Ita/454/2009 Of M/S. Bhaskar & Co v. The Commissioner Of Income-Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 15TH SEPTEMBER, 2009 / 24TH BHADRA, 1931 ITA.No. 454 of 2009 (ITA.261/COCH//2003 of I.T.A.TRIBUNAL,COCHIN BENCH) .................... APPELLANT/RESPONDENT: ---------------------------------------- M/S BHASKAR & CO.,TRIVANDRUM. BY ADV. SRI.P.BALAKRISHNAN RESPONDENT/APPELLANT: --------------------------------------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY STANDING COUNSEL SRI.JOSE JOSEPH. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 15/09/2009, ALONG WITH ITA NO. 457 OF 2009, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. --------------------------------------------- I.T.A.Nos. 454 & 457 of 2009 --------------------------------------------- Dated this the 15[th] day of September, 2009J U D G M E N T Ramachandran Nair,J: The connected appeals are filed by theassessee challenging the orders of the IncomeTax Appellate Tribunal, Cochin Bench, whereinthe denial of status claimed by the assessee as a'firm' by the assessing officer is confirmed by theTribunal for the assessment years 1993-94 and1994-95. We have heard learned counselappearing for the appellant and StandingCounsel Sri.Jose Joseph, who took notice onadmission. 2.The assessee was being assessed as aregistered firm until the assessment year 1992-93. From 1.4.1993 onwards, major amendmentswere introduced in Chapter XVI of the Income I.T.A. Nos.454 & 457 of 2009 Tax Act dispensing with registration of firms for thepurpose of assessment under the Act. Newlysubstituted provisions of Section 184 introduced with effect from 1.4.1993 is extracted herein below for easy reference:- “184. Assessment as a firm (1) A firm shall be assessed as a firm forthe purposes of this Act, if---the purposes of this Act, if--- (i) the partnership is evidenced by aninstrument; andinstrument; and (ii) the individual shares of the partners are specified in that instrument. (2) A certified copy of the instrument ofpartnership referred to in sub-section (1) shallaccompany the return of income of the firm ofthe previous year relevant to the assessmentyear commencing on or after the 1[st] day ofApril, 1993 in respect of which assessment as afirm is first sought. Explanation.-- For the purposes of thissub-section, the copy of the instrument ofpartnership shall be certified in writing by allthe partners (not being minors) or, where thereturn is made after the dissolution of thefirm, by all persons (not being minors) who werepartners in the firm immediately before itsdissolution and by the legal representative ofany such partner who is deceased. (3) Where a firm is assessed as such forany assessment year, it shall be assessed in the same capacity for every subsequent year ifthere is no change in the constitution of thefirm or the shares of the partners as evidencedby the instrument of partnership on the basisof which the assessment as a firm was firstsought. (4) Where any such change had takenplace in the previous year, the firm shall furnisha certified copy of the revised instrument ofpartnership along with the return of income forthe assessment year relevant to such previousyear and all the provisions of this section shallapply accordingly. (3) Where a firm is assessed as such forany assessment year, it shall be assessed in the same capacity for every subsequent year ifthere is no change in the constitution of thefirm or the shares of the partners as evidencedby the instrument of partnership on the basisof which the assessment as a firm was firstsought. (4) Where any such change had takenplace in the previous year, the firm shall furnisha certified copy of the revised instrument ofpartnership along with the return of income forthe assessment year relevant to such previousyear and all the provisions of this section shallapply accordingly. (5) Notwithstanding anything containedin any other provision of this Act, where, inrespect of any assessment year, there is on thepart of a firm any such failure as is mentionedin section 144, the firm shall be so assessedthat no deduction by way of any payment ofinterest, salary, bonus, commission orremuneration, by whatever name called, made bysuch firm to any partner of such firm shall beallowed in computing the income chargeableunder the head “Profits and gains of business orprofession” and such interest, salary, bonus,commission or remuneration shall not bechargeable to income-tax under clause (v) ofsection 28.” 3.Admittedly, the assessee was assessed asa registered firm upto the assessment year 1992-93 and it was again assessed as a firm during the year I.T.A. Nos.454 & 457 of 2009 :-4-: 1995-96. However, in between for the twoassessment years, 1993-94 and 1994-95, theassessee was declined the status as a 'firm' for thepurpose of assessment for the reason that it did notattach certified copy of the instrument ofpartnership along with income tax return filed forthese two years. When appeals are heard by theC.I.T(A), the argument of the assessee was that forthe assessment years 1992-93 and 1995-96, the firmwas assessed in that status and non-filing of thecertified copy of the instrument of partnership alongwith returns was a bona fide omission and the samewas made up by producing it before the Officerwhen assessments were taken up. The C.I.T(A)directed the assessing officer to make assessmentas a 'firm' granting eligible deduction, otherwisedeclined under Section 185 of the Act, againstwhich the Department filed appeals before the :-5-: Tribunal. The Tribunal held that since the assesseefailed to produce certified copy of the instrument ofpartnership along with the return for both the yearsand since there is no evidence about the productionof the same at the time of assessment, the originalassessment issued declining status and makingdisallowance of the claims of deduction towards thepayment of interest, salary, bonus, commission,remuneration etc. to partners is perfectly in order.It is against the order of the Tribunal, assessee hascome up with these appeals before us. 4.The question to be considered is whethernon-filing of a certified copy of instrument ofpartnership along with returns filed for theassessment years 1993-94 and 1994-95 is fatal toassessee's claim for assessment in the status as a'firm'. The contention of counsel for the assessee isthat