly distributed as stated on oath by Sri Sewak Ram, partner" and that "one of the partners seeks to withdraw the application for registration filed on July 12, 1949", and rejected the renewal application on these grounds. The assessee filed an appeal which was dismissed by the Appellate Assistant Commissioner and a further appeal which was dismissed by the Tribunal on the ground that the entire profits had not been distributed among the partners. Then at the assessee's instance the Tribunal stated the case.

The question formulated by the Tribunal is not proper ; it suggests that a firm which has distributed all its profits including undisclosed profits is entitled to registration regardless of other facts, which is not correct. In order to be entitled to registration it must make an application in the prescribed form and within' the prescribed time ; until it does so it cannot be said to be entitled to registration. In this case registration was refused on the ground that the Income‑tax Officer had discretion to refuse it even if the application was in time and in order and not on the ground that the application for registration was with drawn by partners of the second group. There was an application by partners of the second group withdrawing their signatures on the application for renewal and the Income‑tax Officer had taken it into consideration for refusing a renewal of registration, but the Tribunal maintained its order only on the ground that the undisclosed profits had not been distributed among the partners and not on the ground that the application for registration had been withdrawn by some of them. While rule 4 regarding applica tion for registration uses the word "shall" rule 6 regarding renewal of registration uses the word "may" making it clear that an Income‑tax Officer is not compelled to renew the registration merely because he is satisfied that the application was in order and that there was a firm in existence constituted as shown in the instrument of partnership. Further the provision in rule 6‑A that if he is not so satisfied he "shall" refuse to renew the registra tion also indicates that while he must refuse renewal if the satisfaction does not exist he is not bound to renew if the satisfaction exists. Even if an application for renewal is in order and there is or was a firm in existence constituted as shown in the deed of partnership there may be circumstances justifying refusal of renewal. For instance, if the application is withdrawn by some of the partners or it is proved that signatures of some of the partners were obtained under duress or by fraud it would be wrong to renew registration and the Income‑tax Officer should not be bound to renew registration. The Government could not have contemplated that even in such a case he must renew registration. Further one satisfaction required under the rule is only about the application being "in order" and there is authority for the view that "in order" means "correct in form" and not "true" and an application may be in order even though the particulars contained in it are untrue. One can make all state ments that one is required to make in a prescribed form of an application without their being correct; so long as one has made all the required statements the application on the face of it must be said to be in order. The distinction that is made out is like the distinction between an order being within jurisdiction and an order being correct; an order within jurisdiction need not be correct. Similarly an application to be "in order" need not be correct. On this view that the satisfaction is about the form of the application, surely an applicant cannot claim that he is entitled to registration if the form of the application is correct but not its substance. The benefits arising out of registration have connection with the substance of the application and not with its form and the Government could not have intended that all that an applicant had to do was to adopt the form and that he would be granted renewal regardless of the lies told by him in the application. That the statements made or the certificate given in the applica tion is incorrect would be a ground for refusing renewal. There is thus sufficient justification for the Government's deliberately using the word "may" in the rule and the rule must mean that if the satisfaction is not there the registration cannot be renewed at all and that if it is there, it may be renewed provided there do not exist circumstances justifying refusal. In other words, non‑existence of the satisfaction is a sufficient ground for refusal to renew while existence of the satisfaction permits, but does not confer a right to, renewal and "in order" means correct in form. The interpretation that "in order" means correct in form is consistent with the interpretation that the first paragraph of rule 6‑A confers discretion upon the Income‑tax Officer. If the application is in order as so interpreted but is incorrect in substance the Income‑tax Officer may exercise his discretion against renewal. As he has discretion and is not bound to renew the registration, "in order" need not be interpreted to mean "correct in form and substance". The registration will not be renewed merely because the form of the application is " correct, the application will have to be correct in substance also so that there is no question of exercising the discretion against the applicant. This interpretation is confirmed by the fact that the satisfaction has to be also on the point that there is or was a firm in existence constituted as shown in the deed of partner ship. The application itself has to contain the statement that the constitution of the firm as specified in the partnership instrument remains unaltered but the partners are not entitled to registration merely because they say so. In addition to saying so what they say must be true. The express requirement about its being true suggests that its being true is not included in the requirement that it must be made. Under rule 6‑B registration or renewal of registration can be cancelled (only) on the ground that it had been obtained without there being a genuine firm in existence. If the words "in order" meant "correct in form and substance" the Government would have provided for cancellation of the registration or the renewal also on the ground that the application was substantially incorrect. There might be no justification for cancelling it only on the ground that the application was not quite in order but if the statements made in the application were substantially untrue, it would be a good reason for cancellation of the registration or the renewal. The absence of a provision for cancellation on this ground shows that the application was only required to be correct in form. If an application is correct in form and the other satisfaction exists the Income‑tax Officer has discretion and may renew the registration in exercise of it ; if later he finds that the application was in correct in substance it would be a case of wrong exercise of discretion and the Government might have well thought that he should not have the power of cancellation in such a case.

