1966 (2) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to registration of the new firm for the assessment year 1956-57.
2. Competency of the appeal against the penalty imposed under section 46(1).

Detailed Analysis:

1. Entitlement to Registration of the New Firm for the Assessment Year 1956-57:

Material Facts:
The assessee-firm, M/s. Bhausa Ganusa Pawar & Co., consisted of four partners and was granted registration under section 26A of the Indian Income-tax Act, 1922, up to the assessment year 1955-56. One partner, R.S. Pawar, died on February 3, 1956, after the close of the relevant account year (S.Y. 2011). The surviving partners formed a new partnership, including major sons of the deceased partner and another partner, and admitted two minor sons of the deceased to the benefits of the partnership. The new partnership executed a deed on June 28, 1956, and applied for registration under section 26A on June 30, 1956.

Income-tax Officer's Grounds for Refusal:
The Income-tax Officer refused registration on four grounds:
(i) The partnership deed of June 28, 1956, was not operative in the account year S.Y. 2011.
(ii) An application for renewal of the old firm should have been submitted, signed by the living partners and the legal representative of the deceased partner.
(iii) The old firm's deed did not mention the business continuation in the event of a partner's death.
(iv) The firm to be registered for the assessment year 1956-57 should have been the one in existence during the account year S.Y. 2011.

Appellate Assistant Commissioner's View:
The Appellate Assistant Commissioner allowed the appeal, stating that the new firm, constituted immediately after the death of the partner, was entitled to registration as it was the firm on which the assessment had to be made.

Tribunal's Decision:
The Tribunal reversed the Appellate Assistant Commissioner's decision, holding that the firm entitled to registration was the old firm, and no proper application for registration of the old firm was made.

High Court's Analysis:
The court analyzed whether the new firm, constituted after the death of a partner, was entitled to registration for the assessment year 1956-57. The court emphasized that the firm entitled to registration must be the one in existence during the account year. The court noted that the death of a partner resulted in the dissolution of the old firm, and the new firm was a separate entity. The application for registration was made by the new firm and not the old firm, and it was not signed by the legal representatives of the deceased partner. The court held that the application did not comply with the requirements for the registration of the old firm.

Conclusion:
The court answered the first question in the negative, stating that the new firm was not entitled to registration for the assessment year 1956-57 based on the deed made on June 28, 1956, as the old firm was in existence during the material account year.

2. Competency of the Appeal Against the Penalty Imposed Under Section 46(1):

Material Facts:
The Income-tax Officer imposed a penalty of Rs. 3,400 on the assessee for defaulting on the tax payment. The assessee appealed against the penalty but did not pay the tax amount before the appeal hearing. The Appellate Assistant Commissioner rejected the appeal as incompetent due to non-payment of tax.

Assessee's Contention:
The assessee contended that the tax demand arose due to the refusal of registration, and since the Appellate Assistant Commissioner had directed the grant of registration on the same day, the tax demand was quashed, making the penalty unjustified.

Tribunal's Decision:
The Tribunal dismissed the appeal, stating that the appeal was incompetent as the tax was not paid.

High Court's Analysis:
The court considered whether the appeal against the penalty was properly rejected due to non-payment of tax. The court noted that the appeal was filed before the tax was paid, and even though the registration was directed to be granted on the same day, the tax was not paid at the time of the appeal hearing.

Conclusion:
The court answered the second question in the affirmative, holding that the appeal against the penalty was properly rejected by the Appellate Assistant Commissioner as being incompetent due to non-payment of tax.

Final Judgment:
The High Court answered both questions against the assessee, holding that the new firm was not entitled to registration for the assessment year 1956-57, and the appeal against the penalty was properly rejected as incompetent. The assessee was ordered to pay the costs of the department.