1994 (2) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of registration under section 185(1)(b) of the Income-tax Act, 1961.
2. Validity of the partnership deed dated 2-7-1983 and the retirement deed dated 10-7-1983.
3. Retrospective effect of partnership and retirement deeds.
4. Genuineness of the firm for the assessment year 1984-85.

Detailed Analysis:

1. Refusal of Registration under Section 185(1)(b) of the Income-tax Act, 1961:

The primary issue revolves around the refusal of registration to the assessee-firm for the assessment year 1984-85. The Income-tax Officer refused registration on the grounds that no genuine firm had come into existence from 1-4-1983 with the constitution specified in the partnership deed dated 2-7-1983. This decision was upheld by the Deputy Commissioner (Appeals), Vijayawada. The Tribunal examined whether the assessee-firm was entitled to registration under section 185(1)(b) based on the documents and the arguments presented.

2. Validity of the Partnership Deed Dated 2-7-1983 and the Retirement Deed Dated 10-7-1983:

The Tribunal scrutinized the partnership deed dated 2-7-1983 and the retirement deed dated 10-7-1983. The assessee claimed that these documents were genuine and reflected the true state of affairs, asserting that the partnership was reconstituted on 1-4-1983. However, the Tribunal found discrepancies and suspicious circumstances indicating that these documents were likely created retrospectively to suit the assessee's claim for registration. The Tribunal noted that if the retirement had indeed occurred on 31-3-1983 and the reconstituted partnership began on 1-4-1983, there was no plausible reason for the delay in executing these documents until July 1983.

3. Retrospective Effect of Partnership and Retirement Deeds:

The Tribunal referred to legal principles regarding the commencement and duration of partnerships, emphasizing that a partnership deed cannot retroactively alter the past. The Tribunal cited Sampath Iyengar's 'Law of Income-tax' and the Madras High Court decision in Sakthi Charities v. CIT to support the view that retrospective clauses in partnership deeds are ineffective and illegal. The Tribunal concluded that the partnership deed dated 2-7-1983 and the retirement deed dated 10-7-1983 could not be given retrospective effect from 1-4-1983.

4. Genuineness of the Firm for the Assessment Year 1984-85:

The Tribunal evaluated the genuineness of the firm for the assessment year 1984-85. It considered the arguments and evidence presented by both sides, including the timing of capital contributions by the new partners and the handling of the retiring partner's account. The Tribunal found inconsistencies and concluded that the firm as reconstituted on 2-7-1983 did not genuinely carry on business from 1-4-1983. Consequently, the Tribunal held that the assessee-firm was not entitled to registration for the assessment year 1984-85.

Conclusion:

The Tribunal dismissed the appeal, affirming the decisions of the Income-tax Officer and the Deputy Commissioner (Appeals) to refuse registration to the assessee-firm for the assessment year 1984-85. The Tribunal's decision was based on the finding that the partnership and retirement deeds were likely created retrospectively and that the firm did not genuinely conduct business from 1-4-1983 as claimed.