9911796707
TMI Blog1980 (1) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed form, that the original partnership deed had not been filed within the prescribed time, that there was no mutual agency and privity amongst the partners, that the firm had not distributed the loss as required in the partnership deed and, lastly, that the relationship between Ramesh Chand Jain and Sri Agarwal was that of servant and master. The assessee appealed. The AAC did not agree with the reasons given by the ITO except one and that was that the loss of the year under consideration had not been divided amongst the partners in accordance with the terms of the partnership deed. The AAC found that for the first year the accounts were closed, on March 31, 1970, and there was a loss of Rs. 44,653. For the assessment year 1971-72, again, there was a loss and it was Rs. 1,39,096. Thus, the total loss of these two years amounting to Rs. 1,54,749 was shown in the balance-sheet filed by the assessee along with the return of income. Subsequently, a revised balance-sheet was filed showing the allocation of the loss and that too on the assets side in the following manner : " Profit Loss Account. " As per last Add : Loss balance-sheet during the year Rs. Rs. Smt. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance-sheet attached to it. In this year also there was a loss of Rs. 1,39,096. The previous year's loss or this year's loss was not allocated amongst the partners. The assessment was completed on March 29, 1974, but before that the assessee filed a revised balance-sheet in which the allocation of loss of both these years was shown. This allocation was shown on the assets side and was not debited to the individual accounts of the partners. On these facts, the question that falls for our consideration is as to whether the distribution of loss after the close of the relevant previous year but before the completion of the assessment would or would not amount to a proper distribution of loss as required by law as also as required by the relevant provisions of the Partnership Act. In this behalf, it was urged on behalf of the department that it was only in the consolidated loss account in the ledger that the entire loss was shown and the same was reproduced in the revised balance-sheet and that this did not amount to allocation of loss amongst the partners. We had not the advantage of hearing the counsel for the assessee-respondent because none appeared on its behalf. However, after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, for the allocation of profits or losses the words are " were/will be divided or credited ". In case profit or loss have not been divided by the time such application is made, there is no further provision regarding the time by which such division can be made. It is in this context that we have to see as to whether the division of profits or loss before the completion of the assessment for the year concerned would be regarded as sufficient. The conditions essential to the registration of a firm in brief are : that an application on behalf of the firm should be made to the ITO before the end of the accounting year and the application should comply with the requirements of s. 184 and rr. 22 to 24. The firm should be evidenced by an instrument of partnership. The instrument should specify the individual shares of the partners and, lastly, the partnership should be valid and genuine and should actually be constituted as specified in the instrument. If all these conditions are fulfilled the ITO is bound to register the firm unless the assessee has committed any of such defaults as entail a best judgment assessment under s. 144 for which he may refuse registration under s. 185( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guishable. In Sher-e-Punjab Silk Stores v. CIT [1973] 88 ITR 421 (SC) for the assessment year 1958-59 the assessee had applied for renewal of registration under s. 26A of the 1922 Act. The relevant previous year ended on March 31, 1958, and it was stated therein that the previous year's income had been divided amongst the partners. The ITO, however, found that the previous year's income had not been divided and hence he refused registration. The AAC and the Appellate Tribunal agreed with the ITO. Before the Tribunal it was, however, contended that at any rate the partners had divided the income of the previous year before the assessment was made. The Tribunal did not go into that question. The High Court agreed with that view and on further appeal the Supreme Court confirmed that view holding that in case of an application for renewal it was incumbent on the part of the assessee to have divided the previous year's profits. It would be seen that in that case the application for renewal of registration had been made after the end of the relevant previous year and further it had been mentioned in that application that income had been divided amongst the partners. As noted in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be so stated and if they are to be divided later on, it is to be stated that the " profits " will be divided. Surajmalls v. CIT [1961] 43 ITR 491 (Mad) is also distinguishable on the same ground. The view taken was that even after the amendment of r. 6 of the I.T. Rules in November, 1952, in the case of a continuing firm, the profit or loss of the firm during the previous year relevant to the assessment year should have been actually divided or credited to the accounts of the partners before a valid application for renewal of registration is made. We have already indicated above that now there is no such requirement for granting the benefit of continuation of registration under section 184(7). The next case to which our attention was invited is another decision of the Madras High Court in E. S. Haji Co. v. CIT [1964] 51 ITR 250. In that case, a firm applied for registration enclosing a copy of the profit and loss statement in which the profits were estimated at a certain percentage on the gross turnover and the share of each partner in such profit was also stated. The application was rejected on the ground that it did not comply with the rules. The view taken by the Madras H ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
