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Issues Involved:
1. Deduction of expenditure reimbursed to previous owners. 2. Validity of the registration of the assessee-firm. Issue-wise Detailed Analysis: 1. Deduction of Expenditure Reimbursed to Previous Owners: The assessee-firm, constituted under a deed of partnership dated February 21, 1973, purchased an estate on March 29, 1973. The sale deed stipulated that from April 1, 1972, the purchasers would bear the expenses for the cultivation of coffee plantations and other products. Consequently, the assessee reimbursed the previous owners Rs. 1,45,823.38 for the expenditure incurred from April 1, 1972, until the estate was sold. For the assessment year 1973-74, the assessee claimed this reimbursement as a deduction. The CIT disallowed the deduction, reasoning that the firm did not exist during the period from April 1, 1972, to February 20, 1973, and that the amount was not incurred wholly and exclusively by the assessee for deriving agricultural income of the relevant year under s. 5(k) of the Karnataka Agriculture IT Act, 1957. The Court found that the CIT misunderstood the nature of the payment. The assessee claimed the deduction because the expenditure was incurred by the vendors during the year 1972-73 for raising the agricultural crop, which was taxed. Under the sale deed terms, the assessee was entitled to the crop for the year 1972-73 and paid the vendors accordingly. The Court held that the expenditure incurred for deriving the agricultural income must be deducted while computing the income for tax purposes, regardless of who incurred it. Therefore, the CIT was in error in disallowing the deduction. 2. Validity of the Registration of the Assessee-Firm: The CIT set aside the firm's registration because two partners did not personally sign the application for registration. The application in Form No. 7 was signed personally by ten partners, while the authorized agents signed for the remaining two partners. The assessing officer accepted this form and granted registration. During a departmental audit, it was noticed that the registration was incorrect because not all partners personally signed the application. Subsequently, another Form No. 7 was filed on September 15, 1976, signed by all partners personally, but this was after the assessment order dated July 30, 1975. The CIT held that the registration granted on the basis of an application not signed by all partners personally was illegal. The Court referred to Sec. 29 of the Karnataka Agrl. IT Act, 1957, and Rule 13, which require that the application for registration must be signed by all partners personally. The Court cited the Supreme Court's decision in Rao Bahadur Ravulu Subba Rao vs. CIT, which emphasized strict compliance with statutory requirements for registration. However, the Court considered whether the assessing officer could allow the assessee to rectify the mistake in the application. The Court noted that Rule 13 is liberal, allowing multiple stages for filing an application. The Court refrained from expressing a definitive opinion but directed that if the assessee seeks an opportunity to rectify the application, the assessing officer should consider it in accordance with the law. The Court modified the CIT's order, setting aside the direction that the assessee be treated as an unregistered firm for the assessment year 1973-74. The Court directed the assessing officer to redo the assessment in light of the observations made. Conclusion: The revision petition was allowed in part. The CIT's order was modified, directing the assessing officer to redo the assessment in accordance with the law and the Court's observations. The parties were instructed to appear before the assessing officer on April 16, 1984, for further proceedings.
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