1989 PLP (Trib (PTD)

2. M/s. Al-Ata General Trade Associates, hereinafter referred to as `the appellant', applied for registration as a firm under section 68 of the I.T. Ordinance, 1979, in asstt. Year 1983-84 and it was granted. The appellant was allotted NTN 10-39-2477948 and its two partners namely Mr. Ziaur Rehman and Mst. Iqbal Begum were assigned NTN 10-39-2477949 and 10-39-2477950 respectively. The appellant and its partners went on filing return till asstt. year 1985-86 in the same, capacity and assessments were framed accordingly. However in asstt. year 1986-87 the appellant filed its return with the status of Unregistered Firm (URF) and Part III-B and C and Part IV of the return were crossed. However, the verification column was signed by Mr. Ziaur Rehman, one of the partners, in his capacity as partner. It is important to note that the return was filed under the NTN of registered firm and the I.T.O. framed assessment of the appellant giving, it status of URF. However subsequently, it transpired to him that he had committed a mistake. Consequently he issued a notice under section 156 of the I.T. Ordinance and thus disclosed his intention of rectifying the mistake and framing the assessment of the appellant as URF. The appellant, however, vide its letter dated March 31, 1987, sent through its authorised representative, strongly opposed the proposal of the I.T.O. It was contended that since the return was filed as URF and since Part III-B, C and Part IV of the return were not filled-in, the I.T.O. had no jurisdiction to rectify any mistake as there excised none. The attention of the I.T.O. was also invited to the addition of a provision to Section 69 (1) (b) (ii) of the Income Tax Ordinance which became effective from July 1, 1986, with the effect that the I.T.O. was left with no power of framing assessment of a URF as RF. The I.T.O. however, repelling all the contentions of the appellant proceeded under section 156 and treating the appellant as RF framed assessment accordingly. Having been aggrieved and dissatisfied the appellant went up in appeal but the learned A A C by his impugned order has confirmed the order recorded by I.T.O under section

156. The appellant, however, still feels aggrieved and has come up in second appeal before this Tribunal.

3. Mr. S.A. Qadeer, the learned A.R. of the appellant, has once again reiterated his arguments canvassed previously before both the officers below. He further argued before me that apart from Section 69 (1) (b) (ii) of the Income Tax Ordinance there was no other provision in it which could give power to the I.T.O. to treat a URF as RF. Mr. Amin-e-Ajam, the learned DR. however, has supported both the officers below.

4. I have heard both the learned AR of the appellant as well as learned DR at length. Mr. Qadeer, the learned AR, has specifically based his arguments on Section 69 of the Income Tax Ordinance, 1979, I, therefore, start my discussion with it and for ease of reference it is reproduced hereinbelow:-- "Assessment of firms and partners.--(1) Notwithstanding anything contained in this Ordinance, where the assessee is a firm and the total income of the firm has been determined or assessed under Sections 59, (59A, 60), 62, 63 and 65, as the case may be,-- (a)??????? in the case of a registered firm-- (i)???????? the tax payable by the firm itself shall be determined; and (ii)??????? the total income of each partner of the firm including therein his share of its income, profits and gains of the income year shall be assessed and the sum payable by him on the basis of such assessment shall be determined; (iii)?????? if such share of any partner is a loss, it shall be set off against his other income or carried forward and set-off in accordance with the provisions of Sections 34, 35, 36, 37 and 38; (iv) ????? where any of such partners is a non-resident, his share of .the income, profits and gains of the firm shall be assessed on the firm at the rates which would be applicable if it were assessed on him personally, and the sum 'so determined as payable shall be paid by the firm; and (b)??????? in the case of an unregistered firm, the Income Tax Officer- (i) ??????? may determine the tax payable by the firm on the basis of the total income of the firm; or (ii)??????? may proceed in the manner laid down in clause (a) as applicable to a registered? firm, if, in his opinion, the aggregate amount of tax (including the tax payable under sub-clause (i),of that clause) would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm. (Provided that this sub-clause shall not apply in respect of any assessment year commencing on or after the first day of July, 1986). ...................................................................................................................? From perusal of Clause (b) of Subsection (1) of Section 69 as reproduced above it appears that as per its paragraphs (i) and (ii) the I. T.O. had power of framing assessment of unregistered firm as if it was a registered firm. However; Finance Act of 1986 introduced proviso to clause (b) and, thus, from 1st July, 1986, such power of the I. T.O. was taken away. The contention of Mr. Qadeer, therefore, on this point appeal to be correct. However, this does not appear to be the end of the matter. When we go through subsection (4) of Section 68 of the I.T. Ordinance we find that if a firm is registered, its registration becomes effective not only for the income year in which it is registered but also for all subsequent income years for so long as there is no change in the constitution of the firm. For the sake of easy reference, subsection (4) of Section 68 is reproduced hereinbelow:

