1982 (5) TMI 92 - AT - Income Tax

Issues Involved:
1. Refusal of registration to the assessee-firm for the assessment year 1977-78.
2. Validity of the instrument of partnership specifying the shares of the partners.
3. Continuation of registration after the retirement of a partner.
4. Compliance with Section 184(1)(ii) requirements.
5. Applicability of relevant case laws.

Issue-wise Detailed Analysis:

1. Refusal of Registration to the Assessee-Firm for the Assessment Year 1977-78:
The Income Tax Officer (ITO) refused to grant registration to the assessee-firm for the assessment year 1977-78 under Section 185(1)(b) on the grounds that the conditions stated in Section 184(1)(ii) were not satisfied. Specifically, the ITO noted that there was no instrument indicating the proportion in which the profit and loss of the firm should have been shared by the partners during the period 1st January 1977 to 31st March 1977. The Commissioner (Appeals) overturned this decision, leading to the Revenue's appeal.

2. Validity of the Instrument of Partnership Specifying the Shares of the Partners:
The firm was initially constituted under a deed of partnership dated 2nd April 1972, which specified the shares of the partners. After the retirement of Shri Upendra Kamath on 31st December 1976, a deed of retirement was executed on 1st January 1977. The ITO argued that the retirement deed did not specify the shares of the continuing partners in the reconstituted firm. However, the Commissioner (Appeals) and the Tribunal found that the retirement deed, when read with the original partnership deed, did specify the shares of the continuing partners in the ratio of 2:1:1.

3. Continuation of Registration After the Retirement of a Partner:
The Commissioner (Appeals) concluded that the registration granted based on the partnership deed dated 2nd April 1972 continued to be effective for the period ending on 31st December 1976. For the final three months, the agreement dated 1st January 1977 was deemed to continue the partnership as before, with the distribution of profits remaining unchanged. The Tribunal upheld this view, stating that the firm was not dissolved but continued with a change in constitution, and the shares of the partners were impliedly specified.

4. Compliance with Section 184(1)(ii) Requirements:
Section 184(1)(ii) requires that the partnership be evidenced by an instrument specifying the individual shares of the partners. The Tribunal noted that while the specification of shares need not be express, it may be implied. In this case, the retirement deed provided that the continuing partners would share profits in the same ratio as before, which was interpreted to mean the ratio of 2:1:1. Thus, the requirement of specifying individual shares was met.

5. Applicability of Relevant Case Laws:
The Revenue relied on the Supreme Court decision in Mandyala Govindu & Co. v. CIT, which held that registration must be refused if the partnership deed does not specify the individual shares of the partners. However, the Tribunal distinguished this case, noting that the retirement deed, read with the original partnership deed, did specify the shares. The Tribunal also referred to Parekh Wadilal Jivanbhai v. CIT, where it was held that relevant circumstances and other evidence could be looked into for ascertaining the individual shares of the partners.

Conclusion:
The Tribunal concluded that the Revenue's appeal must fail. The ITO's refusal to register the assessee-firm was based on an incorrect interpretation of the requirement to specify individual shares. The deeds in question, when read together, did specify the shares of the continuing partners. The Tribunal confirmed the order of the Commissioner (Appeals) directing the ITO to grant registration for the assessment year 1977-78 and dismissed the Revenue's appeals.

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