1982 (6) TMI 116 - AT - Income Tax

Issues Involved:
1. Retrospective operation of the partnership deed dated 24-5-1976.
2. Registration of the firm for the assessment year 1977-78.
3. Compliance with procedural requirements under section 185(2) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Retrospective Operation of the Partnership Deed Dated 24-5-1976:

The primary issue revolves around whether the partnership deed dated 24-5-1976 could have retrospective effect from 1-1-1976. The Income Tax Officer (ITO) argued that the partnership deed could not have retrospective operation and that a different firm came into existence on 24-5-1976, consisting of eight partners. The ITO emphasized that the partnership business could only date from the moment the parties agreed to unite, as per the decision of the Hon'ble Calcutta High Court in Dawjee Dadabhoy & Co. v. CIT [1963] 49 ITR 698. The Commissioner (Appeals) initially reversed the ITO's order, stating that taking in Smt. Maina Devi as a partner effective from 1-1-1976 was not repugnant to any requirements of the Partnership Act. However, the Tribunal found that the Commissioner (Appeals) erred in holding that the partners could give retrospective effect to their agreement entered on 24-5-1976. The Tribunal cited that no individual could alter the legal relationship retrospectively, as this power is conferred by jurisprudence on the sovereign only.

2. Registration of the Firm for the Assessment Year 1977-78:

The firm, constituted by the deed dated 24-5-1976, filed Form Nos. 11 and 11A for the assessment year 1977-78, claiming registration for the period 1-1-1976 to 31-12-1976. The ITO refused registration, stating that the firm of eight partners did not exist during the entire accounting period. The Commissioner (Appeals) found that the case was governed by section 187 of the Income-tax Act, 1961, and that it was a case of change in the constitution of the partnership. The Tribunal, however, noted that the firm could have sought registration only if it had filed a proper form for the period 24-5-1976 to 31-12-1976. The Tribunal emphasized that seeking registration for the period 1-1-1976 to 23-5-1976 on the basis of the partnership deed dated 24-5-1976 was not justified.

3. Compliance with Procedural Requirements Under Section 185(2) of the Income-tax Act, 1961:

The assessee argued that if the ITO found Form No. 11A to be defective, he should have given an opportunity to cure the defect in terms of section 185(2). The Tribunal agreed, stating that it was the statutory duty of the ITO to give notice to the assessee if the form was defective. The ITO's failure to do so vitiated his order. The Tribunal noted that whether a defect is curable cannot be left solely to the assessing authority's decision. The Tribunal concluded that the ITO's order suffered from a basic deficiency and needed to be set aside. The matter was restored to the ITO with directions to provide the statutory opportunity to the assessee as per section 185(2) and re-determine the issue in accordance with the law.

Conclusion:

The Tribunal set aside the orders of both the Commissioner (Appeals) and the ITO. The matter was remanded back to the ITO with instructions to comply with the procedural requirements under section 185(2) of the Income-tax Act, 1961, and to re-determine the issue of registration for the assessment year 1977-78 in accordance with the law. The appeal was treated as allowed for statistical purposes.

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