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TMI Blog1996 (12) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the order of the Tribunal and the Commissioner of Income-tax, we are of the opinion that the questions suggested by the assessee and referred to us by the Tribunal do not bring out the controversy in its proper perspective and require reframing and, in our opinion, the only question that arises out of the Tribunal's order is : " Whether, in the facts and circumstances of the case, the Tribunal was justified in law in affirming the decision of the Commissioner of Income-tax for cancelling the order of registration granted in favour of the petitioner-firm by the Income-tax Officer and directing to give effect to the same ?" The assessee originally constituted by three partners was a registered firm for the purposes of the Income-tax Act. During the previous year relevant to the assessment year 1976-77, one of the partners, Shri H. N. Shah, retired on March 31, 1975, and the remaining two partners continued to carry on the business of the firm without dissolution of the same-that is to say, the assessee-firm continued to exist in a reconstituted form. As per the requirement of section 184 of the Income-tax Act, as it stood at the relevant time, the assessee made an applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asmuch as one of the partners, Shri H. N. Shah, retired from the firm leaving behind two partners, namely, Shri P. R. Shah and Shri N. M. Sindhe. Both the partners had an equal share in the profits and losses of the assessee-firm and an equal share was distributed for the whole year. Nothing was given to the retired partner, i.e., Shri H. N. Shah. On these premises, the Tribunal further concluded " to sum up the case, the condition for registration is that the profits should be distributed as provided in the deed of partnership. The same condition has not been fulfilled in the case. Therefore, in our opinion, the Commissioner of Income-tax has rightly cancelled the order of the Income-tax Officer and he was fully justified in directing the Income-tax Officer to give effect to his order." In coming to the conclusion that requirement of allotment of share to the partners including to the retired partners at the close of the accounting period, it distinguished the Supreme Court decision in CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 on the ground that there was no agreement between the retiring partner and the remaining partners about non-allotment of the shares up to the date of ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered firm. Section 184 as it read at the relevant time, is reproduced hereinbelow : " 184. (1) An application for registration of a firm for the purposes of this Act may be made to the Income-tax Officer on behalf of any firm, if--- (i) the partnership is evidenced by an instrument ; and (ii) the individual shares of the partners are specified in that instrument. (2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution. (3) The application shall be made to the Income-tax Officer having jurisdiction to assess the firm, and shall be signed--- (a) by all the partners (not being minors) personally ; or (b) in the case of a dissolved firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased. . . . (6) The application shall be made in the prescribed form and shall contain the prescribed particulars. (7) 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied under the aforesaid provision for fresh registration fulfilling all the conditions of the provisions. In section 185 the condition for grant of registration specified is that if the Assessing Officer is satisfied that there is or was in the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing to register the firm for the assessment year. It also provides a converse provision that if he is not so satisfied, he shall pass an order in writing refusing to register the firm. Apart from this specific provision, section 185 also deals with contingencies in which registration may not be granted. These are : where the Assessing Officer considers that application for registration is not in order, he shall after giving opportunity to rectify the defect and if such defect is not rectified within the specified time he can refuse to register the firm and reject the application. Likewise, if the Assessing Officer considers that a declaration required to be furnished by the firm for continuance of the registration under sub-section (7) of section 184 is not in order, after intimating the assessee to rectify the defect in the declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a firm which is genuinely in existence. Obviously such step has not been thought fit to be taken into consideration by the statute to make it a part of the consideration for registration because the assessment of taxable income in the hands of the firm and allocation of profits amongst the partners after adjusting the allowable expenses or outgoings in the name of the partners for the purposes of assessment of the income of the partners individually in their hands is part of the assessment proceedings having relation to computation of income. Sections 187 and 188 which deal with changes in the constitution of the firm and succession and dissolution of the firm specifically deal with this part. Section 187 provides that where at the time of making an assessment under section 143 or section 144, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. This provision obviously applies at the time when actual assessment is taking place. It may be that, at the time of actual assessment, the firm as constituted during the relevant previous year of the assessment for which assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In the former, there is no break in the continued existence of the firm as an entity, but with the change of partners or change in the ratio of profit-sharing or change in both and in the latter case on occurrence of such change the existing firm comes to an end and stands dissolved and the question of succession becomes relevant. If a new firm came into existence, it comes into existence severing its connection with the past firm. We are not presently concerned in what cases changes can be considered as reconstitution and in what cases changes would result in succession as that is not germane for the present discussion. However, the aforesaid provision also makes it clear that allocation of the shares to the persons/partners entitled to receive the same in the previous year in question is an obligation cast on the Assessing Officer while framing the assessment of the relevant assessment year, but is not an obligation cast on the assessee for the purposes of seeking registration of the firm nor is it a part of any relevant consideration, for considering the question of grant of registration or cancellation of registration. The fact remains that so far as compliance with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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