1979 (4) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of continuation of registration under Section 263 of the IT Act, 1961.
2. Distribution of book profits among partners.
3. Allegation of concealment of income.

Issue-wise Detailed Analysis:

1. Cancellation of continuation of registration under Section 263 of the IT Act, 1961:

The assessee, a registered firm since 1967-68, faced cancellation of its continued registration for the assessment years 1974-75 and 1975-76 by the Commissioner under Section 263 of the IT Act. The Commissioner found the Income Tax Officer's (ITO) order erroneous and prejudicial to the interests of the Revenue, arguing that the firm did not distribute true profits among partners as per the partnership deed. The assessee objected, claiming that the expenditure of Rs. 39,424 for commission payments was legitimate and that the revised return was filed to cooperate with the Department, not as an admission of concealment. The Tribunal concluded that the continuation of registration should not be canceled, as there was no requirement under Section 184(7) or relevant rules for a declaration about the distribution of profits in Form No. 12, unlike the case cited by the Commissioner (Khanjan Lal Sevakram).

2. Distribution of book profits among partners:

The Commissioner argued that the firm did not distribute book profits according to the partnership deed. The assessee countered that the book profits were divided among partners, and the revised returns were filed due to the inability to substantiate certain commission payments, not because of undistributed profits. The Tribunal found that the partners had divided the book profits and that the firm's internal agreement on outgoings to arrive at divisible profits did not equate to undistributed profits. The Tribunal emphasized that the division of profits is an internal matter among partners and that the firm's compliance with Section 184(7) and Form No. 12 sufficed for the continuation of registration.

3. Allegation of concealment of income:

The Departmental Representative claimed that the filing of wealth-tax returns indicated an admission of concealed income, which was not divided among partners. The Tribunal disagreed, noting that the revised returns were filed to complete assessments and avoid penalty proceedings, not as an admission of concealment. The Tribunal highlighted that the firm provided details of commission payments and that the inability to prove these payments did not imply concealed income. The Tribunal referenced the case of Khanjan Lal Sevakram, stating that the facts differed significantly and that the decision could not be applied to the assessee's case. The Tribunal concluded that there was no evidence of undistributed concealed income and that the firm's compliance with the relevant legal provisions warranted the continuation of registration.

Conclusion:

The Tribunal allowed the appeals, canceling the orders under Section 263, and reinstated the original continuation of registration granted by the ITO. The Tribunal emphasized that the firm's internal profit distribution and compliance with Section 184(7) and Form No. 12 were sufficient, and there was no basis for the Commissioner's allegations of undistributed concealed income.