Case Law Details
RELEVANT PARAGRAPH
5. Chapter-XVI of the Income-tax Act provides for special provisions applicable to firms. Section 184 provides that a firm shall be assessed as a firm for the purposes of this Act if the partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrument. It is also necessary to be assessed as a firm as per sub-section (2) that the certified copy of the instrument of partnership shall accompany the return of income of the firm for the previous year relevant to the assessment year in respect of which assessment as a firm is first sought. If there is no change in the constitution or share of profit of the partners, the status of the firm shall be granted for the assessment years in subsequent assessment years as well. But, according to sub-section (4), if any such change has taken place in a particular previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with return of income for the assessment year relevant to such previous year and all the provisions of Section 184 shall apply accordingly. Section 185 thereafter provides that where a firm does not comply with the provisions of Sec. 184, dealing with furnishing of certified copies of partnership deed, etc., the assessee shall be assessed in the same manner as an Association of Persons.
6. The statutory provisions regarding the assessment of firm explained in a nutshell in the paragraph above makes it clear that the first condition is that an assessee seeking the status of “firm” is to establish that the partnership is evidenced by an instrument and individual shares of partners are specified in that instrument. Once that is satisfied, the second is that the assessee shall file a certified copy of instrument of partnership deed before the Assessing Authority. Both the above conditions are mandatory to be satisfied by an assessee, seeking status of “firm” for the purpose of assessment. The above provisions are equally applicable in a case where a change in the constitution of the firm has taken place. Sub-section (4) provides that when there is a change, the assessee shall furnish a certified copy of the reconstituted instrument of partnership deed along with return and all the provisions of sub-sections (1) and (2) shall apply. Therefore, it is clear that when there is a change in the constitution of a firm, it is for the assessee to seek again the status of the “firm” for the purpose of assessment by filing a certified copy of the revised deed of partnership. If sub-section (4) is not satisfied, the same shall be construed as non-satisfaction of sub-sections (1) and (2) of Section 184. The result is that the assessee shall go out of the purview of Section 184 as far as the status of assessment is concerned. In such circumstances, the law provides that Section 185 shall operate and assessee shall be assessed in the status of Association of Persons.
7. Therefore, it is clear from the law stated above that the status of a firm is a privilege to be sought by the assessee on fulfilling certain mandatory conditions. If the assessee has not satisfied the mandatory conditions provided in Section 184, the assessee shall not be assessed as a firm and the provisions of law contained in Section 184 shall not apply thereto. There is an automatic substitution of Section 184 with Section 185, whereupon the assessee shall be assessed as Association of Persons. It is, therefore, clear that the assessment of an assessee under Section 185 in the status of Association of Persons is an inevitable consequence of the failure to comply with the provisions of law contained in Section 184. To put it more literally, it is for the assessee to choose whether to be assessed as a “firm” or to be assessed as an Association of persons on the constitution of a firm or on the reconstitution of a firm, as the case may be. The intention of the party whether the instrument of partnership was not filed deliberately etc., is not relevant in deciding the issue. If the assessee has satisfied provisions of Sec. 184, it shall be assessed as a “firm” and if not, it shall be assessed as an Association of Persons. Neither the Assessing Authority nor the assessee has to go beyond this.
8. Therefore, the reason pointed out by the Assessing Authority that the assessee has deliberately not filed the certified copy of the return is not a valid reason to impose the status of “firm” on the assessee. Likewise, the finding of the CIT (Appeais) that the return was filed in the status of a firm is also not a valid ground to assess the assessee in the status of a firm.
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