9911796707
TMI Blog1989 (6) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... cs Applied Sciences, Coimbatore, is a firm consisting of two partners, namely, P.K. Das and P.P. Vilochanan. For the assessment year 1980-81, this firm was granted registration under Section 185 of the Income-tax Act. For the assessment years 1982-83, 1983-84 and 1984-85, the assessee firm filed a declaration in Form No. 12 before the Income-tax Officer and sought continuation of registration for these assessment years also. There was a search conducted in the business premises of the firm and at the residence of one of the partners, P.K. Das on 16-10-1984. In a statement recorded in the course of the search, one of the partners, Shri P.K. Das has admitted that he had received certain donations on behalf of the firm and had not disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that has to be satisfied for granting continuation of registration is that there is no change in the constitution of the firm or in the shares of the partners. He has further observed that mere non-distribution of a part of the profits or the secret profits received by one of the partners would not lead to the automatic inference that there was no genuine firm in existence. He has further observed that where there is a variation between the apportionment of profit as per account books and as per the instrument of partnership, registration could be cancelled, but, there is no evidence with the Income-tax Officer in the present case to show that such profits from business outside the account books had been apportioned in any ratio other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of registration under the provisions of Section 184(7). In support of this stand, reliance was placed on the decision of the Allahabad High Court in the case of Setha Ram Dhanvir Singh v. CIT [1980] 123 ITR 150. Thus, it is contented that the Commissioner (Appeals) has erred in holding that the assessee-firm is entitled to continuation of registration. Against this, the learned counsel for the assessee submitted that merely because one of the partners, namely, P.K. Das had made a secret profit without the knowledge of the other partner, without his agreement and without the same being brought into the books of accounts of the firm, it cannot be said that there is a change in the constitution of the firm or a change in the profit shari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing the same to the books of account of the firm. In this context the question that arises for consideration is whether the firm is entitled to the continuation of registration or not. 6. Section 184(7) of the Income-tax Act reads as follows : "Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year : Provided that --- (i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted; and (ii) the firm furnishes, alongwith its return of income for the assessment year concerned a declaration to that effect, in the prescribed form and verified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r granting registration. The Tribunal and the High Court have upheld the order of the Commissioner cancelling the registration. In that the High Court has, inter alia, observed as under : "It is found that the partners have in the instrument of partnership indicated their shares, but, in fact, they have, while dividing the profits or losses, adopted some other shares voluntarily and knowingly, it will be a case where the firm, though in existence, is not a genuine firm with the specified constitution. The ITO can refuse to register it." The aforementioned decision was rendered by the High Court in view of the special circumstances, namely, that the partners voluntarily and knowingly distributed profits between themselves in a ratio diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge of the other partners. This cannot be described as a change in the constitution of the firm or a change in the profit sharing ratio of the partners." 7. Applying the ratio of the aforementioned decisions, it may be seen that the mere fact that one of the partners Shri P.K. Das had made a secret profit without the assent and knowledge of the other partner would not have the effect of changing the constitution of the firm or changing the profit sharing ratio of these two partners. In the absence of these conditions, we are of the considered opinion that the firm is entitled to the continuation of registration under sec. 184(7) of the Income-tax Act.The same view has been taken by the Commissioner of Income-tax (Appeals) in his order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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