Column 6 of the form of an application for registration as well as of an application for renewal is of "Share in the balance of profits or loss (annas and pies in rupee)" and if against the name of each partner entered in column I his share in a rupee of profit or loss is entered in column 6 entries in these two columns are in order. There is nothing to suggest that in column 6 not the fractional share but the amount of the share in the profits or loss of the particular year should be mentioned. What is meant by "share" in the heading of the column is made clear by the words "annas and pies in the rupee"; only the share in a rupee of profits or loss is to be stated and not the actual amount of the share in the profits or loss of the year. Nothing is to be gained by the actual amount being mentioned instead of the fractional share in a rupee. Undoubtedly, there is a difference between stating the amount of the share in the actual amount of the profits or loss and stating the share in a rupee of profits or loss; if the amount is stated it means that nothing more has been distributed to the partner and that if the correct amount of the profits during the year is more no share in the excess of the profits has been paid to the partner. On the other hand, if only the fractional share in a rupee of profits or loss is entered in the column it means that whatever is the correct amount of profits the partner has received his share in it. But the statement in clause 3 of the application that each partner has received either by payment or through credit his share in the profits of the year amounts to the statement that each partner has received his share out of the amount of the correct profits of the year. It may be an untrue statement when a part of the correct profits is not distributed among the partners but the statement is there. Even if the partners were required to state the amount of each partner's share in the actual profits there is nothing to prevent their stating wrong amounts in column 6. Section B of an application for registration requires "particulars of the apportion ment of the income, profits or gains" but the columns are same for section B as for section A and if the actual amount of the share received by each partner is not required to be stated in section A it is also not required to be stated in section B. Stating the fractional share in a rupee of profits or loss is giving "particulars of the apportionment of the income, profits or gains" (or loss). An application for certificate is in two sections because the particulars of the partnership on the date of the application may be different from the particulars of the partnership in the pervious year. The amount paid to each partner as salary or commission has to be stated in column 5 of the form of an application for registration or renewal but it does not follow that the actual amount of the share must be stated in column 6. Salary cannot be described in terms of a fractional share. Com mission also even when it is fixed at a certain percentage of the profits cannot be described in terms of a fractional share of the profits because though it may be earned at a certain percentage of, and be paid out of, the profits the commission agent cannot be said to have a share in the profits. Moreover, while the application contains the certificate about the distribution of the profits according to the shares shown in column 6 it does not contain a certificate that a salary at a certain rate per month or a commission at a certain percentage was paid and, therefore, the actual amount received by way of salary or commission is required to be stated in column 5.

The amount received by each partner as his share in the profits cannot be stated in the application unless the correct amount of the profits was known. Profits of a partnership business as worked out by the partners may not be identical with the profits worked out by an Income‑tax Officer for assessment purposes. Interest and commission paid to partners can be deducted when they calculate the profits for distribution among themselves, but an Income‑tax Officer will not deduct them for assessment purposes. The forms of the applications do not show which profits, profits for purposes of distribution or profits for purposes of, assessment, are to be distributed among the partners. Fractional shares of the partners in a rupee of profits can be stated in the applications even though the correct amount of the profits is not known but the actual amount received by each partner cannot be stated. Then there may be bona fide doubts whether certain receipts are income or capital receipts and whether the partnership is entitled to deduct certain expenses or not ; the correct amount of the profits for assessment purposes cannot be determined unless these doubts are resolved. Finally the accounts maintained by a partnership may be rejected by an Income‑tax Officer under section 13 and he may estimate the amount of its profits upon such basis and in such manner as he may determine. The Government could not have expected the partners to certify that they had distributed or credited the correct profits of the partnership and to state correctly the amount received by each partner as his share in them. Sec tion 28 (2) permits an Income‑tax Officer, on being satisfied that the profits of a registered firm were distributed otherwise than in accordance with the shares of the partners as shown in the partnership deed and that a partner had thereby returned his income below its real amounts, to impose a penalty upon him. So the Department was not left without any remedy in case the amount received by a partner by way of his share in the profits was less than what it should have been and it cannot be said that refusal to register was necessary if the amount received by a partner as his share in the profits was not stated, and stated, correctly, in the application for registration or renewal.

