Partnership firm – Legal entity – Income-tax Return (Income Tax Act, 1961 Section 184)

The Hon’ble Court observed that for the limited purpose of the Act, a firm is conferred legal recognition as an entity and the Act made its assessment compulsory. But, I do not find any conceivable reason why the Income-tax returns of such a firm shall not be made use of by its partners for the purpose of satisfying the prequalification criteria of a tender document. Even if individual partners are liable for getting their individual incomes separately assessed u/s. 10 of the Act, in the absence of any legal bar under the provisions of the Act, there can be no reason for preventing a partner of a partnership firm from filing the Income-tax returns of the firm for the purpose of showing his turnover, financial capacity and other requirements as prescribed by the tender conditions.

The Court observed that the fiction introduced in section 184 of the Act, whereby a legal status is conferred on a partnership firm, cannot be extended to destroy the legal relationship between the partners and the firm. Such a water-tight compartment can be presumed only when the question of compliance with the requirement of section 184 of the Act arises. For instance, where a firm was not assessed under the Act and its partners who got their individual incomes assessed separately plead that the assessments in their individual capacity shall be deemed to be the assessment of the firm, section 184 can be pressed into service to negate such stand of the partners. But once the firm is assessed under the Act, such assessment would, enure to the benefit of its partners for the purposes such as the present one, where proof of assessment of the tenderer is required.

With regard to the second submission, respondent No. 3 filed the VAT clearance for the immediately preceding year in which the tender was called. However, along with the VAT clearance certificate dated 21-01-2011, respondent No. 3 has filed the VAT Returns Report dated 27-01-2012 of the Commercial Tax Department for the period from December 2010 to December 2011. This Report needs to be read along with the VAT clearance certificate dated 21-01-2011. None of the respondents have disputed the authenticity of the VAT Returns Report, which were up to December 2011, i.e., a couple of months prior to the issuance of the tender notification. In this view of the matter, the tender conditions is duly satisfied and hence the technical bid of respondent No. 3 is not liable for rejection on a hyper-technical ground that the formal latest VAT clearance certificate was not filed by him.