1980 (8) TMI 105 - AT - Income Tax

Summary

Issues:
1. Refusal of registration for the assessment year 1975-76 by the ITO and AAC.
2. Discrepancy in profit sharing ratio as per partnership deed and books of account.
3. Inclusion of God as a partner in the partnership deed.
4. Interpretation of clause 12 of the partnership deed regarding charity provision.
5. Comparison with a similar case from Allahabad High Court.
6. Dispute over profit allocation among partners as per the partnership deed.
7. New plea raised by the departmental representative regarding profit allocation.

Analysis:
The Appellate Tribunal ITAT Amritsar heard the appeal of an assessee firm against the refusal of registration for the assessment year 1975-76 by the Income Tax Officer (ITO) and the Appellate Authority Commissioner (AAC). The ITO based the refusal on discrepancies in the profit sharing ratio between the partnership deed and the books of account, as well as the inclusion of God as a partner in the deed. The AAC upheld the decision citing essential requirements not being fulfilled due to God being made a partner and profits not being allocated according to the partnership instrument. However, the Tribunal found the reasoning of the lower authorities unsound and ruled in favor of the assessee.

The Tribunal analyzed the partnership deed, specifically focusing on clause 12 which outlined the profit distribution, including a provision for charity in the name of God. The Tribunal interpreted this clause as a provision for charity before dividing the profits equally among the three partners, emphasizing that God was not made a partner but rather a recipient of charity. This interpretation differed from a previous Allahabad High Court case involving a similar provision for charity, where partners had chosen to reserve a part of profits for charitable purposes.

Regarding the dispute over profit allocation among partners, the Tribunal clarified that the profits were indeed divided equally among the partners as per the partnership deed, contrary to the ITO's assertion of a discrepancy. The Tribunal also addressed a new plea raised by the departmental representative regarding profit allocation, emphasizing that the ITO had not pressed this objection after receiving the assessee's reply, and therefore, it could not be considered a valid point of dispute.

Ultimately, the Tribunal directed the grant of registration to the assessee firm for the assessment year 1975-76, overturning the decisions of the lower authorities. The appeal was allowed in favor of the assessee, highlighting the correct interpretation of the partnership deed and the legitimate allocation of profits among the partners.