1977 (5) TMI 24 - AT - Income Tax

Summary

Issues:
1. Refusal of registration to a partnership firm for the assessment year 1975-76.
2. Dispute regarding the involvement of lady partners in the firm's affairs.
3. Compliance with legal requirements for registration under the Income Tax Act, 1961.
4. Assessment of share income from the firm before registration was granted.

Detailed Analysis:

1. The appeal was filed by the assessee, a partnership firm, against the refusal of registration for the assessment year 1975-76. The Income Tax Officer (ITO) denied registration under s. 185(1)(b) of the IT Act, 1961, stating that two lady partners were benamidars of other individuals. The Assistant Commissioner (AAC) upheld the ITO's decision, emphasizing the lack of active involvement of the lady partners in the firm's affairs. However, the AAC did not give a finding on whether the other lady partner was a benamidar. The firm contended that all formalities were fulfilled, investments were made by all partners, and profits were divided according to the partnership deed.

2. The main contention before the tribunal was the compliance with legal requirements for registration. The firm argued that the partnership deed was duly executed, registered with the Registrar of Firms, and investments were made by all partners. Citing decisions such as Agarwal & Co. vs. CIT and K.D. Makesh & Co. vs. CIT, the firm asserted that all conditions for registration were met. The Departmental Representative argued that the lady partners were benamidars, but the tribunal held that the firm was entitled to registration as all legal requirements were satisfied, including the source of capital invested by the lady partners, which was accepted and gifts tax paid.

3. Another issue raised was the assessment of share income from the firm before registration was granted. The firm contended that partners had already been assessed on share income, and certain decisions supported the position that once share income was assessed, registration could not be denied. The tribunal referred to previous decisions and held that the firm was a genuine partnership that met all legal requirements, and the ITO could not refuse registration after assessing share income. Consequently, the tribunal directed the ITO to register the firm and allowed the appeal.

In conclusion, the tribunal ruled in favor of the partnership firm, granting registration for the assessment year 1975-76 based on the fulfillment of all legal requirements and the assessment of share income from the firm before registration was denied.