"68 (4) Where the Income Tax Officer, after making such enquiry or requiring the firm to furnish such particulars, documents or evidence as he may think fit, is satisfied that the requirements of subsections (2) and (3) have been fulfilled and that there is, or was, a genuine firm in existence in the relevant income year constituted as shown in the instrument of partnership, he may, by an order in writing, made within three months of the date on which the return of total income was filed under Section 55 or six months of the end of the income year, whichever is the earlier, register the firm for the purposes of this Ordinance and, subject to the provisions of subsection (5), SUCH FIRM SHALL RETREATED AS . A REGISTERED FIRM FOR THE INCOME YEAR FOR WHICH IT IS FIRST REGISTERED AND FOR ALL SUBSEQUENT YEARS FOR SO LONG AS THERE IS N0 CHANGE IN THE CONSTITUTION OF THE FIRM; and if he is not so satisfied, he may, by an order in writing made within the aforesaid period, refuse to register the firm: ?????? Provided that where no such order is made within the aforesaid period, the firm shall be treated as a registered firm and all the provisions of this Ordinance shall, so far as may be, apply as they apply in the case of a firm registered under this subsection. (`Capital letters have been used for emphasis)." Thus, in spite of the addition of proviso to Section 69 (1) (b) (ii), the legal position does not appear to have shown any change regarding a registered firm. From perusal of clauses (a) and (b) of subsection (1) of Section 69, it appears I that they deal specifically with the case of a Registered Firm, and Unregistered Firm respectively. In other words if a firm was unregistered, the I.T.O. had the power of treating it as a registered firm before the introduction of aforesaid proviso which indeed lie cannot do after 1st July of 1986. However, subsection (4) of Section 68 deals with those cases in which a firm has been registered: Thus, it-, is clear that if a firm has been registered it all be treated as registered firm not only in the income year in which it is first registered but also for all subsequent income, years for so long as there is no change in the constitution of the firm. Thus, it is the provisions of subsection (4) of Section. 68 which appear to be applicable in case of the appellant and not clause (b) of subsection (1) of Section 69 for the simple reason that the appellant became a registered firm in asstt. year 1983-84 and in the relevant asstt. year, the I.-T.O. was bound to treat it as registered firm unless the appellant could show to him change in the constitution) of the firm. Had it been an unregistered firm from the very beginning, the question regarding the application of paragraph (i) or (ii) of Clause (b) of subsection (1) of Section 69 would have arisen and the reliance of Mr. Qadeer on proviso would have been of some significance. By his letter dated 31-3-1987 Mr. Qadeer has not contended that there was a change in the constitution of the appellant though it was necessary because of the provisions of subsection (4) o?f Section 68 which; in such case, have squarely and surely placed burden of proof on the shoulders of the assessee. Can the other hand, his reliance has been firstly on the introduction of the proviso and secondly on the crossing of Parts III and IV of the return. However since the appellant was a registered firm in earlier years, therefore, in view of the mandatory provisions which have been emphasised a above by using, capital letters, the I.T.O. was left with no alternative but to treat the appellant as a registered firm in spite of the introduction of the aforesaid Proviso.

