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TMI Blog1971 (8) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Sewak Ram is the son of Jagrani Devi. The first group has 10 as. share in the profit and loss of the firm and the second group has 6 as. share. The assessee firm was registered for the assessment year 1947-48. On July 12, 1949, the partners of the firm an lied to the Income-tax Officer for renewal of the registrations for the assessment year 1948-49. That application was signed by all the partners. To that application they appended a certificate to the effect that " profits of the previous year were divided or credited as shown below... " On November 5, 1949, the partnership was dissolved under a deed of distribution dated November 9, 1949. One of the clauses in that deed provides : " But if an amount which was not entered in the books at the time of settlement is found then only that person will be accountable for it through whom the money was received or paid. None of the parties will have any objection to it." On October 5, 1950, the first four partners made a disclosure statement to the Income-tax Officer to the effect that the firm had earned Rs. 15,000 by way of profits outside the books. In that disclosure statement, they further stated that those profits had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket profits, and the same had not been distributed amongst the partners according to the partnership deed and, therefore, the firm was not entitled for renewal of the registration. He further opined that the application for registration had stood withdrawn. On the basis of those conclusions, he refused to renew the registration of the firm and taxed the firm in the status of association of persons. In appeal, the Appellate Assistant Commissioner upheld the decision of the Income-tax Officer. The assessee took the matter in appeal to the Income-tax Appellate Tribunal. The two Members who heard the appeal concurred with the Income-tax Officer and the Appellate Assistant Commissioner that a substantial portion of the profits earned by the firm had not been entered in the books. They also held that those profits were not distributed amongst the partners according to the instrument of partnership. On the basis of those findings the Judicial Member held that the firm was not entitled to the renewal of registration asked for, but the Accountant Member opined that inasmuch as the profits that had been entered in the books had been distributed, there was compliance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (2) The application shall be made by such person or persons and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed ; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed." This court has ruled in Agarwal Co. v. Commissioner of Income-tax that the conditions of registration prescribed by section 26A and the relevant Rules are : 1. On behalf of the firm, an application should be made to the Income-tax Officer by such person and at such times and containing such particulars, being in such form and verified in such manner as are prescribed by the Rules ; 2. The firm should be constituted under an instrument of partnership ; 3. The instrument must specify the individual shares of the partners ; and 4. The partnership must be valid and must actually exist in the terms specified in the instrument. Therein it was further laid down that if those conditions are fulfilled, the Income-tax Officer is bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edited to their accounts, then the only course open to the Income-tax Officer was not to register that firm and to tax the partners of the firm as an association of persons. By giving a false certificate that the profits earned by the firm had been divided or credited in the manner shown in the application, the assessee-firm was trying to evade tax. Hence, we must hold that the application for renewal of registration made by the assessee did not comply with the conditions prescribed in paragraph 3 of rule 6. Hence, the Income-tax Officer was justified to refuse to renew the registration. In resisting the above conclusion, Mr. Ramachandran, counsel for the assessee, relied on certain decisions of the High Courts. The first decision relied on by him is that of the Bombay High Court in Commissioner of Income-tax v. D'Costa Brothers. Therein, the court held that the Income-tax Officer was not entitled to reject the application for registration of the deed of partnership of the assessee-firm on the ground that the household expenses of the partners were debited to the profit and loss account of the firm. Therein there was no contention that all the profits earned were not distributed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y among the partners after deducting the interest payable on the capital advances made by the partners. When the partners made an application for registration under section 26A of the Act, the Income-tax Officer refused to register it but the court held that the application was a valid one and the provision for payment of interest did not in any manner conflict with the relevant provision. Here again, there is no question of not dividing any portion of profits earned. That being so, that decision is irrelevant for our present purpose. Lastly, reliance was placed on the decision of the Kerala High Court in St. Joseph's Provisions Stores v. Commissioner of Income-tax. Therein the partners of the assessee firm resolved that the profits of the firm as disclosed in the profit and loss account need not be divided and credited in the profit and loss accounts of the partners, but should be credited to a reserve account but each of the partners to have an equal share in that amount. An application for registration of the firm was rejected on the ground that the firm had not complied with the requirements of rule 6 of the Rules. The court held that the absence of entries in the separate a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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