ITA No.476 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.476 of 2010 (O&M) Date of decision: 1.11.2010 CIT, Faridabad -----Appellant. Vs. M/s Agro Engineering Works -----Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAKESH KUMAR JAIN Present:- Ms. Urvashi Dhugga, Advocate for the revenue. --- ADARSH KUMAR GOEL, J. 1. The revenue has preferred this appeal under section 260A of the Income Tax Act, 1961 (for short, ‘the act’) against order dated 7.8.2009 by the Income Tax Appellate Tribunal, Delhi Bench’A’ New Delhi in ITA No.3549/Del/2008, proposing to raise following substantial questions of law:- “i) Whether, on the facts and circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in treating the firm under section 184 of the Income Tax Act, 1961 instead of AOP under section 185 of the Income Tax Act, 1961 disregarding the fact that it was mandatory to file certified copy of partnership deed alongwith the return of income and the assessee had failed to do so? 1 ITA No.476 of 2010 ii) Whether, on the facts and circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in allowing the status of PFAS and deleting the addition of rs.11,29,541/- paid to partners on their capital disregarding the fact that the assessee was assessed taking the status of AOP under section 185 of the Income tax Act, 1961 and as such no interest paid to partners was allowable? iii) Whether, on the facts and circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs.60,000/- made by the Assessing Officer on account of hiring charges paid to Papan Crane Service disregarding the fact that hiring charges paid without making TDS as per section 194C of the Income Tax Act, 1961 is a disallowable expenses in view of section 40(a) (ia) of the Income Tax Act, 1961?” 2. The assessee claimed status of firm under section 184 of the of the Act and though it was claimed that certified copy of the partnership deed was filed with the return, the Assessing Officer held that the same was not found with the return. The assessee produced another copy. The Assessing Officer made assessment of the assessee as AOP. On appeal, the CIT(A) upheld plea of the assessee that there was 2 ITA No.476 of 2010 compliance of Section 184 of the Act which view has been affirmed by the Tribunal. The Assessing Officer disallowed payment of interest to a partner by invoking Section 185 and also made an addition on account of failure of the assessee to make deduction of TDS in respect of payment of hiring charges of Rs.60,000/-. The CIT(A) deleted the said addition holding that if assessee was to be assessed as a firm, Section 185 could not be invoked. In view of Section 194-I, provision of TDS was not attracted when payment of hiring charges/rent was less than Rs.1,20,000/-. The Tribunal upheld the deletions. 3. We have heard leaner counsel for the appellant. 4. Admittedly, certified copy of the instrument of partnership deed was made available before decision on registration was taken. The view of the Tribunal that in such circumstances, requirement of Section 184 could be held to have been complied, based on its earlier decision in Ishar DassSahni and Sons v. DCIT, 77 ITD 256 (Del), is not shown, in any manner, to be erroneous. Similar view was taken by the Gujarat High Court in Billimora Engineering Mart v. CIT, (1985) 156 ITR 153. It was observed:- “The learned counsel for the revenue was at great pains to impress upon us that on the date on which the application for registration was made, the instrument of partnership was not in existence and 3 ITA No.476 of 2010 assuming that the original as well as the copy of the instrument had been produced before the close of the year, it could have been only after January 8, 1970, when the partnership deed was executed and, therefore it could not rectify the original defect in the application, even if the court is inclined to view that defect was curable. The submission appears to be attractive but on a close scrutiny, we find ourselves unable to accept it for the obvious reason that the assessee would have got the registration, if it had made an application on the last day of the accounting year by filing a proper application and annexing all the required documents including the present instrument of partnership, but only by a fortuitous circumstance that it applied earlier and produced the instrument of partnership later, it could not be deprived of registration which is now a matter of right under the 1961 Act. Apart from this, this would defeat the very purpose of the right of a party to remove the defect in following the procedure prescribed for obtaining a right or a privilege. The procedural law is always to be construed and applied in a manner so as to make it a handmaid to the cause of justice, and it cannot be treated as a substantive provision so as to defeat the rights of the parties.” 5. In M/s. Progressive Financers v. Commissioner of Income-tax, Madras, (1997) 3 SCC 79, it was observed:- 4 ITA No.476 of 2010 “11. This Court in Rao Bahadur Ravulu Subba Rao v. CIT 30 ITR 163 : (AIR 1956 SC 604) and Patel (N. T.) and Co. v. CIT 42 ITR 224 : (AIR 1961 SC 1356), interpreting Section 26-A of the earlier 1922 Act, held that registration under that Section conferred a benefit on the partners which the partners were not entitled to but for that Section and, therefore, that right could have been claimed only in accordance with the statute and those who claimed it had to bring their case strictly within the terms of that section. This view was reiterated subsequently by a 5-Judge Bench of this Court in the case of Kylasa Sarabhaiah v. CIT 56 ITR 219 : (AIR 1965 SC 1411). At the same time, this Court disapproved mechanical application of that provision and held that "in ascertaining whether the application is in conformity with the Rules, the deed of partnership must be reasonably construed." It was also held that the word "specify" as used in that Section and the relevant rule meant 'mentioning, describing or defining in detail' and it did not mean 'expressly setting out in factional or other shares". In view of this decision the correct legal position is that the assessing officer cannot reject an application for registration merely because in the deed of partnership shares of the partners are not expressly specified. The assessing officer will have to construe the instrument of partnership as a whole and if reasonably the shares of the partners in profits 5 ITA No.476 of 2010 and losses can be ascertained, then to accept it as genuine for the purpose of registration.” 6. In view of the above, the question raised cannot be held to be substantial question of law. 7. Applicability of section 185 of the Act being consequential, the question raised in that regard cannot be held to be substantial question of law. It could also not been shown that Section 194I was wrongly invoked by the CIT(A) and the Tribunal for holding that requirement of TDS was not applicable. We are, thus, unable to hold that any substantial question of law arises. 8. The appeal is dismissed. (Adarsh Kumar Goel) Judge November 1, 2010 (Rakesh Kumar Jain) ‘gs’ Judge 6