1971 (11) TMI 27 - HC - Income Tax

Whether the firm is entitled to continuation of registration - partnership continues after death of a partner - When a partner is replaced by another as per the partnership deed without the firm being dissolved there is a change in the constitution of the firm for the purpose of s. 184(7) of Income-tax Act 1961 therefore question referred to us is answered in favour of the department and against the assessee

Summary

Issues:
Application for continuation of registration under section 184(7) instead of fresh registration after a change in the constitution of the firm; Interpretation of provisions of section 187(1) of the Income-tax Act, 1961 regarding continuation of registration for part of a previous year; Definition of "change in the constitution of the firm" under section 184(7); Assessment and computation of income for a firm registered for part of the previous year.

Analysis:
The case involved a firm, "Sree Rama Talkies," with three partners, where one partner passed away, and his widow succeeded him as per the partnership deed terms. The firm applied for continuation of registration under section 184(7) after the partner's death, instead of fresh registration as required by section 184(8) when there is a change in the constitution of the firm. The Income-tax Officer refused registration due to the incomplete application and non-submission of the partnership deed. The Appellate Tribunal directed continuation of registration for part of the previous year, leading to the question of whether such partial registration is permissible under section 187(1) of the Income-tax Act, 1961.

The court analyzed sections 184, 185, 186, and 187 of the Income-tax Act, which govern the registration, procedure, and cancellation of firm registrations. It emphasized that registration of a firm is intended for the entire assessment year, not for part of the year. The court highlighted the complexities that arise if registration is granted for only a portion of the previous year, such as dual status of the firm as both registered and unregistered for the same assessment year, leading to challenges in income computation, tax payment, and accounting. The court stressed that registration should be granted for the entire previous year unless the firm ceases to exist or transforms into a different entity during the year.

The court rejected the argument that a mere change in partners does not constitute a change in the constitution of the firm. It held that replacing a partner as per the partnership deed terms indeed alters the firm's constitution. The court's interpretation aligned with a previous judgment by other judges. Ultimately, the court ruled in favor of the department, stating that continuation of registration for part of the previous year was not maintainable under section 187(1) in this case. The judgment concluded without awarding costs to either party.