5. Now turning to the second leg of the argument of Mr. Qadeer regarding crossing of Part III A, B and Part IV of the return I again find it devoid of any merits and for this I have several reasons. Firstly, the I: T.O. was justified in treating it as a registered firm because he was required to do so under subsection (4) of Section, 68 as discussed above. Thus, even if the appellant had not filled-in Part III A and B and Part IV of the return it remained of no significance for the I.T.O. as he had to follow the mandatory provision of subsection (4) which would definitely prevail upon the provisions of Rules framed under the Income Tax Ordinance regarding filling in of the return forms by registered firms. The second reason which justifies the action of the I: T.O. is found in the fact that the appellant itself filed its return under NTN 10-39-2477948 which was allocated to the RE Let me mention here that in asstt. Year 1987-88 the partners of the appellant did file their return in individual capacity using their individual NTN with the allegation that the firm stood dissolved and the I.T.O. has framed assessment accordingly. Thirdly, the I.-T.O. has exclusive power of not only granting the registration but also to cancel it if it has already been granted and for that purpose he has to follow certain procedures. If a firm applies for registration with filled-in Part III A, B and Part IV of the return, yet the I.-T.O. can refuse the registration. In such a case therefore the filling in of Part III A, B and Part IV of the return would again be rendered of no significance. Thus, conversely speaking, if the partners of the firm do not fill-in the aforesaid parts of the return for some reasons best known to them I see no reason why the I.T.O. should not have the power of proceeding under subsection (4) of Section 68 of the Income Tax Ordinance, Let me mention here that in 5 LT.R. 47, Banja & Sons v. C.I.T. 5 I T R 44, Cheranjilal v. C.I.T.35 LT R 61, Greenfields v. C.I.T. and 48 I T R 950, Meerasahab Tharaganar v. C.I.T the particulars contained in the applications were found not to be in accordance with facts and the refusal of the I.T.O. to register the firm was upheld under the provisions of the repealed Income Tax Act, of 1922. Fourthly, while enforcing the provisions of subsection (4) of Section 68, the I.T.O. is not to be guided by the principle as to whether the registration of a firm or giving status of a registered firm in subsequent asstt. Years would be beneficial or harmful to the interest of an assessee. It, therefore, cannot be argued that since the provision of the registration is for the benefit of the assessee, therefore, if an assessee does not want the status of a registered firm in subsequent asstt. years it should not be conferred on him. ' In my judgment the I.T.O. has to follow the provisions of subsection (4) of Section 68 of the I.T. Ordinance whether or not the registration is beneficial for an assessee for the simple reason, as mentioned above, that it is a mandatory provision of law and he has not been given any option but to follow it.

6. Before parting with this appeal let me also discuss yet another aspect of the matter which has not been specifically argued by Mr. SA. Qadeer and it pertains to the question as to whether there was an error apparent on record to warrant an action under section

156. I have also given my due consideration to this aspect of the matter as well. In a case reported as 34 I.T.R 143 at page 150 (HC), Venkatachalam v. Bombay Dying & Manufacturing, it was held by Indian Supreme Court that overlooking a mandatory provision of law which leaves no option or discretion to the Taxing Authority amounts to an error apparent from the record. Similarly in a case reported as 6 I.T.R 414 'at page 426, C.I.T. v. Khemchand Ramdas no less an authority than Privy Council has held that overlooking the fact that registration of a firm had been cancelled amounted to an error apparent on the face of record. On the basis of this authority the converse also seems to be true. Thus, if the I.T.O. overlooks the fact that the firm was a registered firm while framing the assessment it would be a case of mistake apparent on the face of record. I am, therefore, of the view that the I.T.O. had the jurisdiction under section 156 of the I.T. Ordinance to rectify his order and it has been rightly upheld by learned AA.C. Thus, in view of discussion made above the appeal is found to be devoid of any merits and stands rejected accordingly. M.BA./642/T?????????????????????????????????????????????????????????????????????????????????????? Appeal rejected.