JUDGMENT
K. Jagannateha Shetty, Actg. C.J.
1. This is a reference under section 256(1) of the Income-tax Act, 1961. The Tribunal has referred the following question for our opinion :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the Appellate Assistant Commissioner’s order cancelling the Income-tax Officer’s order passed under section 186(1) cancelling the registration granted ?”
2. The assessee-firm had an instrument of partnership dated October 23, 1966, with six partners. One of them, namely, N. P. Lakshmaiah, died on March 17, 1978. A fresh deed of partnership was executed on March 21, 1978, specifically stating that it should come into effect from April 1, 1978, so much so the firm did not have a deed of partnership between March 18, 1978, and March 31, 1978. The Income-tax Officer, however, granted registration to the firm for the assessment year 1978-79. But later he cancelled the registration under section 186(1) on the ground that the accounts were continued even after the death of the partner although there was no deed of partnership for the period from March 18, 1978, to March 31, 1978.
3. On appeal, the Appellate Assistant Commissioner did not agree with the view taken by the Income-tax Officer. He held that the Income-tax Officer had no reason to believe that there was no genuine firm in existence during the relevant year and it was a condition precedent to invoke the power to cancel the registration under section 186(1) of the Act,
4. That view has been affirmed by the Appellate Tribunal. The Tribunal, in support of its conclusion, has relied upon two decisions, one of the Allahabad High Court in Sheonath Prasad Motilal v. ITO [1963] 47 ITR 493 and another of the Andhra Pradesh High Court in CIT v. Badjanapara Salt Company [1974] Tax LR 19.
5. The answer to the question turns on the scope of section 186(1) of the Income-tax Act, 1961, although Mr. Srinivasan, for the Revenue, urged that the cancellation of registration could also be supported under section 154(1) of the Income-tax Act. Counsel submitted that though the Income-tax Officer did not specifically refer to section 154(1) in his order, so long as that source of power is not disputed, the order of cancellation should not be invalidated when it could be otherwise sustained.
6. There is considerable difficulty in accepting this submission. The Income-tax Officer cancelled the registration expressly invoking the power under section 186(1). The appeal and further appeal preferred by the parties rested solely on the scope and construction of section 186(1) and not on the source of power located in any other provision. Even the question referred to this court specifically refers to section 186(1) of the Act. It is, therefore, not proper for us to find out whether the order of the Income-tax Officer could be sustained under section 154(1) of the Act.
7. Section 186, so far as it relates to the present case, reads :
“(1) If, where a firm has been registered, or its registration has effect under sub-section (7) of section 184 for an assessment year, the Income-tax Officer is of opinion that there was during the previous year no genuine firm in existence as registered, he may, after giving the firm a reasonable opportunity of being heard and with the previous approval of the Inspecting Assistant Commissioner, cancel the registration of the firm for that assessment year…”
8. The emphasis in the provision is with regard to the satisfaction of the Income-tax Officer as to the non-existence of a genuine firm during the previous year. There is thus a limitation imposed by the Legislature for cancellation of registration. It has been confined to one ground only, that is, the firm that existed during the relevant year was not genuine. Such a power cannot be equated with the power to grant registration. For the purpose of granting registration to a firm under the Act, it is now not in dispute, that there shall be a firm valid in law and also in fact. The concept of the firm being valid in law is distinct from its factual genuineness and for the purpose of granting registration, both the aspects are relevant and must be present and one without the other will be insufficient (see S. P. Gramophone Co. v. CIT ).
9. But these two requirements need not be present for purpose of cancelling the registration once granted. If the Income-tax Officer wants to cancel the registration under section 186(1), all that he has got to know is whether there was during the previous year no genuine firm in existence as registered. The word “genuineness” appears to have been used in contradistinction to the words “sham”, “bogus or not real”. Our view finds support from the decision of the Allahabad High Court in CIT v. Bajaj & Co. [1983] 143 ITR 218 and the decision of the Andhra Pradesh High Court in CIT v. Badjanapara Salt Company [1974] Tax LR 19.
10. Since the Income-tax Officer did not form an opinion that there was during the previous year no genuine firm in existence, he ought not to have cancelled the registration under section 186(1).
11. In the result, we answer the question in the affirmative and against the Revenue.
12. In the circumstances of the case, we make no order as to costs.