1976 (4) TMI 69 - AT - Income Tax

Summary

Issues Involved:
1. Dissolution of the partnership firm upon the death of a partner.
2. Compliance with filing requirements under the Income-tax Act, specifically regarding Form 11-A and Form 12.
3. Validity and recognition of entries in the account books as an instrument of partnership.
4. Condonation of delay in filing the required forms and instruments of partnership.

Detailed Analysis:

1. Dissolution of the Partnership Firm Upon the Death of a Partner:
The primary issue was whether the partnership firm was dissolved upon the death of one of the partners, Aswarthanarayanaiah, on 3rd Aug., 1973. The partnership deed contained Clauses 7 and 8, which stipulated that the firm should not be closed upon the death of any partner but should continue until the end of the year, with the legal representatives of the deceased partner being allowed to join the firm with the consent of the remaining partners. The firm continued its business, and the deceased partner's three daughters were admitted as partners. The assessee filed two returns, one for the period before the death and one for the period after, claiming that the firm was dissolved and a new firm was formed. However, the Income-tax Officer and the AAC disagreed, stating that there was no dissolution per s. 187(2), as the partnership deed indicated the intention to continue the firm. The Tribunal agreed with the Revenue, noting that the firm was intended to continue and the business was carried on with the deceased partner's daughters as new partners.

2. Compliance with Filing Requirements Under the Income-tax Act:
The Income-tax Officer did not grant continuation of registration, citing two main reasons: a change in the constitution of the firm required filing Form 11-A with a fresh instrument of partnership, and there was no dissolution of the firm, making s. 187(2) applicable. The assessee's counsel argued that the declaration filed under s. 184(7) along with the returns should be treated as Form 11-A, as it contained all necessary particulars. The Tribunal found merit in the assessee's contention, noting that the declaration under s. 184(7) included all relevant details, and the firm was genuine with a bona fide confusion regarding the filing requirements.

3. Validity and Recognition of Entries in the Account Books as an Instrument of Partnership:
The Tribunal examined whether the entries in the account books constituted an instrument of partnership. Although the Revenue objected that these entries were not shown to the Income-tax Officer initially, the Tribunal found them genuine and noted that the entries, coupled with the original partnership deed, formed a valid instrument of partnership. The Tribunal held that these entries evidenced the change in the partnership and should be recognized as such.

4. Condonation of Delay in Filing the Required Forms and Instruments of Partnership:
The Tribunal considered whether the delay in filing the required forms and instruments of partnership could be condoned. The assessee argued that there was a bona fide belief that the declaration under s. 184(7) was sufficient, leading to the delay. The Tribunal noted that the Income-tax Officer had the discretion to condone the delay under the proviso to sub-s. 4 of s. 184. The Tribunal directed the assessee to file Form 11-A within one month and make an application for condonation of delay, instructing the Income-tax Officer to consider the peculiar facts and circumstances of the case when deciding on the condonation.

Conclusion:
The Tribunal concluded that the firm was not dissolved upon the death of the partner, and the entries in the account books constituted a valid instrument of partnership. The assessee was directed to file the necessary forms and apply for condonation of delay, with the Income-tax Officer instructed to consider the case's specific circumstances. The appeal was allowed for statistical purposes, emphasizing the technical nature of the compliance requirements and the genuine confusion faced by the assessee.