2004 (8) TMI 28 - HC - Income Tax

Application for registration of a firm cannot be rejected merely on the ground that if a minor who becomes major during the particular assessment year and if he elects to continue as a partner a fresh partnership is required - Tribunal was correct in law in holding that the assessee was entitled to registration under the Income-tax Ac 1961

Summary

Issues:
- Interpretation of registration under the Income-tax Act, 1961 for an assessee-firm.
- Validity of registration for a firm with a minor partner attaining majority without executing a fresh partnership deed.

Analysis:
The High Court of Allahabad was presented with a question regarding the entitlement of an assessee-firm to registration under the Income-tax Act, 1961. The case pertained to the assessment year 1968-69, where the original assessment granted registration to the firm under section 184(7) of the Act. However, it was discovered that a minor partner had attained majority during the relevant previous year, necessitating a fresh partnership deed as per the Commissioner of Income-tax's decision under section 263 of the Act, citing a previous court ruling. Consequently, the assessment made by the Income-tax Officer was canceled, and a re-assessment was directed to consider the registration application on its merits.

Upon re-assessment, the Income-tax Officer treated the firm as unregistered, leading to an appeal by the assessee to the Appellate Assistant Commissioner. The contention that the minor partner should be considered in the assessment was rejected by the Appellate Assistant Commissioner. However, it was argued that since the partner's assessments had not been set aside and were based on the original assessment of the firm, the firm could not be reassessed as unregistered. This argument was accepted by the Appellate Assistant Commissioner, prompting the Department to appeal to the Tribunal.

The Tribunal, noting a change in the law due to a Full Bench decision of the Allahabad High Court, held that a fresh deed was not necessary upon the minor attaining majority. Consequently, the Tribunal directed the firm to be treated as registered in the re-assessment under section 143 and dismissed the Department's appeal. The High Court, after considering relevant legal precedents, including a Supreme Court ruling, upheld the Tribunal's decision, emphasizing that the application for registration cannot be rejected solely based on a minor partner attaining majority without executing a fresh partnership deed.

In conclusion, the High Court ruled in favor of the assessee, affirming the Tribunal's decision to treat the firm as a registered entity for the assessment year in question. The judgment highlighted the importance of considering the entirety of the partnership instrument and relevant information in determining the validity of registration under the Income-tax Act, 1961.