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Issues Involved:
1. Whether the allocation of profits made on the basis of the partnership deed dated July 17, 1973, could be a ground for refusing grant of registration to the assessee-firm. 2. Whether the assessee-firm was entitled to grant of registration under section 185 of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Allocation of Profits and Refusal of Registration The primary contention was whether the allocation of profits based on the partnership deed dated July 17, 1973, could justify the refusal of registration. The Income-tax Officer (ITO) refused registration, citing several reasons: - The minors were admitted to the benefits of the partnership only on June 5, 1973, not retrospectively from September 1, 1972. - The partnership deed dated July 17, 1973, did not specify the commencement date of the new partnership. - Profits for the period from September 1, 1972, to June 5, 1973, were divided based on the deed dated July 17, 1973, rather than the deed dated July 21, 1968. The Tribunal, however, disagreed with the ITO, stating that the mere assumption that the retrospective operation of the partnership deed was invalid was not sufficient to deny registration. The Tribunal followed the decision of the Allahabad High Court in Addl. CIT v. Mardan Khan Rafiq Ahmad Khan [1978] 115 ITR 559, which held that allocation of profits in a manner other than that provided in the deed cannot be a ground for refusing registration. Issue 2: Entitlement to Registration under Section 185 The Tribunal and the Appellate Assistant Commissioner both held that the firm was entitled to registration under section 185 of the Income-tax Act, 1961. The Tribunal noted that the ITO did not doubt the genuineness of the firm as constituted by the deed dated July 17, 1973, and that there was an application made in accordance with the law. The court examined the conditions under section 184 and section 185 of the Income-tax Act, which require: - An application for registration signed by all partners. - The partnership must be evidenced by an instrument specifying the individual shares of the partners. - The ITO must be satisfied about the genuineness of the firm and its constitution as specified in the partnership instrument. The court also referred to the Supreme Court decision in R. C. Mitter & Sons v. CIT [1959] 36 ITR 194, which outlined essential conditions for registration, including that profits or losses must be divided according to the terms of the instrument and the partnership must be genuine. Application of Principles to the Case: The court accepted the Tribunal's finding that the minors were admitted to the benefits of the partnership only from July 17, 1973, and thus could not be deemed admitted from an earlier date. This constituted a reconstitution of the firm during the previous year. The application for registration was made in Form No. 11A, signed by all partners, excluding the minors, but incorrectly stated that the minors were admitted from September 1, 1972. Despite these infractions, the court found that the violations were not significant enough to deny registration. The reasons included: - The reconstitution did not change the shares of other partners; the minors were admitted within the 17% share of one partner. - The allocation of profits among the 12 partners was with the consent of all partners and only affected the share of one partner. - The firm was found to be genuine both before and after the reconstitution. Conclusion: The court concluded that the Tribunal was justified in holding that the partnership firm was entitled to registration, although it disagreed with the Tribunal's principle that allocation of profits otherwise than in accordance with the partnership deed cannot be a ground for refusing registration. The second question was answered in the affirmative, in favor of the assessee and against the Revenue, while the first question was declined to be answered due to the specific facts and circumstances of the case. No order as to costs was made.
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