1995 (7) TMI 147 - AT - Income Tax

Application For Registration Assessing Officer Capital Asset Capital Gains Dissolved Firm Partnership Deed Registered Firm

Issues Involved:
1. Determination of the status of the assessee as an Association of Persons (AOP) instead of a registered firm.
2. Applicability of Section 45(4) of the Income-tax Act, 1961.
3. Compliance with procedural requirements for registration under the Income-tax Act.
4. Assessment year for taxing the capital gains.

Issue-wise Detailed Analysis:

1. Determination of the Status of the Assessee as an AOP:
The assessee filed a return of income for the assessment year 1991-92, declaring an income of Rs. 4,45,000 and claimed the status of a registered firm. However, the Assessing Officer (AO) determined the status as an Association of Persons (AOP) and denied the benefit of registration. The CIT(A) upheld the AO's decision, agreeing that the assessee should be assessed as an AOP. The Tribunal found that since the firm was dissolved on 6-4-1989, there was no partnership deed or application for registration for the assessment year 1991-92, making the registration or continuation thereof legally impossible. Therefore, the assessee was rightly assessed as an AOP.

2. Applicability of Section 45(4) of the Income-tax Act, 1961:
The assessee argued that the provisions of Section 45(4) should deem the firm as a registered firm for tax purposes. However, the Tribunal clarified that Section 45(4) is a deeming provision created to tax the profits or gains arising from the transfer of a capital asset by way of distribution on the dissolution of a firm. This fiction was for the limited purpose of bringing such capital gains to tax and could not be extended to treat the dissolved firm as a registered firm. The Tribunal emphasized that the fiction in Section 45(4) does not override the requirements for registration under Sections 182 to 185 of the Income-tax Act.

3. Compliance with Procedural Requirements for Registration:
The Tribunal noted that for a firm to be treated as registered, it must comply with specific procedural requirements, including the existence of a partnership deed and an application for registration. In this case, the firm was dissolved, and there was no partnership deed or application for registration for the relevant assessment year. The Tribunal held that the benefit of registration could not be extended to the assessee due to the lack of compliance with these procedural requirements. The Tribunal also noted that the assessee did not file any condonation petition for the delay in filing Form No. 12.

4. Assessment Year for Taxing the Capital Gains:
The assessee contended that if the income on distribution of capital assets was chargeable in the year of dissolution (1989), the income for the assessment year 1991-92 should be assessed at 'NIL.' The Tribunal clarified that the capital gains arising from the transfer of a capital asset by way of distribution on dissolution are chargeable to tax in the previous year in which the transfer took place. Since the transfer took place on 11-8-1990, relevant to the assessment year 1991-92, the assessment was correctly made for the year under appeal. The Tribunal rejected the assessee's contention that the assessment should have been made for the assessment year 1990-91.

Conclusion:
The appeal was dismissed, upholding the CIT(A)'s order that the assessee was rightly assessed as an AOP, and the provisions of Section 45(4) did not entitle the assessee to be treated as a registered firm. The Tribunal emphasized the importance of complying with procedural requirements for registration and clarified the correct assessment year for taxing the capital gains.

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