Whether all the profits derived by the partnership during the previous year were distributed or credited to the partners in accordance with their shares or not is a question of fact. In the application for registration or renewal the partners have to certify that the profits had been distributed or credited to them in accordance with their shares. They have to certify about the distribution or crediting of the actual or real profits. We ignore the case in which there is a bona fide doubt as to what the actual profits were ; if the partners distributed or credited among themselves their shares in what they bona fide believed to be the actual or real profits they can be said to have certified the fact as required by the form of the application. But if they dishonestly concealed certain profits and did not distribute or credit them among themselves they cannot truthfully certify that they had distributed or credited the profits. If they distributed or credited only a portion of the profits their certifying would relate only to the portion distributed or credited and it would be a case of there being no certifying in respect of the other portion not distributed or credited. In such a case it can be said that there was no certificate in respect of a portion of the profits. The Government evidently wanted a correct certificate and giving and incorrect or incomplete certificate was as good as not giving a certificate. If no certificate was given at all the application can be said to be not in order. If a certificate was given it cannot be said to be not in order but if it is found that the certificate was incorrect or incomplete it would certainly be a relevant matter to be taken into consideration by the Income‑tax Officer when he has to exercise his discretion in the matter of granting or refusing registration or renewal. When the Government made a right to registration or renewal depen dent upon the partners giving a true certificate the incorrectness or incompleteness of their certificate would be a just ground for refusal to register or renew.

It has been found by the Tribunal that the actual or real profits had not been divided in accordance with the partnership deed, The President of the Tribunal, to whom the case was referred on a difference of opinion between the two Members of the Tribunal, relied upon the "finding of fact . . . that Sewak Ram and Jagrani Devi had not received their entire share of the black market profits" and held that the certificate given by the partners was "a wrong certificate". It was on this finding of fact, and not on the ground that certain profits had been concealed by the assessee, that the discretion was exercised against renewal. Concealment of a portion of the profits would not have rendered the certificate incorrect if they in fact had been distributed or credited among the partners in accordance with their shares in the partnership deed. The certificate was a general one whatever were the profits "were divided or credited as shown in section B of the Schedule"‑and if the disclosed and concealed profits had all been divided or credited it in accordance with the shares it was a correct certificate notwithstanding the concealment of a portion of the profits from the account books. Registration or renewal might not be refused only because a portion of the profits was concealed from the accounts though it had been distributed or credited among the partners in accordance with their shares. Here it was refused because there was no dis tribution or crediting at all. The question before us is whether it could be refused and our answer must be "yes", as registration or renewal was at the discretion of the Income‑tax Officer and the fact relied upon by him in the instant case was a relevant fact.

We shall notice the decisions cited at the bar. In Commis sioner of Income‑tax v. Mauls Dad ((1956) Taxation 243) the Supreme Court of Pakistan ruled that an application for registration under sec tion 26‑A of the Income‑tax Act may not be refused on account of a false statement in the application about the amount of the profits accrued or the fact that they were divided among the partners. Muhammad Munir, C. J. observed at page 244:

"The Income‑tax Officer is bound to register a firm if he is satisfied that the firm exists and that the application has been properly made . . . The words properly made' . . . must be given their ordinary meaning . . . and . . . refer back to the particu lars which are prescribed by rules 2 and 3, namely, that the application has been made by the persons who are required to make it ; that it has been signed by the persons who are required to sign it ; and that it has been made in the prescribed form and is accompanied by the prescribed documents. If these requirements are fulfilled, . . . the Income‑tax Officer has to decide . . . whether a firm as set out in the instrument of partnership exists . . . If he is satisfied that the firm exists, he is bound to register the firm . . . The question what are the true profits of the firm is not at this stage before him and he has yet to decide it under the general provisions of the Income tax Act . . . falsity of the return and of the certificate in the application for registration . . . is irrelevant to the issue, which the Income‑tax Officer has to decide under rule 4, whether or not a firm exists as stated in the instrument . . . "

