1984 (4) TMI 117 - AT - Income Tax

A Firm Application For Registration Change In Constitution Of Firm Firm Registration Registered Firm Two Partners Unregistered Firm

Summary

Issues Involved:

1. Dissolution vs. Reconstitution of the Firm
2. Eligibility for Registration
3. Double Taxation Concerns

Issue-Wise Detailed Analysis:

1. Dissolution vs. Reconstitution of the Firm:

The primary issue was whether the firm Ramsahai Nathulal was dissolved on 14-8-1976 or merely reconstituted. The assessee claimed that the firm was dissolved and a new firm was formed from 15-8-1976 with new partners. The Tribunal analyzed the provisions under Chapter XVI of the Income-tax Act, 1961, particularly Sections 182, 183, 184, 185, 186, 187, 188, and 189. Section 187(2) defines a change in the constitution of a firm, stating it occurs if one or more partners leave or new partners are admitted, but some old partners continue. The Tribunal concluded that the case was of reconstitution since the old partners continued with new partners, thus falling under Section 187.

2. Eligibility for Registration:

The assessee argued that the firm should have been granted registration up to 14-8-1976 and assessed as a registered firm for that period. The Tribunal referred to Section 184(7), which states that registration continues if there is no change in the firm's constitution. Since there was a change, the firm should have applied for fresh registration as per Section 184(8). The Tribunal found that the purported dissolution was not genuine but a "fake exercise and a mere paper transaction." Therefore, the firm was not eligible for registration for the period up to 14-8-1976, and a single assessment for the whole period was required under Section 187.

3. Double Taxation Concerns:

The assessee contended that assessing the firm as an unregistered firm would result in double taxation since some partners were already assessed on their share of income. The Tribunal examined rulings, including CIT v. Murlidhar Jhawar & Purna Ginning & Pressing Factory and Laxmichand Hirjibhai v. CIT, which dealt with similar issues. However, the Tribunal noted that Section 183 gives the ITO the option to assess the firm or the partners, and this option lies with the ITO assessing the firm, not the partners. The Tribunal also cited rulings like Deccan Bharat Khandsari Sugar Factory v. CIT and Rodanal Lalchand v. CIT, which supported the ITO's jurisdiction to assess the firm as an unregistered entity even if the partners were assessed separately. The Tribunal concluded that the assessments of the partners did not preclude the ITO from assessing the firm as an unregistered firm, and adjustments could be made to avoid double taxation.

Conclusion:

The Tribunal upheld the ITO's decision to refuse registration and assess the firm as an unregistered firm for the entire period. The assessee's appeal was dismissed.