9911796707
TMI Blog1984 (5) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.15 paise in a rupee 4. Alauddin 0.10 paise in a rupee 5. Mohd. Ansari 0.15 paise in a rupee 6. Km. Fatima Khatoon 0.15 paise in a rupee 7. Abu Bakar (minor) 0.10 paise in a rupee, and 8. Imtiaz Ahmad (minor) 0.10 paise in a rupee." 3. The assessee-firm filed an application in Form No. 11/11A of the Income-tax Rules, 1962 for the assessment year 1973-74 on 27-3-1973. Its accounting year for the above assessment year was to end on 31-3-1973. The ITO found that application had been filed within the prescribed period of time and that all the legal formalities had also been complied with. He, accordingly, passed an order under section 185(1)(a) of the Income-tax Act, 1961 ('the Act'), granting registration to the assessee-firm. The order was passed by him on 17-7-1974. The renewal of registration was also allowed under section 184(7) of the Act for all the subsequent years now under appeal. 4. The ITO subsequently noticed, as would appear from clause (3) of the partnership deed quoted above, that even the minors had been required to share in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's claim that it was a genuine firm, as, according to him, the firm after having violated section 30 could not be accepted as a genuine firm. He, therefore, acting under section 186(1) of the 1961 Act cancelled the registration already granted for the assessment year 1973-74. By similar orders, he also withdrew the renewal of registration granted for all the subsequent years. 6. The assessee appealed to the AAC. The AAC accepted the assessee's submissions that the non-mention of the share in the losses to be suffered by the adult partners was a mere typographical or technical mistake, which could not lead to the cancellation of the withdrawal of registration, which had already been granted, after careful consideration by the ITO. He was also of the view that in any case, it was a defect in the partnership deed, which could be rectified under section 185(2) within a period of one month from the date of its intimation to the assessee. The AAC on the submissions of the assessee held that the show-cause notice dated 16-10-1980 issued by the ITO was in the nature of an intimation to the assessee and, therefore, rectification made on 27-11-1980 through the supplementary deed was well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not a genuine firm. In this connection, he referred to the decision of the Andhra Pradesh High Court in CIT v. Badjanapara Salt Co. 1974 Tax LR 19. In this case, minors were made full-fledged partners of the firm. It was in this connection that the Court had made the following observations :"Section 186 of the Act no doubt provides for cancellation of registration; but this circumstance is certainly not sufficient to hold that the Income-tax Officer should act under this section alone and has no right to deny the benefit of section 184(7) of the Act when once a firm has been registered even if it should subsequently transpire that it was not entitled to be registered, not being a firm in the eye of law, as cancellation is only one of the several methods by means of which action could be taken against erring firms. This apart, section 186 can be called in aid if only the Income-tax Officer is satisfied that there was, during the previous year, no genuine firm, as opposed to a sham or bogus firm in existence as registered ; and not when a firm was in fact in existence though it is not valid in law. The question whether a partnership is valid in law is distinct and separate from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, contrary to the relevant provisions of the Indian Contract Act and Indian Partnership Act and was invalid. It was further held that the ITO had jurisdiction to cancel the registration of the firm under section 186(1). The Court also observed as under: "... To come to a decision whether there is or is not a genuine firm in existence the Income-tax Officer is required to consider the validity of the deed of partnership. If such a deed of partnership is invalid in law offending any of the provisions of the Indian Contract Act or the Indian Partnership Act, 1932, the Income-tax Officer may legally hold that the registration was obtained without there being a firm in existence and such registration is liable to be cancelled in exercise of powers under rule 6B." 11. In the second case a minor represented by his mother was admitted as a full-fledged partner in a firm and was made liable for losses. The ITO granted registration following the earlier decision of Madras High Court in Jakka Devayya Sons v. CIT [1952] 22 ITR 264. This decision was subsequently overruled by the Supreme Court in CIT v. Dwarkadas Khetan Co. [1961] 41 ITR 528. In view of the decision of the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained under section 186(1). This was also the view taken by the Gauhati High Court in the case of Mahabir Prasad Kishanlal Co., which was followed by the Andhra Pradesh High Court in the above case. Both these cases are almost directly on the point and cover the issue before us. 13. The Supreme Court in the case of Mandyala Govindu Co. v. CIT [1976] 102 ITR 1 has held that the ITO must be in a position to ascertain the shares of the partners in the losses even if section 26A of the Indian Income-tax Act, 1922 did not require the shares in the losses to be satisfied in the instrument of partnership. In a case, where the minors are admitted to the partnership and there is no clause in the deed of partnership specifying the proportion in which the adult partners are to share the losses, the firm would not be entitled to registration. It is this principle which governs the present case. We, therefore, hold that the AAC had gone wrong in law in directing the ITO to allow the benefit of registration to the assessee-firm for the assessment year 1973-74 and the renewal of registration for the other years. 14. At the time of hearing, it was suggested by the counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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