2001 PLP 10 (PTD)

NASIM SIKANDAR, J.

The Lahore Bench of the Income-tax Appellate Tribunal has framed the following questions of law statedly arising out of their order dated 6-4-1986: (i) Whether in the facts- and in the circumstances of the case the Tribunal was justified in confirming the registration granted by the learned A.A.C., on the assumption that no new firm came into existence and there occurred only a change in the constitution of the firm, whereas as per partnership deed and application made under section 68 of the Ordinance, a new firm was created for which a fresh claim of registration was made? (ii) Whether in the facts and circumstances of the case the Tribunal was justified in holding that as per partnership deed executed amongst seven persons no new firm was constituted? (iii) Whether in the case of a newly created firm the I.T.O., was competent to refuse registration due to non-appearance of the partners for examining genuineness of the firm?

2. The assessee on 26-4-1984 filed an application for registration of the firm. On being served with a notice under section 68 of the Income Tax Ordinance, 1979, affidavits, wealth statements and Identity Cards of the partners were submitted. However, some time was sought to produce the male partners and the books of accounts i.e., Cash book, ledger etc. On the dates so fixed neither the assessee attended the proceedings nor the order for production of male partners was complied with. Therefore, the Assessing Officer keeping in view the absence of male partners and the books of accounts etc., opined that no genuine firm had come into an existence. Accordingly, the application was rejected.

3. The learned A.A.C. observed that factually it was a case of change of constitution of the firm and, therefore, in absence of any substantial objection, the Assessing Officer was not justified in refusing to renew registration. Particularly when form-D issued by the Registrar of firms had been submitted. The order so recorded by the A.A.C. on 2-2-1983 was maintained by the Tribunal on 6-4-1986 for similar reasons.

4. After hearing the learned counsel for the revenue we are persuaded to agree that the learned First Appellate Authority misconstrued the whole proceedings. Also the Tribunal fell in error by holding that it was a case of renewal of registration and not a fresh registration of the firm. Even if that be so, the fact of the matter is that the assessee failed to comply with the requirements of notice and instead of appearing and satisfying the Inquiry, he absented himself. The learned First Appellate Authority apparently failed to appreciate that the petitioners had not been able to explain their absence nor the fact as to why they failed to produce the books of accounts etc. Section 68 of the Income Tax Ordinance, 1979 contains a number of conditions for registration of a firm with the Department. Also it clearly states that an Assessing Officer before allowing an application for registration may make such inquiry as he thinks fit. Further that the registration of the firm is dependent upon his satisfaction that the requirement of subsections (2) and (3) of section 68 are fulfilled. The all important questions always being that a genuine firm had come into existence for the relevant income year. Subsection (5) of section 68 indicates the other facet of the jurisdiction of the Assessing Officer. It is that even after the registration of a firm at any time if he is satisfied that the preconditions given in clauses (a) to (c) of subsection (2) of section 68 had ceased to exist, he may be proceed to cancel the registration.

5. The proviso to subsection (4) of section 68 does not by itself deal with the cases of re-constitution of the firm as thought by the A.A.C. The proviso only checks the earlier procedure of making of an application for renewal every year. It goes to state that no fresh application for renewal from the year to year shall be needed. The case of registration of a firm in terms of requirements of subsection (2) of section 68 and change in constitution accordingly stand at par. If a firm has only been reconstituted even then the three requirements of subsection (2) of section 68 will have to be satisfied. Again it is the satisfaction of the Assessing Officer that there is, or was, a genuine firm in existence for the relevant income year which matters.

6. That being so, the three questions are answered in the negative. C.M.A./M.A.K./C-24/L Reference answered.