1978 (7) TMI 89 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to registration under Section 26A of the Indian Income-tax Act, 1922.
2. Genuineness of the partnership firm.
3. Division of profits among partners.

Issue-wise Detailed Analysis:

1. Entitlement to Registration under Section 26A of the Indian Income-tax Act, 1922:
The primary question referred to the court was whether the entity styled Messrs. C.I.O. Full Mould Tyre Retreaders (India), Jamshedpur, was entitled to registration as a firm under Section 26A of the Indian Income-tax Act, 1922, for the assessment years 1959-60 and 1960-61. The court noted that the applications for registration were filed late but were entertained by the Income-tax Officer (ITO). The ITO had initially refused registration on the grounds that no genuine firm had come into existence and that the profits had not been divided among the partners. The Appellate Assistant Commissioner (AAC) reversed this decision, finding the firm genuine and explaining the non-division of profits. However, the Tribunal reversed the AAC's decision, agreeing with the ITO that the profits had not been divided, which was contrary to the requirements of law.

2. Genuineness of the Partnership Firm:
The Tribunal did not provide a specific finding on the genuineness of the firm. However, the AAC had found the firm to be genuine, and this was not directly contested in the Tribunal's final decision. The court did not delve deeply into this issue, as the primary focus was on the procedural compliance concerning the division of profits.

3. Division of Profits Among Partners:
The court examined the requirements under Section 26A and the relevant rules, particularly Rules 2 and 3, and the prescribed forms for application. It was noted that for initial registration, the profits or losses of the previous year could be divided or credited at a later point in time, as per the certificate required in Form I. The court referred to the case of Shere-Punjab Silk Stores v. CIT, which distinguished between the requirements for initial registration and renewal of registration. The court concluded that the Act and Rules allowed the firm the privilege to divide or credit profits at a later date for initial registration. The court cited the Nagpur Judicial Commissioner's Court decision in CIT v. Kikabhai, which supported the view that a firm could be registered if the profits were divided or credited in good faith, even if done later.

The court found that the profits for the assessment years 1959-60 and 1960-61 were eventually divided among the partners and credited to their current accounts, albeit after the filing of the applications for registration. This belated division did not infringe upon the requirements of law for initial registration. The court rejected the department's argument that the exact amount of profit or loss needed to be apportioned before filing the application, clarifying that the apportionment referred to the share in terms of annas and pies in a rupee, not the exact amount.

Conclusion:
The court answered the question in favor of the assessee, stating that non-division of profits before filing the application under Section 26A was not a valid ground for rejecting the initial registration. The court also dismissed the department's alternative argument regarding the renewal of registration for the assessment year 1960-61, emphasizing that the department could not take alternative stands at this stage. The assessee was entitled to costs and a hearing fee of Rs. 250.