1982 (11) TMI 71 - AT - Income Tax

Summary

Issues:
Grant of registration to the assessee-firm for the assessment year 1975-76, adherence to the terms of the partnership deed, validity of the reconstituted partnership, refusal of registration based on profit sharing ratio differing from the partnership deed, continuity of the partnership despite the death of a partner, interpretation of partnership documents for registration purposes.

Analysis:
The appeal before the Appellate Tribunal ITAT COCHIN was regarding the grant of registration to the assessee-firm for the assessment year 1975-76. The firm, consisting of six partners, including a minor, had a partnership deed dated 1st August 1970. The deed outlined clauses related to retirement, death, and profit sharing ratios among partners. A partner passed away in February 1974, and the firm was reconstituted in March 1974 with a new partner added. The issue arose when the Income Tax Officer (ITO) questioned the adherence to the partnership terms, specifically the profit sharing ratio, and refused registration based on the belief that profits only accrued when the accounts were closed on 31st March 1974.

The CIT (A) directed the grant of registration, emphasizing that once the ITO confirmed the genuine existence of the firm as per the partnership deed, other grounds were irrelevant. The revenue appealed, arguing that the profit sharing ratios deviated from the partnership deed and that there was a break in the partnership during the reconstitution period. The Tribunal considered the submissions and analyzed the partnership documents. It concluded that the partnership continuity was maintained despite the partner's death, with the reconstituted partnership deed effectively combining the terms from the original deed and the new agreement. The Tribunal referenced legal precedents and highlighted that registration could not be refused solely based on profit allocation discrepancies.

The Tribunal referred to statutory provisions indicating that registration could still be granted even if profit allocation did not strictly align with the partnership deed. The decision emphasized that the partnership instrument was in force during the relevant accounting period, and the partnership terms were followed. Consequently, the Tribunal upheld the CIT (A)'s order for registration, albeit on different grounds, and dismissed the department's appeal.