1970 (5) TMI 14 - HC - Income Tax

New firm takes over the business and continues the business - application for renewal of registration - whether two firms must be considered as separate and distinct from each other

Summary

Issues:
1. Renewal of registration for the assessment year 1959-60 based on partnership deed of December 28, 1956.
2. Whether the firm constituted under the deed of December 28, 1956, continued or was followed by a new firm created by the deed of October 13, 1958.

Analysis:
The judgment by the High Court of Allahabad involved the renewal of registration for the assessment year 1959-60 based on the partnership deed of December 28, 1956. The assessee, a registered firm, applied for renewal of registration, which was rejected by the Income-tax Officer, the Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal. The Tribunal held that the application did not meet the requirements of the law regarding the renewal of registration. The dispute centered around the constitution of the firm and the individual shares of the partners, especially concerning the admission of two minors in place of a deceased partner. The Tribunal's view was that the constitution mentioned in the application should have been based on the partnership deed of October 13, 1958, rather than the one from December 28, 1956.

Regarding the second issue, the High Court analyzed whether the firm constituted under the partnership deed of December 28, 1956, continued or was succeeded by a new firm under the deed of October 13, 1958. A comparison of the two deeds revealed significant differences in partner shares, profit division, and liabilities of minors, indicating distinct structures for each partnership. The Court concluded that the firm under the deed of 1958 was not a mere continuation of the earlier firm but a separate entity. As a result, the firm under the deed of 1956 was considered dissolved, and the firm under the deed of 1958 was a new entity. The application for renewal of registration could only be made by the firm under the deed of 1956, as it was the entity earning income during the relevant previous year.

The Court further addressed the Tribunal's interpretation of the prescribed form of the application, emphasizing that the constitution of the firm should be considered unaltered concerning the previous year relevant to the assessment year for which registration is claimed. The Court disagreed with the Tribunal's view that the constitution should remain unaltered on the date of the application, as it imposed a construction not supported by law. Referring to relevant case law, the Court highlighted that in cases of firm dissolution and formation of a new firm, proper procedures for registration or renewal should be followed. The judgment concluded that the firm was entitled to renewal of registration based on the partnership deed of December 28, 1956, and dismissed the second question referred by the Tribunal.

In conclusion, the High Court ruled in favor of the assessee, granting renewal of registration based on the partnership deed of December 28, 1956. The Court awarded costs to the assessee and assessed the counsel's fee accordingly.