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TMI Blog1979 (9) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... hi-ud-din) 11% Party No. 6 (Abdul Hamid Khan) 10% ----------- 100% ----------- 7. The accounts of the partnership shall hithertofore be maintained on mercantile basis and on the last day of March every year a trading and profit and loss account and a balance-sheet shall be prepared soon thereafter. The resultant net profit or loss of each partner shall be credited or debited to his personal account as per clause 6 of this deed. " The deed dated March 27, 1972, recites: " Whereas the party of the 7th part, Firdoos Ahmad Bhat, was taken in as a partner of the firm on 22nd Feb., 1972, the parties heretonow desire to put down the terms and conditions under which the business shall be continued to be carried on in future. " and, thereafter, inter alia, provides " 1. The partnership business shall be deemed at WILL and operative from 1st April, 1971, 2. The firm's name under which the business is carried on shall continue to be M/s. Ghulam Ahmad Khan and Brothers, Kashmir Art Dealers, with its head office at Nawab Bazar, Srinagar. The parties by mutual consent can open a branch or branches at any place or places of business. The parties hereto also can embar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deed dated March 25, 1970. Both the periods of the year under appeal were properly governed by two different deeds and it is wrong to say that there was no deed covering the period up to February 22, 1972. As regards the distribution of shares the authorities relied upon by the learned counsel for the assessee clearly support his case. The shares are clearly ascertainable as they have been duly mentioned in the respective deeds. There is only a mistake in the distribution of profits at the end of the year which is not in conformity with the second deed. However, the courts have held that that cannot be made the basis for rejecting the registration. We, therefore, direct the Income-tax Officer to allow registration to the firm for the assessment year 1972-73. " At the instance of the Commissioner, the Tribunal has referred the following question for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Income-tax Officer to allow registration to the firm for the assessment year 1972-73. " The matter is governed by s. 185. Sub-section (1) of s. 185, omitting portions not relevant, reads: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration shall have effect for the assessment for the year ending on the 31st day of March 19 . (2) If the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to recognise the instrument of partnership, or the certified copy thereof, and furnish a copy of such order to the applicants. " The provisions of this rule are materially different from the provisions of s. 186 which governs the matter of registration under the present Act. The departmental authorities rejected registration on two grounds firstly, that there was no firm in existence with effect from April 1, 1971, to February 21, 1972. Secondly, that the new partner had been given share for the entire year whereas he had joined the firm only on February 22, 1972. Taking first the second ground, there can be hardly any doubt that there was an error in the division of the profits. The new partner could not be given a share in the profits for the entire year. On the principle stated above, this could not by itself furnish any ground for rejecting the registration. Dwelling on the first ground the departmental authorities have stated that the firm had come into existence with effect from Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lemental to and not in derogation of the instrument of partnership deed dated March 25, 1970. The departmental authorities have seemingly misconstrued the instrument of partnership dated March 27, 1972, as an instrument bringing to an end the partnership as shown in the partnership deed dated March 25, 1970, and bringing about a new partnership, distinct and independent from the partnership as shown in the deed dated March 25, 1970. In taking this view, they have been apparently influenced by the provisions of cl. (1) of the deed dated March 27, 1972. Clause (1) of the deed dated March 27, 1972, is no doubt significant when it says that the partnership business shall be deemed to be operative from April 1, 1971. They have construed it as providing that the partnership shall be deemed to have come into existence from April 1, 1971. On these premises, they have held that the new partnership could not be treated to be in existence for the period preceding February 22, 1972, when in fact it did not exist. This view proceeds upon a mistaken interpretation of cl. (1) of the deed dated March 27, 1972. Properly construed, what cl. (1) conveys is that the accounts shall relate back to 1st A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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