1987 (2) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of order under section 185(5) of the Income-tax Act, 1961.
2. Non-cooperation from the assessee during assessment.
3. Requirement of minors who became majors to sign Form No. 12.
4. Provisions for redistribution of losses upon minors attaining majority.

Detailed Analysis:

1. Cancellation of order under section 185(5) of the Income-tax Act, 1961:
The primary issue in this appeal was the cancellation of the firm's registration under section 185(5) of the Income-tax Act, 1961. The assessee, a registered firm with 15 partners, had its registration canceled by the Income-tax Officer due to non-cooperation during the assessment, leading to completion under section 144, and uncertainty about minors who became majors exercising their option to continue in the firm. The Commissioner of Income-tax (Appeals) accepted confirmatory letters from the erstwhile minors and a major partner, affirming their decision to remain in the firm, and held that the assessment under section 144 was not a valid ground for refusing to continue the registration under section 184(7).

2. Non-cooperation from the assessee during assessment:
The revenue argued that the assessment was completed under section 144 due to the assessee's non-cooperation, justifying the cancellation of registration under section 185(5). However, it was determined that section 185(5) applies only to initial registration and not to the continuation of registration under section 184(7). The Income-tax Officer should have invoked section 186(1) to withdraw the registration, which was not done. Therefore, the refusal to continue registration based on non-cooperation during the assessment was not justified.

3. Requirement of minors who became majors to sign Form No. 12:
The revenue contended that Form No. 12 was not signed by the two minors who had become majors, making the application defective. The assessee argued that the Income-tax Officer should have provided an opportunity to rectify the defect as per section 184(3). The Tribunal upheld the assessee's contention, stating that the defect was curable and the Income-tax Officer should have allowed the assessee to rectify it within a month. Therefore, the omission to sign Form No. 12 was not fatal for the continuation of registration.

4. Provisions for redistribution of losses upon minors attaining majority:
The revenue raised concerns about the partnership deed not addressing the redistribution of losses when minors become majors. The Tribunal analyzed clauses of the partnership deed, which indicated that minors were entitled to share profits only during their minority and would share profits and losses upon attaining majority. The Tribunal referred to the Allahabad High Court's decision in Badri Narain Kashi Prasad's case, which clarified that a minor admitted to the benefits of partnership is considered a partner under the Income-tax Act. Thus, there was no change in the constitution of the firm when minors opted to continue as partners upon attaining majority. The Tribunal concluded that the firm was entitled to renewal of registration as there was no change in the firm's constitution.

Conclusion:
The Tribunal dismissed the revenue's appeal, holding that the cancellation of the firm's registration under section 185(5) was not justified. The non-cooperation during assessment and the omission to sign Form No. 12 were not valid grounds for refusing the continuation of registration. The partnership deed adequately addressed the sharing of profits and losses, and the minors' decision to continue as partners did not change the firm's constitution. The assessee was entitled to continue the registration upon rectifying the defect in Form No. 12.