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1990 (8) TMI 44 - HC - Income Tax

Issues:
Interpretation of the term "evidenced by an instrument" in the context of partnership firm registration under the Income-tax Act, 1961.

Analysis:
The case involves a partnership firm where a change in the constitution occurred due to a partner's retirement and the addition of a new partner. The dispute arose when the Income-tax Officer refused to register the firm under the Income-tax Act, 1961, citing the absence of a fresh deed of partnership. The Appellate Assistant Commissioner disagreed, holding that the original partnership continued with the changes made by the subsequent agreement. The Tribunal upheld this decision, allowing registration without a new deed of partnership.

The main issue for determination was whether, in the event of a change in the firm's constitution, a fresh partnership deed is necessary, or if an agreement modifying some terms of the original deed is sufficient. The interpretation of the term "evidenced by an instrument" under Section 184 of the Act was crucial in resolving this issue.

Section 184 of the Income-tax Act requires a partnership to be "evidenced by an instrument" for registration. The Court delved into the meaning of "instrument," concluding that it signifies a formal expression in writing of the agreement between the parties. The Court rejected the Revenue's argument that it must be a formal deed of partnership, instead accepting the broader interpretation that any writing documenting the partnership terms suffices.

Several High Court decisions were cited to support this interpretation, emphasizing that a partnership may be evidenced by one or multiple documents. As long as the terms are specified in any document(s) constituting the partnership instrument, the legal requirement is fulfilled. The Court highlighted that the original deed and the agreement together can constitute the instrument of partnership under Section 184(1) of the Act.

In conclusion, the Court held that a change in the firm's constitution can be effected by an agreement referencing the original deed's terms, without the necessity of executing a fresh partnership deed. Therefore, the Tribunal's decision to grant registration without a new deed of partnership was upheld, ruling in favor of the assessee-firm and against the Revenue.

Judge H. K. SEMA concurred with the judgment delivered by Judge DR. B. P. SARAF.

 

 

 

 

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