1979 (7) TMI 145 - AT - Income Tax

Summary

Issues:
- Whether the Appellate Assistant Commissioner (AAC) was justified in directing the Income Tax Officer (ITO) to grant continuation of registration to the assessee-firm for the assessment year 1977-78.

Analysis:
1. The appeal by the Department raised the issue of whether the AAC was correct in directing the ITO to allow continuation of registration to the assessee-firm for the assessment year 1977-78. The firm, initially constituted in 1973, had a situation where a minor partner became a major partner without executing a new partnership deed within six months of attaining majority. The ITO refused continuation of registration citing the lack of a fresh partnership agreement.

2. The assessee argued before the AAC that as per Section 30(5) of the Indian Partnership Act, a minor partner has the option to become a full-fledged partner upon attaining majority, and unless the minor dissociates within six months, they are deemed to continue as a partner. The AAC, following a circular from 1969, directed the ITO to grant registration to the firm for the assessment year. The Department contended that the latest circular from 1978 was not followed by the AAC.

3. The Department's representative highlighted various circulars issued by the Central Board of Direct Taxes (CBDT) on the matter, emphasizing the necessity of a fresh partnership deed. The counsel for the assessee argued that no new partnership deed was required as the partner who became major did not dissociate from the firm. However, they agreed for the matter to be reconsidered based on the latest circular from 1978.

4. The Board's circular from 1962 clarified that registration should not be denied solely because a minor partner became a major partner without a new deed. A decision by the Allahabad High Court in 1968 emphasized the need for a fresh deed in such cases, which was later addressed by a 1969 circular restricting the application of the decision to Uttar Pradesh only.

5. Subsequent circulars from 1977 and 1978 stressed the necessity of a fresh partnership deed under the law. The 1978 circular specified conditions for continuation of registration when a minor partner elects to continue as a partner, emphasizing the need to confirm the unchanged profit-sharing arrangement.

6. The Tribunal set aside the orders of the AAC and the ITO, directing the ITO to reconsider the matter in light of the 1978 circular. While the Tribunal and AAC were not bound by the Board's instructions, the ITO was mandated to follow the latest circular. The Department's appeal was allowed, and the issue was remitted back to the ITO for fresh consideration in accordance with the 1978 circular.