1985 (4) TMI 57 - HC - Income Tax

Summary

Issues:
1. Registration of firm under the Income Tax Act
2. Withdrawal of registration and refusal to register the firm
3. Distribution of concealed income among partners
4. Application of provisions of sections 184(7), 185(5), and 186(1)

Analysis:
The judgment revolves around the registration of a firm under the Income Tax Act and subsequent actions taken by the Income Tax Officer (ITO) regarding the continuation of registration and withdrawal of benefits. The case involved the discovery of a duplicate set of account books during survey proceedings, indicating concealed income by the assessee-firm. The ITO passed orders under sections 186(1) and 185(5) withdrawing the benefit of registration and refusing to register the firm for the assessment year 1976-77.

The appeal against the order passed under section 186(1) resulted in the cancellation of the registration being set aside since the conditions prescribed were not fulfilled. It was also established that once registration was continued under section 184(7), the question of refusing to register the firm under section 185(5) did not arise. The Commissioner of Income-tax (Appeals) emphasized that non-disclosure of profits did not automatically disentitle the firm from the continuation of registration.

The counsel for the Commissioner contended that two questions of law should have been referred to the High Court by the Income-tax Appellate Tribunal. The first question pertained to the application of section 185(5), which deals with the refusal to register the firm for the assessment year. The judgment clarified that if registration had already been granted or continued for the assessment year, the question of refusal to register did not arise, and cancellation could only occur under section 186(1) based on specific circumstances.

Regarding the distribution of concealed income among partners, it was presumed that undisclosed income would have been distributed in line with the partnership deed. The Tribunal's decision not to refer the questions to the High Court was justified as no substantial question of law emerged from their order. Consequently, the application for making a reference was dismissed, affirming the Tribunal's decision.