1982 (9) TMI 158 - AT - Income Tax

Summary

Issues: Registration of firm under Income Tax Act for assessment year 1977-78 based on change in constitution and accounting year.

In this case, the appeal before the Appellate Tribunal ITAT MADRAS-D pertained to the assessment year 1977-78 concerning a firm with a change in constitution. The firm, initially constituted under a partnership deed dated 1st Mar., 1976, underwent a change with the inclusion of a new partner and the elevation of a minor to a full-fledged partner as per a deed dated 1st Jan., 1977. The partnership deeds specified the closure of accounts on 31st Mar., 1977. However, the assessee filed a return offering income only up to 10th Nov., 1976, contrary to the partnership deed's stipulation.

The Income Tax Officer (ITO) refused registration to the firm on the grounds that the accounts were closed until 11th Nov., 1976, not complying strictly with the Act's provisions and rules. The ITO emphasized the importance of strict compliance with registration rules, stating that substantial compliance is insufficient. The Accounts Appellate Commissioner (AAC) upheld the ITO's decision, noting that the accounts were closed on 11th Nov., 1976, deviating from the partnership deed's specified date of 31st Mar., 1977.

The assessee had applied to the ITO to change the accounting year from 31st Mar., 1976, to 18th Nov., 1977, which was not approved. The ITO assessed the income for the period from 18th Nov., 1976, to 31st Mar., 1977, for the assessment year 1977-78. The Appellate Tribunal, however, disagreed with the lower authorities. It held that the alteration of the accounting year without the ITO's permission did not warrant the refusal of registration. The Tribunal emphasized that the constitution of the firm, not the accounting year, is crucial for registration under Section 185 of the Income Tax Act.

The Tribunal highlighted that the constitution of the firm pertains to the partners and their profit-sharing ratios, not the accounting year. It found no violation of rules or forms prescribed under the Act by the assessee. The Tribunal reasoned that changing the accounting year did not affect the sharing of profits according to the partnership deed's specified ratios. Consequently, the Tribunal allowed the appeal and directed the ITO to grant registration to the assessee-firm for the assessment year 1977-78.