1980 (7) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Change in the constitution of the firm upon a minor attaining majority.
2. Requirement of fresh registration for the firm.
3. Interpretation of "shares" in the context of profits and losses.
4. Application of Section 184(7) of the Income Tax Act, 1961.
5. Delay in applying for registration and its condonation.

Detailed Analysis:

1. Change in the Constitution of the Firm:
The primary issue was whether the attainment of majority by Vinodrai, who was previously admitted to the benefits of the partnership as a minor, constituted a change in the constitution of the firm. The court held that there was no change in the constitution of the firm within the meaning of the first proviso to Section 184(7) of the Income Tax Act, 1961. The court noted that a minor admitted to the benefits of a partnership is deemed a partner under Section 2(23) of the Act. Therefore, when Vinodrai attained majority and continued as a partner, there was no change in the number or identity of the partners.

2. Requirement of Fresh Registration:
The court examined whether the firm needed to apply for fresh registration under Section 184(8) of the Act after Vinodrai attained majority. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) had held that fresh registration was necessary. However, the court disagreed, stating that since there was no change in the constitution of the firm, the earlier registration should continue to have effect for subsequent assessment years.

3. Interpretation of "Shares" in Profits and Losses:
The court addressed whether the term "shares" in the first proviso to Section 184(7) included both shares in profits and losses. The court referred to previous decisions, including Imdad Ali v. CIT and Parekh Wadilal Jiwanbhai, which held that "shares" referred only to shares in profits. The court maintained this interpretation, concluding that a change in the shares of losses did not affect the registration under Section 184(7).

4. Application of Section 184(7):
The court emphasized that under Section 184(7), once a firm is registered, the registration has effect for every subsequent assessment year, provided there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership. Since there was no change in the shares of profits, the firm was entitled to the benefit of continued registration for the assessment years 1967-68 and 1968-69.

5. Delay in Applying for Registration and Its Condonation:
The petitioner-firm had applied for registration based on the partnership deed dated August 28, 1966, after the prescribed time. The court noted that the firm had a bona fide belief that no fresh registration was necessary. The ITO could have condoned the delay under the proviso to Section 184(4) if satisfied with the reasons provided. However, the ITO and subsequent authorities did not consider this aspect adequately.

Conclusion:
The court allowed the writ petition, set aside the impugned orders, and directed the ITO to continue the registration of the petitioner-firm for the assessment years 1967-68 and 1968-69. The court found that there was no change in the constitution of the firm or the shares of profits, and thus, the firm was entitled to the benefit of continued registration under Section 184(7) of the Income Tax Act, 1961.