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TMI Blog1990 (3) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be refused. However, the registration, according to the learned CIT(A) could be refused solely on the ground that the business profits had not been distributed amongst the partners according to the profit sharing ratio mentioned in the deed of partnership. The assessee went in appeal before the Tribunal. The Tribunal by order dated 23-6-1981 in I.T.A. No. 704/PN/80 set aside the order refusing registration and restored the matter of the ITO with direction to give opportunity to the assessee to show that the additional income in respect of cash credits which the assessee had declared in the revised return was not really the income of the assessee. The ITO in the fresh proceeding in pursuance of the order of the Tribunal refused registration on the ground that additional income representing unexplained cash credits declared by the assessee in the revised return had not been distributed amongst the partners in the profit sharing ratio and as such the registration was liable to be refused. The assessee filed appeal before the CIT(A) against the said refusal of registration. It was submitted before the CIT(A) that profits as computed in the books was divided amongst partners i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or credited to the capital accounts of any of the partners. According to the CIT(A) in view of the observations of the Tribunal in the appeal arising out of penalty proceedings it cannot be said that the amount surrendered by the assessee relating to hundi loans amounting to Rs. 2,30,000 constituted secret profits of the assessee which were required to be divided amongst partners as provided in the partnership deed. He further observed that divisible profits did not mean assessable or assessed profits. For this he relied on the decision in the case of CIT v. Sat Ram Gian Chand [1961] 42 ITR 543 (Punj.). He distinguished the decision of the Supreme Court in the case of Khanjan Lal Sewak Ram. He held that the ground on which registration has been refused was untenable. He accordingly directed the ITO to grant registration. The department has now come in appeal before us. 4. The learned departmental representative has placed strong reliance on the decision of Supreme Court in the case of Khanjan Lal Sewak Ram and decision of Allahabad High Court in the case of Setha Ram Dhanvir Singh v. CIT [1980] 123 ITR 150. According to the learned departmental representative the ratio of these d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to buy peace with the department could not be said to be profits divisible amongst the partners, in terms of partnership deed. Consequently the fact that the said amount was not shown to have been divided amongst partners in profit sharing ratio in the account books would not constitute a valid ground for refusing registration. In this connection the decision of the Punjab High Court in the case Sat Ram Gian Chand is relevant and gives complete answer to the objection raised by the ITO. In that case the finding of the ITO was that the assessee had not divided the profits as determined by recognised system of accountancy but had merely divided refund on security and cash balance. The ITO further found that not dividing the true profits would be acting against the terms of the instrument of partnership. The Tribunal observed that registration had been refused on a ground which was untenable. The partners had decided to estimate the divisible profits which estimate was arrived at and the divisible gsm so determined was divided amongst partners in proportion to which they were entitled to share the profits in terms of partnership deed. The Tribunal further observed that it is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Sivakasi Match Exporting Co. [1964] 53 ITR 204. This decision supports the view that in the present case registration cannot be refused. 7. The decision of the Supreme Court in the case of Khanjan Lal Sewak Ram on which the department has strongly relied is wholly distinguishable. In that case it was an admitted fact that some black market profits outside the books had been earned by the firm. Some of the partners made a specific complaint before the ITO to the effect that they were not paid their shares in said black market profits. The ITO found that the said complaint of some of the partners was correct. Thus it was established in that case that the extra profit had in fact been earned and division of those profits was not in accordance with the ratio mentioned in the deed of partnership inasmuch as some of the partners were found not to have been given their share while the other partners had appropriated more amount than was due to them under the deed of partnership. It was on these facts that the Supreme Court held that registration was rightly refused. It may be emphasised that in that case out of the facts established beyond doubt, one was that extra profits had been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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