1988 (10) TMI 25 - HC - Income Tax

Summary

Issues Involved:
1. Whether the declaration filed by the firm was incorrect and defective.
2. Whether there was a change in the constitution of the firm under section 187(2) of the Income-tax Act, and whether the registration of the firm could be continued for the assessment year.

Issue-Wise Detailed Analysis:

1. Whether the declaration filed by the firm was incorrect and defective:

The Tribunal held that the declarations filed in Form No. 12 were invalid and incorrect. The initial declaration was filed in an obsolete form and was not signed by all partners. The subsequent declaration in the correct form was filed late and not signed by Kamla Devi Jaiswal, nor was there evidence of authorization for Jag Narain Prasad to sign on her behalf. The Income-tax Officer (ITO) and Appellate Assistant Commissioner (AAC) both found these declarations defective and not in compliance with section 184(7) and the relevant rules.

However, the court noted that the defects in the initial declaration were curable under section 185(3) of the Income-tax Act, which allows the ITO to intimate the defect and provide an opportunity to rectify it within one month. The court emphasized that the only defect in the second declaration was the missing signature of Kamla Devi Jaiswal, which could have been rectified if the assessee had been given an opportunity.

2. Whether there was a change in the constitution of the firm under section 187(2) of the Income-tax Act, and whether the registration of the firm could be continued for the assessment year:

The Tribunal, ITO, and AAC held that there was a change in the constitution of the firm when the minor partner, Rajendra Prasad Jaiswal, attained majority, necessitating a fresh partnership deed and registration in Form No. 11A. They relied on the Allahabad High Court's decision in Ram Narain Laxman Prasad v. ITO [1972] 84 ITR 233.

The court, however, disagreed, citing the Full Bench decision of the Allahabad High Court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, which overruled the earlier decision. The Full Bench held that the attainment of majority by a minor already admitted to the benefits of the partnership did not constitute a change in the firm's constitution under section 187. The court also referenced similar views from other High Courts, including the Madhya Pradesh High Court in Ganesh Rice Mills v. CIT [1981] 132 ITR 257 and Durgaprasad Rajaram Adatiya v. CIT [1982] 134 ITR 601.

The court concluded that section 187 of the Income-tax Act is not relevant for determining the continuance of registration under section 184. The original partnership deed provided for the shares of profits and losses of Rajendra Prasad both during his minority and after attaining majority, indicating no change in the firm's constitution or partner shares.

Conclusion:

The court answered question No. 1 in the affirmative, affirming the defects in the declarations but clarifying that these defects were curable. Question No. 2 was answered in the negative, holding that the Tribunal was not justified in finding a change in the firm's constitution or denying registration continuation on that ground. The Tribunal was directed to reassess the matter, considering whether the assessee was given an opportunity to rectify the defects and whether there was sufficient cause for any delays.