TMI Blog1982 (1) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... and spares. The assessee firm has made substantial deposits with M/s Maruti Limited Harayana. It is stated by the assessee's representative that during the previous year relevant to assessment year 1976-77 there had been no business. The assessee, however, has received interest from M/s Maruti Limited which is credited to profit and loss account. The ITO passed an order under section 185(1)(a) observing that the partners of the firm have applied for registration in prescribed From No11 but the same being not in time the delay is condoned and the registration is granted to the firm for assessment year 1976-77. The ITO order is dated 1st December, 1976. It may be further stated that the assessee-firm had deposited Rs. 4,00 000 to get the dealership or agency of M/s Maruti Limited and by its letter dated 25th April, 1974 M/s Maruti Limited has stated that the assessee firm was one of its dealers and has paid an amount of Rs. 4,00,000 to it being the dealership deposit. The interest rate was 10 per cent on the deposit in case the production was delayed beyond a specified date. It may further be mentioned that M/s Maruti Limited did not manufacture any car nor was given any car to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of declaration filed in Form No 12. Reliance was placed on (1972) 84 ITR 764 (AP). The AAC held that the assessee fulfilled the requisite conditions under section 184(7) for continuation of registration of the firm for the subsequent year. The appellant i.e. the assessee is entitled to continuation of registration under the Act for the assessment year 1977-78. The AAC accordingly directed the ITO to continue registration for the subsequent year. In the result the assessee's appeal was allowed. 5. The department is an appeal before the Tribunal Shri Sathe the learned Departmental Representative at the out set stated that interest income was assessed as income from other sources. Shri Sathe raised a point whether any business was in existence. According to him the reply was in the negative as no cars were sold by the assessee. Shri Sathe relied on (1980) 121 ITR 262 (Bom.) which has dealt with the trading concerned. There is a difference between a manufacturer and a trade which has been elaborately dealt with by the Bombay High Court. However, the Bombay High Court has also taken into consideration expression setting up which means as defined in the Oxford English Dictionary, to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case there is a business in existence. Shri Sathe drew our attention to clause 2 of the partnership deed and stated that business was set up at all and therefore considering the totality of the circumstances it can be stated that the ITO was justified in cancelling the registration granted to the assessee. 6. According to Shri Doshi the learned Representative of the assessee. AAC's order should be upheld. He relied on the provisions of section 184 (7) which according to him are mandatory because according to him the wording in s. 184(7) is shall and not may section read as under: Where registration is granted to any firm for any assessment year it shall have effect for every subsequent assessment year: Provided that (i) there is no change in the constitution of the firm of the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted; and (ii) the firm furnishes before the expiry of the time allowed under Sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of the income-tax for such subsequent assessment year a declaration to that ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing in motors as the assessee had already paid Rs. 4,00,000 because of which business was brought into existence. According to Shri Doshi actually carrying on this is not necessary. We have to look to the intention of the partners when they came together to carry on business of dealing in motor cars, the intention is very essential as the integral part of the firm's existence. He relied on (1981)127 ITR 727(MP), in that the Madya Pradesh High Court held that the ITO has got jurisdiction to enquire into the genuineness of the firm. If it is found that there was no intention on the part of partners that no business should be carried on by the firm then the ITO would be justified in holding that no partnership as defined by section 4 of the Partnership Act, 1932,had come into existence. But whether a partnership firm carried on any business in the relevant previous year will not be relevant in determining as whether there was in existence, during the previous year, a genuine firm. The High Court further observed that where the Tribunal found that but for the fact that no business was carried on by a firm in the relevant previous year all other normal incidents for constituting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 ITR 85 is distinguishable on fact and does not help the department. 7. In reply Shri Sathe stated that section 184(7) refers to a firm and that there was no firm in existence. A genuine firm according to Shri Sathe cannot be equalled to a sham firm. The firm has to be as per the Partnership Act, 1932,if there is no firm no continuation can be granted. It was stated that the ITO had for assessment year 1976-77 cancelled the registration under section 186 on 30th December 1980.The assessee did not deal in cars at all and what was offered was dealership. There was also no organisation in existence, no office, no establishment and therefore there was no intention to carry on business. It was stated that (1981)127 ITR 727 (MP) is distinguishable on facts. It was stated that motor car was not in the market and therefore no business was commenced. Shri Sathe relied on (1979) 119 ITR 608 (Bom.) and once again on (1973) 89 ITR 85 (Mys). However, (1979) 119 ITR 608 (Bom.) is distinguishable on facts because the assessee has not claimed any deduction. It was also stated that there was no business done in the assessment year 1976-77 and that is the admission of the assessee. Shri Doshi r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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