9911796707
TMI Blog1987 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... registration was being granted to it year after year up to and including the assessment year 1973-74. In this case, we are concerned with the assessment year 1974-75. The accounting year relevant to the said assessment year is September 1, 1972, to August 31, 1973. During this accounting year, two deeds were executed by the partners. One was on June 5, 1973, resolving to admit the three minor sons and a minor daughter (in all four) of Sri Kanakam Babu to the benefits of partnership with effect from September 1, 1973. These minors were sought to be accommodated and adjusted within the 17% share held by Sri Kanakam Babu which means that there was no change in the shares of other partners; only Kanakam Babu's share was affected. A deed was executed to that effect. It, however, appears that on the same day the partners met again and resolved to permit Sri Kanakam Babu to share his profits in the firm with his minor children with retrospective effect from September 1, 1972. In pursuance of this resolution, a fresh partnership deed was executed on July 17, 1973, whereunder the said minor children of Sri Kanakam Babu were admitted to the benefits of, partnership with effect from Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he one provided in the deed cannot constitute a, ground for refusing registration. Mr. M. Suryanarayana Murthy, learned standing counsel for the Revenue, urged the following contentions: Once the Tribunal has found that the deed dated July 17, 1973, was ineffective in so far as it purported to admit the minors to the benefits of partnership with retrospective effect from September 1, 1972, it ought to have held that the allocation of profits for the entire accounting year among the 12 partners, including the four minors, is a valid ground for refusing registration. According to the finding of the Tribunal, there were two firms in existence-one from September 1, 1972, to July 16, 1973, and the other from July 17, 1973, to August 31, 1973. The application for registration was made only by the firm constituted on July 17, 1973. There was no application for continuance of registration of the first firm. The decision of the Allahabad High Court relied upon by the Tribunal does not represent the correct position in law. Learned counsel relied upon certain decisions to which we shall refer at a later stage. Registration of firms is covered by the provisions contained in sections 184 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, and where the tax assessed upon one partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment. Sub-section (2) defines what a change in the constitution of the firm means. It takes in a case where one or more of the partners cease to be partners, or one or more new partners are admitted in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change, as also a case where all the partners continue with a change in their respective shares or in the shares of some of them. Section 188 says, where during the previous year, a firm carrying on business or profession is succeeded by another firm and the case is not one covered by section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with section 170. It is unnecessary for us to refer to section 189, which deals with assessment of a dissolved firm. These provisions in the Act are supplemented by rules 22 to 25 of the Income-tax Rules, 1962, along with the prescribed Forms Nos. 11, 11A, and 12. A combined reading of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [1959] 36 ITR 194 (SC), a case arising under the Indian Income-tax Act, 1922, the Supreme Court held that the following essential conditions must be satisfied before registration can be granted under section 26A of the Act. They are: (i) the firm should be constituted under an instrument of partnership, specifying the individual shares of the partners; (ii) an application on behalf of, and signed by, all the partners and containing all the particulars as set out in the rules must be made: (iii) the application should be made before the assessment of the firm under section 23 for that particular year; (iv) the profits or losses, if any, of the business relating to the accounting year should have been divided, or credited, as the case may be, in accordance with the terms of the instrument; and (v) the partnership must be genuine, and must have actually existed in conformity with the terms and conditions of the instrument of partnership in the accounting year. (So far as condition No. (iii) is concerned, the 1961 Act says that such application should be made before the end of the relevant accounting year). To the same effect is the decision of a Bench of this court in Chintalapa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion ". In so holding, the Tribunal followed the decision of the Allahabad High Court in Addl. CIT v. Mardan Khan Rafiq Ahmed Khan [1978] 115 ITR 559 (All). The question is whether the Tribunal was right in its opinion ? Learned standing counsel for the Revenue relied strongly upon the following decisions in support of his contention that the wrong statement in the partnership deed (to the effect that the minors were admitted to the benefits of partnership with effect from September 1, 1972, whereas, in fact, they were admitted as such only from on July 17, 1973) and the allocation of profits on a basis different from the true position, disentitles the assessee firm to registration. The first decision is in Khanjanlal Sewakram v. CIT [1972] 83 ITR 175 (SC). In this case, it was held by the Supreme Court that where only a part of the profits of the firm was entered by the assessee in its account books and was distributed, the certificate given in the application for renewal of registration cannot be said to be true certificate. In that case, it was found that the profits earned in black market have not been distributed among the partners according to the deed of partnership, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership. In other words, it was held that where a partnership actually comes into existence of a particular date, it is not open to the partners to say that it must be deemed to have come into existence with effect from an anterior date. At the same time, it was clarified that a deed is not necessary for bringing a partnership into existence and that a mere oral agreement is sufficient, though a deed must in fact be executed as condition for registration. In our opinion, the principles enunciated in the above decisions are perfectly consistent with section 185 of the Act. Section 185 says that on receipt of an application for registration, the Income-tax Officer shall inquire into the genuineness of the firm and " its constitution as specified in the instrument of partnership ", and only where he is satisfied that " genuine firm with the constitution so specified " did exist " during the previous year " that he shall grant registration. The expression " previous year " undoubtedly means the whole of the previous year and not a part thereof. If, during the previous year, there has been a reconstitution of the firm, the application must specify the particulars of the partners and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
