P L D 1967 Karachi 807 (PLP)

WAHIDUDDIN AHMAD, J.-This is an application under section 66(3) of the Income-tax Act made on behalf of the Depart ment in which it is prayed that the Income-tax Tribunal may be called upon to treat the application made on 12th July 1963 as made within time. In the alternative it is prayed that the tribunal may be asked to refer the following question to this Court for its opinion : "Whether in the circumstances of the case the Appellate Tribunal was justified in allowing the registration to the firm when it had not carried on any business during the previous year." In order to appreciate the contention of the parties it is necessary to state certain facts out of which this application has arisen. The respondent firm consists of three partners namely, Haji Allah Bux, Shujauddin and Abdul Hakim with equal shares and was formed to carry on the business of cloth etc. by a partnership deed dated 5th April 1954. This firm was formed as a sub-partnership by Haji Allah Bux in order to finance his parent partnerships, namely, the firm of Messrs A. G. Dadabhai and H. D. Allah Bux: In these two firms Mr. Haji Allahbux was a fifth partner with a share of 8 annas in a rupee and was constituted by a partnership deed dated 10th March 1954 to carry on the business of commission agency of Messrs Mehr Textile Mills Ltd., Hyderabad. In order to act as commission agent the above firms were required to deposit a sum of Rs. 3 lakhs with Messrs Mehr Textile Mills Ltd. It has stipulated that the four partners shall pay half of the amount of the deposit and Haji Allahbux shall contribute the other half. It appears that Mr. H. D. Allah Bux did not possess sufficient funds, he therefore entered into a sub-partnership with Mr. Shujauddin and Abdul Hakim who agreed to contribute in equal proportion towards the required fund of Rs. 1,50,

000. It was in these circumstances that the sub-partnership under the style of Messrs Allah Bux & Co. was formed on 5th April 1954.

2. In the assessment year 1955-56 Haji Allah Bux received Rs. 42,000 as his share of income from Messrs A. G. Dadabhai and Messrs H. D. Allah Bux & Co. This share of profit was not declared by him in his personal return, but in the return filed on behalf of the sub-partnership, namely, Messrs H. D. Allah Bux & Co. An application for registration of the said firm was also presented. The Income-tax Officer refused to register this sub-partnership on the ground that it did not conduct any busi ness as contemplated in section 10 of the Income-tax Act. The matter was agitated before the Appellate Assistant Commissioner who by order dated 6th March 1961, allowed the appeal and directed that the sub-partnership be registered. The Department challenged this order before the Income-tax Appellate Tribunal but that was dismissed by order dated 4th April 1963. Thereupon the Department applied to the Income-tax Appellate Tribunal under section 66 (1) of the Income-tax Act on 1st July 1963 for reference of the following question arising out of the Tribunal's order dated 4th April 1963 for the opinion of this Court : "Whether in the circumstances of the case the Tribunal was justified in allowing any registration when there was no deviation of income at the source ? " Before this application came up for hearing before the Tribunal the Department felt that the question has not been properly framed and applied on 12th July 1963 for substitution of the following question of law which in fact arises out of the said order of the Tribunal : "Whether in the circumstances of the case the appellate tribunal was justified in allowing the, registration to the firm when it bad not carried on any business during the previous year." The Appellate Income-tax Tribunal by order dated 21st January 1964 refused to substitute the above question and dismissed the application filed by the Department on the ground that the second application filed on their behalf was barred by limitation. It is in these circumstances, that the Department has approached this court under section 66 (3) of the Income-tax Act.

3. In support of the application Mr. S. A. Nusrat, the learned counsel for the Department, has contended that the Income-tax Appellate Tribunal has fallen into an error in holding that the application filed by the Department for reference under section 66 (1) was barred by limitation. The learned counsel contended that a proper application was filed before the Tribunal on 1st July 1963 in which the question of law arising out of the order of the Tribunal was raised. The second application, according to the learned counsel, was moved by abundant caution because in the first application the ground on which the registration of the sub-partnership was challenged was not properly mentioned. The learned counsel contended that the second application was only in the nature of the amendment of the question raised in the first application ; and, therefore, the learned Tribunal ought to have considered whether it was permissible in law to amend the first application made before them. In our opinion the contention of the learned counsel is not without force. The question raised in the second application is in substance the same as in the first application. The only difference is that in the first the registration of the sub-partnership is challenged on the ground that there was no deviation of income ; whereas in the second application the ground taken is that it had not carried on any business during the previous year. In fact it was not at all necessary for the department to make the second application. It was open to them to urge before the Income-tax Appellate Tribunal that the question as submitted to the Tribunal may be properly framed. It is not disputed that the only dispute between the parties is whether the tribunal was justified to upholding the registration of the sub-partnership. This question was raised in the application dated 1st July 1963. In our opinion the point of limitation was unnecessarily taken into consideration for deciding whether a proper application was made. Admittedly an application under section 66 (1) was made in time. The second application dated 12th July 1963 was in its continuation and the simple question was whether the amendment sought should be allowed or not. But the learned tribunal treated it as an independent application and dismissed it as barred by limitation.