These observations partly support, and partly conflict with, the view that we take. The learned Chief Justice dealt with rule 4 and not with rule 6‑A and the law laid down by him in regard to rule 4 which uses the word "shall" may not be said to be applicable to rule 6‑A which uses the word "may". Even as regards rule 4 we respectfully consider it preferable to hold that when the satisfaction exists it confers discretion, instead of imposing an obligation, to register. Further what was found in that case was that some profits were concealed and not that they were not distributed in accordance with the certificate ; we have emphasised the distinction between (1) distributing what ever profits have accrued and giving a wrong figure of them and (2) giving a wrong amount and not distributing the excess. The former was the case before the learned Chief Justice where as the case before us is of the latter class.

In Commissioner of Income‑tax v. D'Costa Brothers ((1963) 49 I T R I, 8). Tambe and Desai, JJ, denied that a partnership could be said to have failed to distribute profits according to the shares specified in the partnership deed because in ascertaining and distributing the profits it erroneously debited household expenses of the partners to the profit and loss account. The application consi dered by the learned Judges was an application for registration and not for renewal and they observed;

"The provisions of rule 4 are mandatory in terms. It casts an obligation . . . The determination of profits by an assessee firm in a manner different from the provisions of the Income tax Act or even not strictly in accordance with the express terms of the deed of partnership would not therefore entitle an Income‑tax Officer to reject the application for certification of the deed of partnership on the ground that the application . . . has not been properly made."

The question answered by the learned Judges was different from the question arising before us, it being simply whether a bona fide mistake in calculating and distributing the profits can amount to a failure to distribute the profits in accordance with the terms of the partnership deed. What would be the effect of failure to distribute the profits according to the terms of the partnership deed on an application for registration was not a question raised before them, though it has been answered. The question that was referred assumed that failure to distribute the profits would justify rejection of the application and all that the learned Judges had to find was whether there was failure or not. The question would have been fully answered by the learned Judges holding that when all the profits that were bona fide worked out by the partners had been distributed there was no failure. What has been found in the case before us is that there was deliberate and dishonest concealment of a portion of the profits.

In Commissioner of Income‑tax v. Madanlal Chhaganlal ((1963) 50 I T R 477) Dixit, C. J. and Pandey, J. held 'that registration cannot be refused when the amount of the profits disclosed is less but the whole has been distributed. There whatever were the profits ascertained by the partnership were distributed and this fact at once distingui shes it from the instant case. The learned Judges did not go into the question whether an Income‑tax officer has discretion under rule 4 or not ; they only decided that the mere fact that in calculating the profits the firm failed to credit interest on the capital investment was not a ground for refusing to register.

What was decided by Ansari, C. J. and Govinda Menon, J., in St. Joseph's Provisions Stores v. Commissioner of Income‑tax ((1962) 45 I T R 380, 385), was that "the absence of entries in the separate accounts of each partner is not fatal, and the requirement of rule 6 is met where the profit is taken into the reserve fund by showing the partners' shares therein and indicating what is the contribution of each partner to the reserve fund". They treated the crediting to the reserve account of the profits after specifying the share of each partner in them as crediting them ; in the instant case there is a specific finding of fact that a portion of the profits was not distributed among the partners at all. They did not hold that renewal could not be refused on the ground that there was no distribution or crediting of the profits. This decision was dis tinguished by Chandra Reddy, C. J. and Muhammad Mirza, J. in Chintalapati Ranga Naikulu v. Commissioner of Income‑tax ((1963) 48 I T R 968, 971), holding that "excluding any part of the divisible profits from division in accordance with the instrument of partnership will entail the consequence of rejection of the registration".

Commissioner of Income‑tax v. Sat. Ram Gian Chand ((1961) 42 I T R 543) contains nothing relevant in the instant case ; the learned Judges simply refused to treat the question whether the firm was a genuine firm or not as a question of law arising out of the Tribunal's order. The profits that were divided among the partners were found not to have been calculated in accordance with commercial principles ; but what was argued was not that the application for registration was consequently not properly made but that the partnership did not exist. The fact that the profits were not calculated in accordance with commercial princi ples may not justify the finding that the partnership did not exist but whether it justifies the rejection of the application for registration or not is a different question.

