1976 (7) TMI 22 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 184(7) of the Income-tax Act, 1961 regarding registration of a partnership firm.
2. Validity of registration renewal for the assessment year 1962-63.
3. Impact of changes in the constitution of a partnership firm on registration eligibility.
4. Requirement of a written deed of partnership for registration purposes.

Analysis:
The High Court of Bombay addressed the issue of whether a partnership firm was entitled to be treated as a registered firm for the assessment year 1962-63. The case involved a partnership formed by four individuals, with one partner passing away during the first year of the partnership. The surviving partners continued the business without executing a new partnership deed. The Income-tax Officer initially granted registration for the assessment year 1961-62 based on the original partnership deed. However, for the subsequent year, the registration renewal was declined as there was no written deed supporting the revised profit-sharing ratios among the surviving partners.

The Appellate Assistant Commissioner ruled in favor of the assessee, stating that the registration for the previous year automatically entitled them to renewal if there were no changes in the constitution or profit-sharing ratios. The revenue appealed, arguing that without a written deed specifying the shares of the surviving partners, the firm was not eligible for registration. The Tribunal sided with the revenue, emphasizing the necessity of an earlier registration based on a partnership agreement for section 184(7) to apply.

The Court noted the absence of a fresh application for registration by the surviving partners with revised profit-sharing ratios after the death of one partner. Without a written deed reflecting the new profit-sharing arrangement, the provisions of section 184(7) could not be invoked. The Court concluded that the earlier registration was erroneously granted to the partnership of three surviving partners without a proper deed supporting their shares. As there was a change in the firm's constitution and profit-sharing ratios, the Tribunal's decision to deny registration renewal was upheld.

In summary, the Court affirmed that without a written partnership deed reflecting the revised profit-sharing ratios among the surviving partners, the firm was not entitled to registration renewal under section 184(7) for the assessment year 1962-63. The decision favored the revenue, and the assessee was directed to bear the costs.