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Validity of partnership firm registration based on profit distribution in accordance with partnership deed. Analysis: The judgment pertains to a case where the Income-tax Appellate Tribunal referred a question of law to the High Court regarding the genuineness of a partnership firm due to the distribution of profits not aligning with the terms of the partnership deed. The Income-tax Officer had refused registration to the firm for the assessment year 1979-80 as profits were distributed equally between partners instead of as specified in the partnership deed. The Appellate Assistant Commissioner and the Tribunal upheld this decision. However, the High Court, citing the decision in CIT v. Khanna Theatre [1990] 184 ITR 156, clarified that under the Income-tax Rules, 1962, prior distribution of profits among partners is not compulsory for registration. A certificate indicating future distribution suffices for registration. The court noted that the firm rectified the profit distribution mistake promptly upon discovery, indicating a bona fide error. The Tribunal's labeling of the partnership as ungenuine was deemed unjustified, and the court ruled in favor of the assessee based on compliance with the amended rules. The judgment highlights the legislative intent behind the change in the law regarding partnership firm registration requirements.
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