1996 (4) TMI 80 - HC - Income Tax

Act Of 1961, Appeal To AAC, Appellate Assistant Commissioner, Application For Registration, Business Expenditure, Carrying On Business, Expenditure Incurred, Firm Registration, Law Applicable, Legal Representative, Registration Of Firm, Wholly And Exclusively

Issues Involved:
1. Whether the Income-tax Officer's order passed under section 184(4) was an order under section 185(5) and was appealable.
2. Whether the application for registration filed on December 31, 1959, for the assessment year 1960-61 was filed within the time allowed.
3. Whether the partnership was valid.
4. Whether the payment made to Shri Abdul Razaq was a charge on the profits of the firm for the assessment year 1961-62.

Detailed Analysis:

1. Appealability of the Income-tax Officer's Order:
The Tribunal was justified in holding that the Income-tax Officer's order passed under section 184(4) was, in fact, an order under section 185(5) and was appealable. Section 184 deals with the filing of an application for registration, whereas section 185 involves the procedure after receiving such an application, including granting or refusing registration. The Tribunal correctly identified that the Income-tax Officer's refusal to grant registration was effectively an order under section 185(5), making it an appealable order under section 246(j) of the Income-tax Act, 1961.

2. Timeliness of the Registration Application:
The Tribunal was right in holding that the application for registration filed on December 31, 1959, for the assessment year 1960-61 was filed within the time allowed. According to rule 2 of the Income-tax Rules, 1922, the application was required to be filed within six months of the constitution of the firm or before the end of the previous year, whichever was earlier. The application was timely as per the Act of 1922. However, due to the transitional provisions under section 297(2)(b) of the Act of 1961, the assessment was to be completed under the new Act. The Tribunal directed the Income-tax Officer to allow the assessee to file an application as per the provisions of the Act of 1961.

3. Validity of the Partnership:
The Tribunal was right in holding that the partnership was valid. The partnership deed executed on January 1, 1959, between the remaining partners, Abdul Razaq and Hamid Hussain, included provisions to pay the guardian of the deceased partner's estate a share in the profits in accordance with section 37 of the Indian Partnership Act, 1932. The Tribunal found that the arrangements made by the partners did not render the partnership unreal, artificial, or invalid. The provisions of section 37, which allow the estate of a deceased partner to claim a share of profits attributable to the use of the deceased's share in the firm's property, were applicable, and the partnership was genuine.

4. Charge on Profits for the Assessment Year 1961-62:
The Tribunal was right in holding that the payment made to Shri Abdul Razaq, as the guardian of the estate of the deceased partner Shri Noor Mohammed, was a charge on the profits of the firm. Section 37 of the Indian Partnership Act, 1932, entitles the estate of a deceased partner to a share of the profits made by the firm using the deceased's share of the property. Such payments are deductible in computing the total income of the firm as they are considered expenses incurred wholly and exclusively for business purposes. The Tribunal directed an enquiry to determine the extent of the deceased's interest in the firm's property and the proportion of profits attributable to the use of such property.

Conclusion:
For the assessment year 1960-61:
1. The Tribunal was justified in holding that the Income-tax Officer's order was appealable.
2. The application for registration was filed within the time allowed.
3. The partnership was valid.

For the assessment year 1961-62:
1. The payment made to the guardian of the deceased partner's estate was a charge on the profits of the firm.

The answers to the referred questions were communicated to the Tribunal for further action according to law.

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