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TMI Blog1979 (4) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... Company. From the commission received by the assessee from that company, they claimed to have paid the above sum of Rs. 39,424 to various persons. Finally they agreed to be assessed on this sum and filed a revised return on 7th Nov., 1975. In a covering letter dt. 7th Nov., 1975 accompanying the return the firm had stated that though payments were actually made it was not able to prove and therefore they were furnishing a revised return adding back this sum. 3. The Commr. called for the records and found that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue in that registration should not have been continued as neither the true profits nor the book profits of the firm have been distributed amongst the partners according to the terms of the deed. In response to his notice proposing to cancel the order of continuation of registration, the assessee raised objections. The Commr. rejected these objections and held that the decision in the case of Khanjan Lal Sevakram (1), applies and accordingly he directed the ITO to treat the firm as an unregistered firm after cancelling the grant of continuation of registration. 4. The Commr. follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade on an assumption and without admitting concealment. At best the expenditure could not be proved and therefore added back to the income and that cannot give rise to a cancellation of continuation already granted. Unlike Khanjan Lal's case (1), the application form does not give any declaration about the division of profits. The firm has fulfilled the requirements of s. 184(7) and the application Form No. 12. The Commr. Felt difficulty in dealing with this and that is why he said that if the arguments of the assessee were to be accepted, it will be seen that it will lead to highly anomalous situation. He went on to hold that the question as to whether the profits have been distributed in accordance with the deed of partnership would still have to be examined and if it is not done, continuation of registration can be denied. He held that even the book profits have not been divided, but this is an incorrect statement of facts. The learned counsel submitted that the position is the same for the subsequent year as well. 6. The Departmental Representative on the other hand relied on the orders of the Commr. It was pointed out that the filing of the wealth-tax returns is a clear admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his powers in rejecting it. As seen earlier, the finding of the Tribunal is that though the profits of the firm entered in its account books had been distributed, the profits earned but not entered in the account books have not been divided or credited in the account books. From that it follows that the certificate given in the application for renewal of registration is not a true certificate and further that a substantial portion of the profits earned had not been divided. The reason behind r.6 was that, at the relevant time, the registered firm as such was not taxable. Only the partners of a firm could be taxed. That being so, if a portion of the profits earned by the firm was not divided amongst the partners or credited to their accounts, to that extent, the profits earned by the firm escaped assessment. Therefore, the certificate contemplated by r. 6 is not a mere formality. It has a definite purpose. If a portion of the profits earned by the firm was not actually divided amongst the partners of credited to their accounts, then the only course open to the ITO was not to register that firm and to tax the partners of the firm as an association of persons. By giving a false cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the books. In the books certain items of expenditure have been claimed. The partners have agreed among themselves that these sums are outgoings to arrive at the divisible profits. There is, therefore, no case to hold that the divisible profits have not been divided. The fact that the ITO has added something even though on the admission of the assessee cannot amount to a finding that there was concealed income and that it was undivided. In Khanjanlal's case (1), atleast, there was allegation by one partner that he was not given his due share. There is no such allegation by any of the partners here. In fact, the Commissioner had recorded in the first year a finding that there was concealment only on the basis of the admission by the firm by filing the revised return and the partners offering the undistributed portion in their wealth-tax assessments, after ignoring the covering letter and the explanations as to why the partners offered this sum in their wealth-tax returns. The Commr. goes on to state that the concealed income has not been divided amongst the partners in the books or else where and only a part of it had been divided amongst the partners for the purpose of we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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