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Issues Involved:
1. Lawfulness of the Commissioner's order under section 33B canceling the registration of the firm for the assessment years 1952-53, 1953-54, and 1954-55. 2. Registrability of the firm under section 26A for the said assessment years. Issue-wise Detailed Analysis: 1. Lawfulness of the Commissioner's Order under Section 33B: The principal question was whether the firm, represented by members of a Hindu undivided family (HUF) that underwent partition, could be refused registration solely due to the disruption of the HUF. The Commissioner argued that the shares shown against the two members did not reflect the actual facts post-partition, potentially contravening the Companies Act. The Tribunal upheld the view that the corpus of the share was affected by the partition, which altered the ownership of the shares stipulated in the partnership deed. The Tribunal relied on precedents such as Raju Chettiar & Bros. v. Commissioner of Income-tax [1949] 17 ITR 51, which stated that once the share is divided, the income follows the division. However, the Tribunal's decision was challenged based on the principle that the managing member of a joint family entering a partnership does not make the family a partner; only the individuals who contractually enter the partnership become partners. The court referred to Charandas Haridas v. Commissioner of Income-tax [1966] 39 ITR 202 (Supreme Court), which clarified that the partition of a family does not affect the position of the partner in the partnership. The Supreme Court held that the law of partnership does not account for the Hindu undivided family, and a partition changes the status under Hindu law but not the partnership's legal standing. The court concluded that the partition among the members of the joint family did not affect the partnership's registrability. The member of the joint family, post-partition, continues to represent the partnership without altering its validity. The court found no warrant for the view that partition affects the partnership's registration eligibility. 2. Registrability of the Firm under Section 26A: The court examined whether the firm was registrable under section 26A despite the partition. It was argued that the partition did not change the partnership's constitution or the partners' status. The court referenced Commissioner of Income-tax v. Laxmi Trading Co [1953] 24 ITR 173 and Commissioner of Income-tax v. Agardih Colliery Co [1955] 27 ITR 540, which established that a sub-partnership does not affect the main partnership's registrability. The court also cited Commissioner of Income-tax v. Dudwala & Co. [1950] 18 ITR 653, where it was held that the disruption of a joint family did not affect the firm's registration under section 26A. The court emphasized that the Department must consider the real income and lawful transactions, not just the nominal shares shown in the partnership deed. The court dismissed the argument that the antecedent partition affected the partnership's validity. It was noted that the members continued as partners post-partition, similar to the facts in Charandas Haridas case (Supra). Conclusion: The court answered the first question in the negative, stating that the Commissioner's order canceling the registration was erroneous. The second question was answered affirmatively, confirming that the firm was entitled to registration for the assessment years 1952-53, 1953-54, and 1954-55. The assessee was entitled to costs from the Department.
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