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TMI Blog1971 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ness among the partners of the firm ? " In order to appreciate the scope of the reference, it is necessary to refer to the material facts. The respondent-assessee was a firm constituted under an instrument of partnership dated April 1, 1960, and consisting of five partners. For the assessment years 1961-62 and 1962-63 the assessee-firm was registered under the Act. For the assessment year 1963-64 corresponding to the accounting year ending with March 31, 1963, the firm returned a net income of Rs. 43,021 accompanied by a declaration in Form No. 12. The declaration states that there was no change in the constitution of the firm or the shares of the partners for the assessment year in question. The Income-tax Officer, on scrutiny of the accounts maintained by the firm, found no profit and loss account and the ascertainment and distribution of the profits amongst the parties. Hence, he refused to grant the certificate under section 185(4) of the Act for that year. The appeal by the assessee to the Appellate Assistant Commissioner was without success. However, on further appeal, the Tribunal upheld the contention of the assessee that it was entitled for the grant of renewal of regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer is satisfied that there was no change in the constitution of the firm or the shares of the partners specified in the deed of partnership on the basis of which registration was granted and the declaration was found to be true and according to the provisions of section 184(7), he shall record a certificate under sub-section (4) of section 185 on the instrument of partnership or on the certified copy thereof, as the case may be, to the effect that the firm has been registered for the relevant subsequent year. The Income-tax Officer is not only empowered but has a statutory duty to enquire into the correctness of the statement made by the assessee in the declaration under Form No. 11 and to refuse registration of the firm if he is not satisfied about the truth and correctness of the declaration. Where the Income-tax Officer, after due enquiry, arrives at the conclusion that there was a change in the constitution of the firm or the shares of its partners as evidenced by the deed of partnership, he has to refuse continuation of registration for the subsequent year of assessment. The provisions of section 184(7) do not specifically mention the failure or absence of ascertainment or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s individually, may assess the firm as if it were a registered firm. The legal position may, therefore, be summed up thus : A combined reading of sections 184 and 185 of the Act and the rules made thereunder manifest that it is incumbent on the Income-tax Officer to register a firm if the application made by it furnishes the requisite particulars prescribed therefore, provided the existence of a genuine firm with the constitution so specified in the instrument of partnership is established. The discretion vested in the income-tax authorities under sections 184 and 185 of the Act is a judicial one and, therefore, the applications for the original registration or continuation of registration for subsequent years under the Act cannot be refused on suspicion or speculation. The Income-tax Officer has jurisdiction to reject the application of the firm for registration only if it is not in conformity with the rules and the provisions of sections 184 and 185 and when the firm is proved to be a bogus one, not genuine or has no legal existence, but not otherwise. He is empowered to enquire into the truth or otherwise of the requisite facts stated by the partners of the firm in the declara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 184(8) would come into play. The firm has to make a fresh application for the grant of registration as required by sub-section (8) of section 184. There is a clear distinction between a change in the shares of the partners and the failure or absence of ascertainment and distribution of the profits of the firm amongst its partners. The ascertainment and distribution of profits, no doubt, will have to be made according to the shares of the partners as evidenced in the deed of partnership. Whether there was ascertainment and distribution of profits or not, is a question of fact depending upon the facts and circumstances of each case. The distinction between the failure or absence of ascertainment and distribution of profits amongst the partners of a firm and the distribution of profits being not according to the shares specified in the deed of partnership may be noticed. Whether the allocation or distribution of profits was made in a manner different from the shares evidenced by the instrument of partnership, it may amount to change in the shares of the partners, but in the normal course, it cannot be said that there was a change in the shares of the partners. It may at the most be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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