1981 (2) TMI 20 - HC - Income Tax

1999 (7) TMI 103 - AT

Issues Involved:
1. Refusal of registration benefit for the assessment year 1961-62.
2. Refusal of registration benefit for the assessment years 1962-63 and 1963-64.

Detailed Analysis:

Issue 1: Refusal of Registration Benefit for the Assessment Year 1961-62

The assessee-firm, a partnership constituted under a deed dated November 6, 1955, had been granted registration under Section 26A of the Indian Income-tax Act, 1922, for years prior to the financial year 1960-61. For the assessment year 1961-62, the assessee applied for renewal of registration on May 19, 1961. However, the Income-tax Officer (ITO) declined the renewal on the grounds that the profits from the truck plying business were not divided equally among the four partners, nor were they credited to their respective accounts in the firm's books. This decision was upheld by the Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT).

The statutory provisions applicable for the assessment year 1961-62 are those of the Indian Income-tax Act, 1922. Section 26A and related rules (Rules 2 to 6B) required that the application for registration must specify the individual shares of the partners and be signed by all partners. It was essential that the profits or losses be divided or credited according to the partnership deed.

The Supreme Court's decision in Khanjan Lal Sewak Ram v. CIT [1972] 83 ITR 175 was cited, where it was held that non-distribution of profits according to the partnership deed disqualified the firm from renewal of registration. The assessee's reliance on the Andhra Pradesh High Court's decision in Variety Hall and Ramakrishna Textiles v. CIT [1972] 84 ITR 202 was found unhelpful as it conflicted with the Supreme Court's ruling and involved different circumstances.

Given the findings of plain suppression of income, the High Court concluded that the benefit of registration was rightly refused for the assessment year 1961-62.

Issue 2: Refusal of Registration Benefit for the Assessment Years 1962-63 and 1963-64

For the assessment years 1962-63 and 1963-64, the provisions of the Income-tax Act, 1961, applied. Section 184(7) of the Act of 1961 stated that once registration is granted, it continues for subsequent years provided there is no change in the firm's constitution or the partners' shares, and a declaration to that effect is filed in the prescribed form.

The assessee contended that since it was granted registration in previous years and complied with the conditions of Section 184(7), it should be entitled to renewal for the years 1962-63 and 1963-64. The High Court considered Circular No. 16(XXV-17) of 1962 issued by the CBDT, which clarified that firms registered under the Act of 1922 need not apply for fresh registration for the assessment year 1962-63 if there was no change in the firm's constitution or partners' shares.

Both counsel agreed that the assessee-firm met these conditions, and thus, the firm was entitled to renewal of registration for the assessment years 1962-63 and 1963-64.

Conclusion

1. Question 1: The benefit of registration was rightly refused for the assessment year 1961-62.
2. Question 2: The benefit of registration was wrongly refused for the assessment years 1962-63 and 1963-64.

As both parties partly succeeded and partly lost, no order as to the costs of the reference was made.

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