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TMI Blog2001 (6) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, subject to the articles of this deed of partnership.' 3. Shri Amritlal Vandravan Sheth, one of the partners who was signatory to the aforesaid partnership deed dated 10th November, 1977, passed away on 27th June, 1981. In terms of the clause 17 of the partnership deed, his legal heirs namely Smt. Chanda Amritlal, his widow, and Smt. Vanlila Sheth, his daughter, were admitted to the partnership and deceased's share of 16% was equally divided between these two persons. These changes were carried out through, in substance, a variation deed dated 29th June, 1981. A little later, however, another change was carried out because upon execution of the will of the deceased, his entire estate was in the hands of his widow i.e. Mrs. Amritlal who thus acquired full right in respect of share and interest of late Shri Sheth in the firm. Accordingly, his daughter Smt. Vanlila Sheth had to relinquish her share in the firm in favour of Mrs. Amritlal who, thus, became a 16% shareholder in the firm. Smt. Chanda Amritlal also passed away on 3-12-1984. In terms of clause 17 of the partnership deed, referred to above, partnership business was to continue and deceased's legal heirs were to become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties hereto; 6. The backdrop of the instrument having been thus explained, this instrument went on to record that while 8496 of the profits are to be divided, amongst surviving partners and as per old ratio of profit sharing amongst the partners, the remaining profit of 16% Le., share of late Mrs. Amritlal is to be set aside in a reserve fund which is to be adjusted in the amount payable to legal heir and successor of Mrs. Amritlal. It was observed that this 16% profit share shall be set apart in a "Specific Reserve Fund" account "in order to pay such share of profit or accumulated profit, including the capital lying with the credit of the deceased partner, to the legal heir or successor to the said Mrs. Chanda Amritlal, since deceased, in future.' It was further provided that 'similarly, the loss, if any, incurred in partnership business, the amount of loss so calculated at 16% shall be deducted from capital account of the deceased partner". The instrument further provided that the existing articles of partnership embodied in the instrument dated 11th November 1977, and also the deed dated 29th March, 1982 aforesaid shall, notwithstanding the present agreement, have full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership or the declaration in Form No. 12 on her behalf. The division of the profits of the firm for the A years 1990-91 and 1991-92 have been made by apportioning in the books of account @ 1696 of profit to Smt. Chanda Amritlal (deceased). In the above set of circumstances, I am of the opinion that there was no genuine firm in existence during the previous year relevant to the assessment year as aforesaid. Accordingly, it is proposed to cancel the registration of your firm.' 9. In response to the show cause notice, it was explained by the assessee that there was no occasion or necessity for any legal heir of the said deceased partner to sign the partnership deed or application for registration, as the legal heir had not become partner. The assessee denied and disputed that there was no genuine firm in existence during the years in question. It was also submitted that the provision made, for legitimate dues of deceased partners, cannot and does not mean that there was no genuine firm in existence during the relevant years. In substance, the assessee submitted that facts and circumstances of the case did not warrant registration of firth being declined to the assessee. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have no hesitation in holding that the action of the Assessing Officer in denying the benefit of registration to the firm is justified. All these (the three) appeals are therefore dismissed.' 11. Still aggrieved, the assessee has impugned the aforesaid order of the Commissioner (Appeals) in appeals before us. 12. Shri S.K. Tulsiyan, learned counsel for the assessee, has vehemently assailed the orders of the authorities below, as inappropriate to the facts and circumstances of the cage and as based on unsustainable legal propositions. Learned counsel took us through the developments leading to this litigation before us, which have been summed up in the foregoing paragraphs, and submitted that all along the assessee was granted the status of 'registered firm' after due and proper examination of facts and provisions of partnership deeds. It was submitted that there was no material change in these particular assessment years which warranted or justified deviation from the treatment consistently accorded to the assessee firm in earlier years. It was also submitted that while there is indeed no res judicata in the assessment proceedings, rule of consistency cannot be totally igno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit of 16% profits to this reserve fund, for all practical purposes, was to be included in allocation of profits. We were urged to consider the facts in the light of which the action of the assessee, in setting aside 16% profit share in 'special reserve fund', was bona fide and appropriate. The learned counsel stated that facts of the case clearly show that not only that partnership is evidenced by an instrument of partnership, that shares of partners are clearly specified in the instrument, that partnership is actually constituted as specified by the instrument, and that valid and proper applications have been made for registration and renewals of partnership, but also that provisions of partnership deed have been fully adhered to. Under these circumstances, according to the learned counsel, it could not be said that a genuine partnership firm is not in existence. Shri Tulsiyan, on the strength of his elaborate submissions, urged us to set aside the orders of the authorities below, and direct the Assessing Officer to grant the status of 'registered firm' under the Income-tax Act. 13. Shri Arvind Shankar, distinguished Departmental Representative, strongly defended the orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine firm. It should not be sham or bogus.' 16. Hon'ble Patna High Court has, in the case of Alankar Jewellers v. CIT [1979] 116 ITR 89, inter alia observed as follows: ". . . It is now well nigh settled that insofar as the provisions under 1961 Act are concerned, there are only four conditions with which ITO is concerned, and on fulfilment of all of which an application for registration under section 184(1) of 1961 Act must be allowed. To that extent, the concept of 1922 Act that grant of registration was a privilege can be no longer be held to be hold the field under the 1961 Act. Under the provisions of 1961 Act the matter of registration has, if I may say so, transgressed from the realms of privilege to a right conferred on the assessee firm.' Hon'ble High Court then listed the four necessary conditions as (i) an application should be made within the time limit and in compliance with the prescribed rules; (it) the firm should be evidenced by an instrument of partnership; (iii) the instrument should specify individual shares of partners; and (iv) the partnership should be valid and genuine one and should be actually constituted as specified in the instrument. Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. A unilateral rejection of the registration application on the ground of technicalities and procedural formalities, is contrary to the very objective of introduction of section 185(2) on the statute book. Such a non-signing of application by one person does not go to the root of the matter and there is conceivably no reason to hold that such a lapse, even if that be construed as a lapse, is fatal to the application. In this view of the matter, declining the registration to the assessee firm is unsustainable in law from the aforesaid point of view. It is all together a different matter that since the legal heir, as on the time of making registration applications in question, was not able to join the partnership due to legal disputes and conflicting claims, it is, in any event, fallacious to proceed on the assumption that she could have signed the documents in the capacity of a partner. In case she was not a partner de jure, as indeed was the position in our considered view, this legal heir had no authority to sign the application for registration of firm. In our view, therefore, sufficient compliance was done by the assessee firm by submitting an application for registration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division of all the profits, but a portion of the profit was carried to the next year's account; Held, that the refusal of the department to register the firm could not be regarded as erroneous.' It is, therefore, clear that the proximate reason for upholding refusal for registration in the aforesaid case was assessee's non-adherence with the terms of the partnership deed. In the case before us, we are satisfied that the assessee firm has complied with the terms of the instrument of partnership and, as such, there is no occasion to uphold the cancellation of, or refusal to, registration to the assessee firm, guided by the conclusions in this reported judgment. 19. In view of the above discussions, we are of the considered view that the authorities below erred in not granting the status of registered firm' to the assessee and that the reasons for their declining the registration are not legally sustainable. The assessee firm was, in our considered view, entitled to be treated as 'registered firm' for the purpose of the Incometax Act. We, therefore, direct the Assessing Officer to treat the assessee as a 'registered firm' for all the years in appeal before us. 20. Before par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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