4. Mr. Ali Athar, the learned counsel for the respondent, has contended that in law it is necessary for a party in art application under section 66 (1) to frame proper questions and if some other question arises from the order of the 'Tribunal it is not open to that party to go outside such question and to raise it in a different manner before the Income-tax Tribunal. In support of his contention the learned counsel has relied on a decision of this Court in Abdul Ghani & Co. v. Commissioner of Income-tax (P L D 1962 Kar. 635). In that case a Division Bench of this Court observed as under :- "The next step contemplated by this subsection is that the Appellate Tribunal shall within 90 days of the receipt of the assessee's application draw up a statement of the case and refer it to the High Court. It is clear that at the time of deciding whether or not a question of law arises and whether a reference should or should not be made to the High Court, the Appellate Tribunal shall not only consider the precise questions which may be formulated by an assessee, but also those which may appear to arise on the submissions made by the assessee in his application: In other words the position seems to emerge clearly that the question of law which the assessee desires to be referred to the High Court must either be formulated by him at the time of making his application, or must be such as arise on the submission made in his application, subject, of course, to the overriding condition mentioned earlier, viz., that they must arise out of the appellate order of the Tribunal." In our opinion the case cited by the learned counsel is not of any help to him, besides the points involved in it were quite different. In that case the petitioners sought for adding a further question directly arising out of the facts of the case which was not raised iii the application under section 66 (i) Income-tax Act. Further, it was contended that one of the questions referred may be sent back for amplification. These requests were turned down on the above observations. In the present case no such position is involved. In fact throughout the Department had challenged the view of the Income-tax Authorities in allowing the registration of the Sub partnership. This was the substance of the question of the first application, and this remained the substance of the question in the second application. Even if the Tribunal was of the opinion that the second application was a separate application, it was incumbent on it to consider whether the question raised in the first application was properly raised. As pointed out by Beaumont C. J. in Narayan Atmaram Patkar v. Commissioner of Income tax, Bombay (1934 Bom. 378) that "an assessee requiring the Commissioner to refer questions of law to the Court ought to formulate those questions is a rule of practise based on consideration of convenience and designed to protect the Court from unnecessary applications under subsection (3) ; but the Com missioner is not bound to refer only the question so formulated." It was therefore the duty of the Tribunal to examine the question raised and formulate it in a proper shape. It could easily delete the words "when there was no deviation of income at the source" and refer the rest of the question which would have served the purpose of the question raised in the first application. Unfortunately this aspect of the case escaped the notice of the tribunal. In a number of cases coming to this Court the Tribunal has adopted this procedure and it is surprising it was not followed in the present case. After all the Department was asking nothing more than that the scope of the question raised may not be con fined or limited to the ground referred in the question, which has crept in by mistake. In our opinion in this case the petitioner did rot raise any new question and the learned Tribunal should have referred the question in its proper shape and form.

5. There is another aspect of this case. The second application dated 12th July 1963 was in the nature of amendment of the first application. It was urged before us that the Tribunal had no power to allow amendment. The contention of Mr. Ali Athar in this behalf is not well founded. Under the rules framed applicable to Income-tax Appellate Tribunal at page 129 (Income-tax Manual) (Part II and III-1953 Edition) Rule 36 relating to applications under section 66 (1) provides as under :- "Rule 7, 8, 13, 20, 21, 22, 23, 26 and 33 shall apply mutatis mutandis to an application under subsection (1) of section 66." Rule 13 provides as under :-- "The Tribunal may reject a memorandum of appeal, if it is not in the prescribed form or return it for being amended within such time as it may allow. On representation after such amendment the memorandum shall be signed and dated by an officer authorised in this behalf by the Tribunal." Thus it is abundantly clear that the Tribunal had ample power to allow the amendment of defective applications. In this case we are satisfied that then was a bona fide mistake on the part of the department. It was a fit case in which the proposed amendment should have been allowed.

6. In that view of the matter we would hold that the Tribunal bad fallen into an error in holding that the application under section 66 (1) was barred by limitation. The petitioner had filed an application under the above provision of law within r tune and that should have been disposed of in accordance with law. It is open to the 'Tribunal to allow the amendment of the first application or to frame a proper question on the point in dispute after deleting the superfluous words referred to above.

7. In the result, subject to the above remarks, the petition is allowed with no order as to costs. S. Q. Petition allowed.