1984 (5) TMI 52 - AT - Income Tax

Issues Involved:

1. Validity of the partnership deed dated 19-1-1973.
2. Genuineness of the supplementary partnership deed dated 25-1-1973.
3. Applicability of section 186(1) of the Income-tax Act, 1961.
4. Whether the firm was entitled to registration and renewal of registration.

Detailed Analysis:

1. Validity of the Partnership Deed Dated 19-1-1973:

The partnership deed dated 19-1-1973 included minors sharing in the losses of the firm, violating section 30 of the Indian Partnership Act, 1932. The ITO found this deed invalid, as minors cannot be made liable for losses. Consequently, the ITO canceled the registration granted for the assessment year 1973-74 and subsequent years. The AAC, however, viewed the non-mention of adult partners' share in losses as a typographical or technical error, not sufficient for cancellation. The AAC believed this defect could be rectified under section 185(2) within one month of intimation to the assessee.

2. Genuineness of the Supplementary Partnership Deed Dated 25-1-1973:

The ITO doubted the genuineness of the supplementary deed dated 25-1-1973, considering it an afterthought, as it was not filed along with the application for registration on 27-3-1973 or during subsequent renewal applications. It was only presented after a show-cause notice on 16-10-1980. The Tribunal agreed with the ITO, finding the supplementary deed not genuine until 27-11-1980, thus unable to rectify any defect in the original deed during the relevant assessment years.

3. Applicability of Section 186(1) of the Income-tax Act, 1961:

The Tribunal considered section 186(1) applicable, which allows cancellation of registration if no genuine firm existed during the previous year. The Tribunal referenced decisions from the Andhra Pradesh High Court and Gauhati High Court, stating that the validity of a partnership deed impacts the genuineness of the partnership. The Tribunal concluded that the firm was not entitled to registration due to the invalid partnership deed, aligning with the principle that the ITO must ascertain partners' shares in losses, as established by the Supreme Court in Mandyala Govindu & Co. v. CIT.

4. Entitlement to Registration and Renewal of Registration:

The Tribunal held that the AAC erred in directing the ITO to allow registration and renewal. The original partnership deed's defect and the supplementary deed's lack of genuineness during the relevant years invalidated the firm's entitlement to registration. The Tribunal emphasized that the ITO's decision to cancel registration was correct under section 186(1).

Conclusion:

The Tribunal allowed the department's appeals, confirming the ITO's cancellation of registration and renewal for the assessment years 1973-74 to 1977-78. The Tribunal's decision was based on the invalidity of the original partnership deed, the non-genuine supplementary deed, and the applicability of section 186(1) of the Income-tax Act, 1961.

← Previous Next →