1979 (1) TMI 127 - AT - Income Tax

Summary

Issues Involved: Registration benefits, Partnership deed, Retrospective effect, Profits and losses distribution, Reconstitution of firm.

Detailed Analysis:

1. Registration Benefits:
The Revenue's appeal contested the AAC's decision to grant registration benefits to the assessee firm. The ITO had refused registration on the grounds that the partnership deed dated 18th April 1973 could not be effective from 1st April 1973 because a partner, Mangat Rai, had died on 15th April 1973. The AAC, however, found that the firm was genuine, and profits for the period 1st April 1973 to 15th April 1973 were nil, which was supported by an affidavit from Smt. Sheela Devi. The AAC also noted that the drafting error in the partnership deed should not result in the denial of registration benefits.

2. Partnership Deed and Retrospective Effect:
The ITO's refusal to grant registration was based on the argument that the partnership deed dated 18th April 1973 could not be given retrospective effect from 1st April 1973. However, the AAC and Tribunal found that the retrospective operation of the deed was a technical error and should not affect the registration benefits. The Tribunal cited the Supreme Court's judgment in Ram Laxman Sugar Mills vs. CIT, which emphasized the intention of the parties and the validity of the deed if the parties acted on its assumption.

3. Profits and Losses Distribution:
The ITO argued that the old firm did not close the books of accounts on Mangat Rai's death nor divided the profits or losses for the period 1st April 1973 to 15th April 1973. The AAC found that the profits for this period were nil and that the profits for the entire year were duly distributed among the partners as per the partnership deed dated 18th April 1973. The Tribunal upheld this finding, noting that profits do not accrue from day to day but are ascertained at the end of the accounting period, as per the Supreme Court's judgment in CIT vs. Ashok Bhai Chiman Bhai.

4. Reconstitution of Firm:
The Tribunal observed that the case involved a change in the constitution of the firm under section 187(2) of the Act. The Tribunal referred to the Full Bench judgment of the Punjab & Haryana High Court in Nand Lal Sohan Lal vs. CIT, which held that there could be only one assessment for the entire period. The Tribunal concluded that the reconstitution did not change the firm's personality and that the registration benefits should not be denied on technical grounds.

Conclusion:
The Tribunal upheld the AAC's order directing the ITO to grant registration benefits to the firm. The Tribunal found that the firm was genuine, the profits for the disputed period were nil, and the drafting error in the partnership deed should not result in the denial of registration benefits. The Tribunal dismissed the Revenue's appeal, affirming that the firm was entitled to registration benefits under section 185(1)(b) of the Act.