1972 PLP 366 (PTD)

MUHAMMAD ALI SAYEED, J.‑The following question has been referred to this Court for decision by the Income‑tax Appellate Tribunal, Karachi, under section 66(1) of the Income‑tax Act, 1922: "Whether the Income‑tax Officer could in law pass orders refusing renewal of registration under the provisions of section 25‑A of the Income‑tax Act, on the basis of his orders made under section 23(4) of the said Act when in these latter orders the discretion to refuse registration had not been exercised."

2. It will be necessary to state briefly the facts giving rise to the reference.

3. The assessing Income‑tax Officer had issued a notice to the respondents under section 23(2) of the Income‑tax Act, requiring them to appear before him on the 15th of March 1962 in connection with their returns for the charge years 1960‑61 and 1961‑

62. A day earlier the assessee's authorised representa tive applied for a shifting of the date saying that the partner of the assessees who was in charge of the accounts was proceeding to a fair and would be away for a week. The request for adjournment was, however, turned down by the assessing officer. On the following day when the case was fixed for hearing none attended on behalf of the assessees. The officer, in these circumstances, proceeded to complete the assessment under section 23(4) on the basis of past record for both the charge years.

4. The assessees had also applied for renewal of the firm's registration under section 26‑A of the Income‑tax Act. This application was rejected by a short order which is reproduced below: "The assessee has applied for renewal of registration but I refuse to renew registration to the firm in view of my order under section 23(4). The firm is therefore treated as unregister ed Firm."

5. It may be mentioned that the order under section 23(4) referred to by the assessing officer in his foregoing order did not deal in any manner with the registration of the assessee‑firm. The respondents/assessees agitated the refusal to renew registra tion in two appeals before the Appellate Assistant Commissioner. The appellate authority allowed their appeals by observing that I. T. O. should have exercised his discretion if he wanted to refuse registration under section 23(4). Against the consolidated order of fee Appellate Assistant Commissioner the Department carried an appeal to the Income‑tax Appellate Tribunal. This appeal failed. The Tribunal found that the assessing officer had not considered the question of registration in his orders passed under section 23(4) and if he had intended to refuse registration in the said orders he should have specified so therein.

6. The procedure in registration of partnership firms under the Income‑tax Act is contained in section 26‑A of the said Act. Subsections (1) and (2) relate to the procedure in making the application for registration; subsection (3) empowers the Income‑tax Officer to register the firm on being satisfied that the application is complete and the firm to be registered is genuine; subsection (4) provides that if, after an order has been passed registering the firm, the Income‑tax Officer is satisfied that such order was passed without there being a genuine firm in existence as constituted under the instruments of partnership, he may cancel the registration. The power to refuse to register a firm or to cancel its registration if already registered is also enjoyed by the Income‑tax Officer under section 23(4). It is convenient to reproduce this provision: "23(4).‑If any person fails to make the return required by any notice given under subsection (2) of section 22 and has snot made a return or a revised return under subsection (3) of the same section, or fails to comply with all the terms of a notice issued under subsection (4) (or subsection (4‑A) of the same section or, having made a return, fails to comply with all the terms of a notice issued under subsection (2) of this section, the Income‑tax Officer shall make the assessment to the best of his judgment (and, in case of a firm, may refuse to register it or may cancel its registration if it is already registered)." Having set out the relevant provisions it becomes necessary to mention that in his orders made under section 23(4) the Income tax Officer did not touch the subject of the assessees' registration, but while dealing with their applications for renewal of registra tion under section 26‑A he recorded his refusal in view of his order under section 23(

41. The principle underlying the Income tax Officer's order which suggests itself is that every order made under section 23(4) in relation to a firm must, a priori, result in a forfeiture of its entitlement to registration. We find it impossible to subscribe to this view. The language of subsection (4) of section 23 admits of no ambiguity. While enabling the Income tax Officer, in given circumstances, to make the assessment to she best of his judgment and to determine the sum payable by the assessee on the basis of such assessment, the provision in question confer additionally discretion in him, in the case of a firm, to refuse to register it or to cancel its registration if already registered. a seems to us imperative that the exercise of such discretion must be evidenced by an express order, since the refusal or cancellation of registration does not automatically flow from very assessment of a firm made under the provisions of section 23(4). Our view finds support it a judgment of the Andhra Pardesh High Court in Commissioner of Income‑tax, Madras v. Krishnamma & Co. ((1955) 28 I T R 273) and also a judgment of the Dacca High Court in Commissioner of Income‑tax, Dacca v. Noble Trading Co. ((1963) 7 Taxation 289). Furthermore, there is nothing in the scheme of section 23(4) of the Income‑tax Act which may impel us to hold that while completing an assessment under its provisions the Income‑tax Officer is under an implied obligation to refuse to register a firm or to cancel its registration. The language of the relevant provision is clearly of an enabling and a permissive B character and does not couple with it a duty. The power is plainly in the nature of a discretion, the exercise whereof must be evidenced by express words and in the absence of such evidence the presumption would normally be that the power has not been Invoked.

7. But the respondents/assessees in this case had also applied under section 26.A for renewal of their registration for the charge yeas. These applications, as observed earlier, were rejected by the Income‑tax Officer on the solitary ground that he had proceeded to complete the assessments under section 23(4): It hardly needs an argument to hold that the ground relied upon by the Income‑tax Officer was wholly extraneous to the ground: upon which an application under section 26‑A could far‑dully be rejected. Subsection (3) of section 26‑A exhaustively lays dawn the criteria which would qualify a firm for registration or for renewal of its registration. The criteria mentioned by the said provision are twofold‑(a) that the application is complete, that is, in accordance with subsections (1) and (2); (b) that the applicants are a genuine firm in existence constituted as shown in the instrument of partnership executed in writing and in force In the relevant previous year. If the aforementioned criteria are fulfilled the firm qualifies itself to registration or renewal of its registration. Subsection (4) of section 26‑A invests the Income‑tax Officer with an additional power to cancel the registration of a firm already registered if he is satisfied that the order for registration was passed without there being a genuine firm in existence constituted as shown in the instrument of partnership executed in writing and in force in the relevant previous year. It is clear that mere completion of an assessment under the provisions of section 23(4) of the Act is not contemplated as furnishing a ground for denial of registration or for cancellation of registration under section 26‑A. The two provisions are wholly different in their concept and In their reach. It is possible, no doubt, to concede that when the registration of a firm has been refused or a subsisting registration cancelled by an express order passed under section 23(4), the application for registration or renewal under section 26‑A must become infructuous. But where no such order has been passed under section 23(4), the rejection of an application under section 26‑A on the ground only that the assessment had been made under section 23(4) is clearly unlawful.

8. In the result we return this reference by answering it in the negative.

9. The respondents will have their costs in this reference. Reference answered in the, negative.