Chhotalal Devchand v. Commissioner of Income‑tax ((1958) 34 I T R 351) is of no assistance in the instant case ; what was contended unsuccessfully in that case was that the profits were divided not among the seven partners by opening their capital accounts but among the two firms of which six of the persons were partners and the seventh person. The partnership consisted of an indivi dual and two firms owned by six persons and as the profits were distributed among the individual and the two firms it was argued that they were not distributed among the seven persons and this argument was repelled. The question before Chagla, C. J. and Desai, J. was whether the certificate about the distribution of profits was correct and not of the effect of its being incorrect, it having been assumed that if it was incorrect registration should be refused. The statement of Chandra Reddy, C. J. and Jagan Mohan Reddy, J. in Grand Hotel v. Commissioner of Income‑tax ((1959) 36 I T R 453, 459), to the effect that an Income‑tax Officer has no "unfettered discretion in the matter and it is open to him to grant or reject an application for registration irrespective of considerations pointed out in section 26‑A . . . and the relevant rules", was relied upon; this statement does not run counter to saying that when the satisfaction referred to in rule 4 or 6‑A exists he has the discretion to grant or refuse registration and that he has no discre tion and must refuse registration or renewal if the satisfaction does not exist. We respectfully agree with their observation:

"If the application does not conform to the procedure in dicated in the rules, the Income‑tax Officer should surely reject the application. But he cannot capriciously and without proper basis decline to register the partnership."

This does not show that the existence of the satisfaction leaves him without discretion. No question of mala fides in calculating and distributing the profits arose in that case.

The question that came up for decision before Chagla, C. J. and Tendolkar, J. in Atmaram Bhogilal v. Commissioner of Income‑tax ((1952) 22 I T R 305), was whether a partnership entered into between Jaswant Lal and his father after their alleged separation was a genuine partnership or not and the answer depended upon whether there was separation between them prior to the alleged partnership. We have nothing to do with that question in the instant case ; if there did not come into existence a genuine partnership, registration had to be refused but what the learned Judges held was that there was a genuine partnership. They recognised that "it is left to the discretion of the Income‑tax Officer whether to register the deed of partnership or not to register it", though they observed that "his discretion is fettered by the rules" and that "here is an obligation upon him to register a partnership deed if he is satisfied that there is, or was, a firm in existence . . . and that the application has been properly made". The application there was for registration under rule 4 and not for renewal under rule 6‑A and the only ground on which the Income‑tax Officer refused registration was found to be unten able. As there was no other ground justifying refusal the partnership was rightly held to be entitled to registration. Rule 6‑A came in for consideration by this Court in Hajie Saeed & Sons v. Commissioner of Income‑tax ((1947) 15 I T R 51). The question that Braund and Pathak, JJ. had to answer was whether renewal could be refused even though it had been granted in a previous year and the answer naturally was in the affirmative, there being no provision laying down that if once registration is renewed it must be renewed every year. There would have been no sense in requiring an application for renewal year after year if renewal in one year made renewal in subsequent years obli gatory. The Act makes no distinction between registration and renewal of registration ; renewal is nothing but registration within the meaning of section 26‑A. The difference between registration and renewal has been made only by the rules which require applications of different contents for registration and for renewal. The learned Judges interpreted rule 6‑A as conferring discretion and not imposing obligation upon an Income‑tax Officer in the matter of renewal. The observations at page 58 that "the moment the Income‑tax Officer is satisfied that the form of the application is as prescribed under the rules, the matter is left entirely to his discretion" and that "the expression the application is in order' relates to the form of the application and not to the correctness of the statement made therein " support the view that we take. It must be noted, however, that rule 6‑A considered by them was differently worded and the only satisfac tion required was about the application being in order. Since there could not arise any question of renewal if the partnership did not exist at all it could be argued that even if the application was correct in form the Income‑tax Officer had discretion to refuse renewal on finding that no genuine partnership existed and it may be said that now with the added requirement that the Income‑tax Officer must be satisfied about the existence of a genuine partnership there is no longer any scope for the argument. Our reply would be that the requirement was added in order to remove the matter from the discretion if no genuine partnership existed.

