1971 (7) TMI 39 - HC - Income Tax

Subsequent rectification in partnership deed - rectification bringing the shares in accord with the distribution of profit was made much later - Whether, on the facts and in the circumstances of the case, and particularly in view of the fact that the deed of corrigendum had been executed before the Income-tax Officer passed the impugned orders, the assessee was entitled to registration and continuation thereof - till that date, there was no valid partnership deed - question referred is answered in negative, that is in favour of the department and against the assessee

Summary

Issues:
1. Entitlement to registration for assessment years 1964-65, 1965-66, and 1966-67 based on a deed of corrigendum executed before impugned orders.

Analysis:
The case involved the question of whether an assessee was entitled to registration for the assessment years 1964-65, 1965-66, and 1966-67, considering a change in the partnership firm's constitution and subsequent rectification through a deed of corrigendum. The firm, initially comprising four partners with equal profit-sharing ratios, underwent a change in 1963 when one partner retired, and a new partner joined. Despite the unequal distribution of profits in the following period, the Income-tax Officer initially granted registration based on the new partnership deed. However, upon discovering the unequal profit-sharing, the Officer issued a notice to cancel the registration. The assessee then executed a corrigendum bringing the profit-sharing ratio in line with the actual distribution, which was filed before the Officer's order. The Income-tax Officer still cancelled the registration for 1964-65 and disallowed continuation for subsequent years.

The Appellate Assistant Commissioner upheld the cancellation for the period with unequal profit-sharing but refused continuation for the following years. The matter was then appealed to the Income-tax Appellate Tribunal, which accepted the assessee's argument, emphasizing the importance of the filed corrigendum before the Officer's decision. The Tribunal directed the continuation of registration for the subsequent years 1965-66 and 1966-67. Subsequently, the Commissioner of Income-tax sought a legal opinion from the High Court, challenging the Tribunal's decision.

The High Court analyzed the relevant sections, emphasizing the requirement for effective registration during the assessment year and the impact of changes in a firm's constitution on assessments. The Court highlighted that the corrigendum rectifying the profit-sharing ratio was crucial for registration. Referring to a Supreme Court decision, the Court concluded that the corrigendum made the partnership deed operative only from the corrigendum's date, not retrospectively. The Court accepted the department's argument, ruling in their favor and against the assessee. The Court also noted that the unequal profit distribution issue was not part of the referred question and therefore not considered in the judgment. Ultimately, the department was awarded costs of Rs. 200.