1990 (7) TMI 178 - AT - Income Tax

Summary

Issues:
1. Assessment of the assessee as an unregistered firm for the years 1981-82 and 1982-83.
2. Denial of registration by the Income-tax Officer due to a change in the profit-sharing ratio of the partners.
3. Appeal against the denial of registration and the subsequent decisions by the AAC and the ITAT.

Analysis:
The judgment pertains to two appeals by the assessee against being treated as an unregistered firm for the assessment years 1981-82 and 1982-83 due to a change in the profit-sharing ratio of the partners. The Income-tax Officer denied registration as no application in Form 11A was made, despite declarations under section 184(7) stating no change in the firm's constitution. The AAC upheld the denial, considering the plea that the change was a mistake by the Accountant. The assessee contended that the firm was genuine, and the change in profit-sharing was inadvertent due to low incomes, warranting continuation of registration.

The Departmental Representative argued that any deviation from the partnership deed's profit-sharing ratio disqualified the firm from registration continuation. The ITAT observed the discrepancies in profit allocation compared to the partnership deed but noted the minor nature of the changes and the low impact on income. The ITAT analyzed the requirements of section 184(7) and section 271(4) of the Income-tax Act, emphasizing the need for changes in the partnership deed to be substantial and intentional to affect registration. The ITAT concluded that the slight deviations in profit-sharing did not warrant denial of registration, as there was no evidence of a conscious contract to override the partnership terms. Therefore, the ITAT directed the grant of continuation of registration for the assessment years in question, 1981-82 and 1982-83, allowing the appeals.

In summary, the judgment addressed the denial of registration to the assessee as an unregistered firm due to changes in the profit-sharing ratio of partners. The ITAT found the deviations to be minor and unintentional, not warranting the denial of registration continuation. The decision highlighted the importance of substantial and deliberate changes in the partnership deed to affect registration status, ultimately ruling in favor of the assessee and directing the grant of registration continuation for the relevant assessment years.