the firm, which was assessed in that status :-6-: 4.The question to be considered is whethernon-filing of a certified copy of instrument ofpartnership along with returns filed for theassessment years 1993-94 and 1994-95 is fatal toassessee's claim for assessment in the status as a'firm'. The contention of counsel for the assessee isthat the firm, which was assessed in that status :-6-: until 1992-93, need not furnish certified copy of theinstrument of partnership, for assessment in thestatus as 'firm' for the subsequent assessment yearsbecause there was no change in the deed ofpartnership. In other words, according to him, thefirm once assessed in that status, is entitled to beassessed in the same status for all subsequent yearsby virtue of operation of Section 184(3) of the Act, ifthere was no change in the constitution of the firmfor any of those years. The Standing Counsel, onthe other hand, contended that assessment year1993-94 is the firstyear in which assessee's claimfor assessment in the status of firm after theamended provisions came into force has to beconsidered. Therefore, according to him, theassessee was bound to produce certified copy of theinstrument of partnership along with return. It ispertinent to note that prior to the introduction of :-7-: amended provisions which came into force witheffect from 1.4.1993, a firm could be assessed eitheras a registered firm on complying with theformalities or otherwise only as an 'Association ofPersons'. However, with effect from the assessmentyear 1993-94 onwards, registration of firm isdispensed with, but for the first time, if a firm seeksregistration in that status for any assessment yearcommencing on or after 1.4.1993, the firm has tofurnish the certified copy of the instrument ofpartnership along with the return for the relevantassessment year. In our view, even an assessee,which enjoyed registration as a 'firm' up to theassessment year 1992-93, is required to furnishcertified copy of instrument of partnership ifassessment was claimed in the status of firm forany assessment year commencing from 1993-94onwards. Once the status as 'firm' is made for any assessment year commencing from 1993-94onwards based on the certified copy of instrumentof partnership produced, then by virtue of operationof subsection(3), the firm will be assessed in thesame status for all subsequent years withoutproduction of any certified copy of instrument ofpartnership until there is a change in theconstitution of the firm. For assessment as firmafter change in the constitution of the firm, sub-section (4) of Section 184 requires production ofrevised instrument of partnership along with returnfor the assessment year relevant for the previousyear in which such change in the partnership tookplace. Sub-section (3) refers to the assessment inthe status as a 'firm' based on the assessment madepursuant to production of certified copy ofinstrument of partnership referred to in sub-section(2) of Section 184 and not the assessment made as a registered firm for any assessment year prior to1993-94. The consequence of non-production ofcertified copy will naturally lead to disallowance ofclaims of deduction towards payment of interest,remuneration, bonus etc. paid to partner by the firmby virtue of Section 185 of the Act. We, therefore,hold that the production of certified copy ofinstrument of partnership is mandatory for claimingassessment in the status of a firm for anyassessment year commencing from 1993-94onwards irrespective of whether such assessee wasassessed as a registered firm up to 1993-94. Inprinciple, we therefore, uphold the findings of theTribunal. 5.Counsel for the appellant brought to ournotice the findings of the CIT(Appeals) that theassessee has produced certified copy of thepartnership deed before the officer at the time when 5.Counsel for the appellant brought to ournotice the findings of the CIT(Appeals) that theassessee has produced certified copy of thepartnership deed before the officer at the time when assessment was taken for the above two years.However, the Standing Counsel for the respondent,defending the finding of the Tribunal, argued thatthere is no evidence about the production ofcertified copy of the instrument of partnershipbefore the Officer when the assessment was takenup and the assessee itself does not have such a casein the ground raised by them. We do not propose togo into the question whether the claim of theassessee that certified copy of instrument ofpartnership was filed, subsequent to the filing ofreturns, but before completion of assessments, iscorrect or even if filed, whether it is sufficientcompliance of the provisions for granting the statusas firm. However, in this particular case, if thefindings of the Commissioner are true, then we feel,the assessee is entitled to the benefit of assessmentas a 'firm' because 1993-94 is the first year of assessment after the amendment came into forceand sub-section(3) creates confusion as to whetherthe continuation of status is based on anyassessment as a 'firm' after and including theassessment year 1993-94 or whether it is sufficient,the assessee was granted the status as a registeredfirm for the assessment year prior to 1993-94.Therefore, we direct the assessing officer to verifythe records and find out, whether the assessee hasproduced certified copy of deed of partnership whenthe assessment was taken up and if so, to grantstatus as a 'firm' as a special case for theassessment year 1993-94 and if it is granted,necessarily, the assessee will be entitled to thebenefit for 1994-95 as well unless there was achange in the constitution of the firm, which is alsoa matter of verification by the Officer. However, ifthe assessee had not, in fact, produced the certified :-12-: copy of the deed of partnership when theassessment was taken by the Officer, then theassessee is not entitled to assessment in the statusas a 'firm' for the two assessment years involved, inwhich case the Tribunal's order will stand confirmedby this judgment. The appeals are disposed of as above. C.N.Ramachandran Nair, Judge. MBS/ V.K.Mohanan, Judge. :-13-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. --------------------------------------------------- I.T.A.NO. OF 200 -------------------------------------------- J U D G M E N T I.T.A. Nos.454 & 457 of 2009 :-14-: DATED: -9-2009