2005 (5) TMI 57 - HC - Income Tax

Registration under section 185 - whether the firm would be considered as genuine in case if the shares are not distributed in terms of the partnership deed - there is no dispute that the profit has not been allocated as per the shares mentioned in the partnership deed. In this view of the matter there was no genuine firm in existence in terms of the partnership deed. - held that in case the terms and conditions mentioned in the partnership deed had not been fulfilled then in that case the Income-tax Officer can refuse the registration of the firm on the ground that it was not a genuine firm. assessee-firm is not entitled to registration

Issues:
1. Entitlement to registration under section 185 of the Income-tax Act, 1961 for the assessment year 1997-98.

Analysis:
The case involved a dispute regarding the entitlement of M/s. Narain Automobiles to registration under section 185 of the Income-tax Act, 1961 for the assessment year 1997-98. The firm had undergone several changes in its constitution over the years, with partners retiring and new partners being admitted. The allocation of profits and losses in the firm was a key point of contention, as it did not align with the terms specified in the partnership deed. The Inspecting Assistant Commissioner (Assessment) concluded that no genuine firm existed based on this discrepancy and refused continuation of registration, treating the firm as a body of individuals. The Commissioner of Income-tax (Appeals) disagreed and directed the Assessing Officer to grant registration, emphasizing the genuineness of the firm. However, the Tribunal, citing precedents including the Supreme Court's decisions in Ratanchand Darbarilal and R.C. Mitter and Sons, overturned the Commissioner's decision, emphasizing the importance of fulfilling conditions for registration, specifically the accurate division of profits and losses as per the partnership deed.

The Tribunal highlighted that the Supreme Court rulings established the criteria for a firm to be entitled to registration, emphasizing the need for compliance with the terms of the partnership deed, including the correct allocation of profits and losses. The Tribunal found that the Commissioner of Income-tax (Appeals) had overlooked crucial aspects required for registration and failed to address the violation of terms in the partnership deed, such as the minors not receiving their entitled share of profits despite being partners for a significant period. Relying on legal precedents, the Tribunal concluded that the conditions for registration had not been met by the assessee, justifying the refusal of continuation of registration by the Inspecting Assistant Commissioner (Assessment).

In the context of the arguments presented, the Tribunal analyzed the applicability of previous court decisions, such as CIT v. Sivakasi Match Exporting Co. and CIT v. Ashokbhai Chimanbhai, in relation to the present case. The Tribunal reiterated the Supreme Court's stance that if profits and losses are not divided in accordance with the terms of the partnership deed, the firm cannot be considered genuine, warranting the Income-tax Officer to refuse registration. Additionally, the Tribunal referenced the Allahabad High Court's decision in Setha Ram Dhanvir Singh v. CIT, emphasizing the importance of a firm's genuine existence and adherence to the specified constitution in the partnership deed for registration. Ultimately, based on the legal principles established by the apex court and the specific circumstances of the case, the Tribunal upheld the decision to deny registration to M/s. Narain Automobiles for the assessment year 1997-98, ruling in favor of the Revenue and against the assessee.

← Previous Next →