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Issues: Registration of partnership firm for assessment year 1977-78 based on change in accounting year and compliance with Income-tax Act provisions.
Analysis: 1. The appeal before the Appellate Tribunal ITAT MADRAS-D concerned the registration of a partnership firm for the assessment year 1977-78. The firm underwent a change in its constitution, adding a new partner and a former minor electing to be a full-fledged partner, as evidenced by a deed dated 1-1-1977. The partnership deed specified the closure of accounts on 31-3-1977, but the assessee filed a return offering income only up to 11-11-1976, the Deepavali year. 2. The Income Tax Officer (ITO) refused registration, citing non-compliance with the Act and rules as the accounts were closed up to 11-11-1976, not 31-3-1977 as per the partnership deed. The ITO emphasized the need for strict compliance with registration rules, stating that a substantial compliance is insufficient. The ITO highlighted the requirement for profit sharing among partners based on the partnership deed's profit sharing ratio, which was not met in this case. 3. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, emphasizing that the only partnership deed in force during the relevant year mentioned the previous year as 31-3-1977, but the accounts were closed on 11-11-1976, leading to non-compliance with the Income-tax Act provisions. 4. The assessee applied to change the accounting year from 31-3-1976 to 18-11-1977, which was not allowed by the ITO. The assessment for the year 1977-78 was conducted with the accounting year ending on 31-3-1977, with income estimated for the period from 18-11-1976 to 31-3-1977. 5. The Tribunal disagreed with the lower authorities and granted registration to the firm. It clarified that the accounting year is not a part of the firm's constitution, which focuses on the number of partners and their individual shares. The Tribunal noted that changing the accounting year did not violate profit sharing conditions specified in the partnership deed. As long as profits were shared according to the deed's ratio, registration should not be refused based on the change in the accounting year. 6. Consequently, the appeal was allowed, directing the ITO to grant registration to the assessee-firm for the assessment year 1977-78, based on the genuine existence of the firm with the specified constitution, despite the change in the accounting year.
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