That a partnership comes into existence by a verbal agree ment confirmed by an instrument of partnership drawn up after the expiry of the relevant previous year is entitled to registration was the ratio decidendi of R. C. Mitter & Sons v. Commissioner of Income‑tax ((1959) 36 I T R 194) decided by the Supreme Court. Sinha, J. (as he then was) laid down the essential conditions to be fulfilled by a partnership in order that it may be entitled to registration but did not say that if they were fulfilled it was bound to be registered. By fulfilling the conditions it became qualified to be registered but if there are other facts on account of which it was disqualified, registration could be refused. The ground on which registration was refused was found by the learned Judges to be unsound and that ground is different from the ground in the instant case.

In N. T. Patel & Co. v. Commissioner of Income‑tax ((1961) 42 I T R 224) the Supreme Court speaking through Kapur, J. confirmed refusal of registration on the ground that though the partnership existed in the previous year there did not exist any instrument of partnership specifying the individual shares of the partners in that year. The learned Judge said a page 228 that the right to registration "can be claimed only in accordance with the statute which confers it and a 'person seeking relief under that section must bring himself strictly within the terms of that section". No occasion arises in the instant case of applying this observation.

A preliminary objection was raised in the instant case on the ground that the question, referred to us does not arise from an order passed under section 33 of the Income‑tax Act. The Tribunal could submit the statement to this Court only if the order giving rise to the question was an order made under section 33. An appeal lies under section 33 to the Tribunal from an order passed by an Appellate Assistant Commissioner under section 31 and an order is passed under section 31 on an appeal filed under section 30 by an assessee objecting to "a refusal to register a firm under subsection (4) of . . . section 26‑A". It was contended that registration is different from renewal of registra tion, that no appeal is provided from an order refusing to renew registration and that the only remedy of the assessee was to apply under section 33‑A to the Commissioner of Income‑tax to revise the Income‑tax Officer's order. Reliance was placed upon Commissioner of Income‑tax v. Arunachalam Chettiar ((1953) 23 I T R 180) in which the Supreme Court held that if an order did not come within the purview of section 31 "no appeal lay therefrom to the Appellate Tribunal under section 33 (1) and if no such appeal properly came before the Appellate Tribunal it could not properly make an order under section 33 (4) and if there was no order under section 33 (4) there could be no reference under section 66". The whole foundation on which the preliminary objection rested is wrong. As we said earlier the Income‑tax Act makes no distinction between registration and renewal of registration ; what is renewal of registration is nothing but registration for a subsequent year. Refusal to renew is refusal to register ; see Commissioner of Income‑tax v. Arokiaswami Chetti & Co. ((1948) 16 I T R 404), R. C. Mitter & Sons v. Commissioner of Income‑tax at page 198 (vide the observation "the application for registration has to be made every year, which in fact means an application for renewal of the registration"), Hajie Saeed & Sons v. Commissioner of Income‑tax at page 60, and Raghunandan Prasad v. Commis sioner of Income‑tax (A I R 1957 All. 75). There was, therefore, no merit in the preliminary objection. Further, the Tribunal purported to pass the order under section 33 and that is enough to give it jurisdic tion to refer to this Court a question of law arising from its order. The words used in section 66 (1) are "an order under subsection (4) of section 33" and not "an order which could legally have been made under subsection (4) of section 33" or "an order which was rightly made under subsection (4) of section 33". Whether an order is an order made under section 33 (4) or not, depends upon what the maker professed to do; if it professed to make an order under section 33 (4) it is such an order even if it could not legally be made under that provision. Correctness of the order which includes correctness of the exercise of the jurisdiction to make it, is irrelevant. For these reasons we rejected the preliminary objection.

The answer to the question is that the assessee firm had no right to renewal of registration and that it could be refused on the ground that it had not distributed a portion of its profits in accordance with the instrument of partnership in the previous year relevant to the assessment year 1948‑49.

We direct that copies of this judgment shall be sent under the seal of the Court and the signature of the Registrar to the Income‑tax Appellate Tribunal and the Commissioner of Income tax as required by section 66 (6) of the Act. The assessee shall pay to the Commissioner of Income tax his costs of this reference which we assess at Rs. 200. Counsel's fee is assessed at Rs. 200.

Reference answered accordingly.

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