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1984 (4) TMI 114 - AT - Income Tax

Issues Involved:

1. Continuation of firm registration under Section 184(7) of the Income-tax Act.
2. Validity of Form No. 12 declaration signed by only two partners.
3. Applicability of Rule 22(5) and Rule 24 of the Income-tax Rules.
4. Impact of a partner's refusal to sign the declaration.
5. Interpretation of Section 185(3) of the Income-tax Act regarding defect rectification.

Detailed Analysis:

1. Continuation of Firm Registration under Section 184(7):

The primary issue revolves around the continuation of the firm's registration for the assessment year 1980-81. The firm initially had three partners, but one partner, Prakash Rayudu, retired after the accounting year ended. The firm, now with two partners, filed a declaration in Form No. 12 for the continuation of registration. The Income Tax Officer (ITO) declined the continuation of registration, stating that the declaration was not signed by all partners, particularly Prakash Rayudu, who had retired.

2. Validity of Form No. 12 Declaration Signed by Only Two Partners:

The declaration in Form No. 12 was submitted on 25-7-1980, signed by only two partners, Ramachandra Rao and Karuna Sagar. The ITO considered this declaration defective because it lacked the signature of the third partner, Prakash Rayudu. However, the appellate authority (AAC) directed the ITO to grant registration, reasoning that on the date of application, the firm consisted of only two partners, and therefore, the declaration was valid.

3. Applicability of Rule 22(5) and Rule 24 of the Income-tax Rules:

Rule 24 requires that the declaration for continuation of registration must be signed by the persons concerned in accordance with Rule 22(5). Rule 22(5) stipulates that the application must be signed by all partners as constituted at the date of the application. The tribunal interpreted that since the firm was constituted by only two partners on the date of the declaration, the requirement was met. The tribunal emphasized that the rules were fully satisfied as the firm had not dissolved but only undergone a change in constitution.

4. Impact of a Partner's Refusal to Sign the Declaration:

Prakash Rayudu refused to sign the declaration due to differences with the managing partner. The ITO had given the firm an opportunity to rectify this defect by obtaining Rayudu's signature, which was not complied with. The tribunal elucidated that since the firm had not dissolved and only changed its constitution, the signature of the retired partner was not necessary. The rationale was that the same firm continued, and the signature of the continuing partners sufficed.

5. Interpretation of Section 185(3) of the Income-tax Act Regarding Defect Rectification:

Section 185(3) provides that if the ITO considers a declaration defective, he must intimate the defect and give an opportunity to rectify it within one month. If not rectified, the registration will not have effect. The tribunal noted that the ITO's requirement for the third partner's signature was not legally mandated since the declaration by the continuing partners complied with the rules. Therefore, the non-compliance with the ITO's directive did not constitute a defect under the law, and the firm should not be penalized.

Conclusion:

The tribunal concluded that the requirements of Rules 24 and 22(5) were fully satisfied by the signatures of the two continuing partners. The refusal of registration by the ITO was deemed incorrect, and the appeal by the revenue was dismissed. The continuation of the firm's registration for the assessment year 1980-81 was upheld, affirming that the legal requirements were strictly complied with.

 

 

 

 

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