1968 (8) TMI 25 - HC - Income Tax

Summary

Issues:
- Entitlement to renewal of registration under section 26A of the Indian Income-tax Act, 1922 for the assessment year 1959-60.
- Division and crediting of profits among partners in accordance with the deed of partnership for a partnership firm.

Entitlement to Renewal of Registration:
The High Court of Kerala addressed the issue of whether a partnership firm was entitled to renewal of registration under section 26A of the Indian Income-tax Act, 1922 for the assessment year 1959-60. The firm, engaged in provisions, rice, and handloom goods business, had applied for renewal after the prescribed deadline. The Income-tax Officer initially rejected the application citing delay and failure to distribute profits from ration shops among partners as per the partnership deed. The Appellate Tribunal later held that while there was sufficient cause for the delay, the firm was not entitled to renewal due to the profit distribution issue. The firm contended that the failure to divide profits from the ration shops among partners was a mere error in bookkeeping and not a valid ground for denial of renewal. The firm relied on precedents from the Bombay High Court and the Kerala High Court to support its argument.

Division and Crediting of Profits:
The High Court analyzed the division and crediting of profits among partners as per the deed of partnership for the partnership firm in question. The firm's profits from ration shops were not divided and credited to individual partners as required by the partnership agreement. The court considered precedents from the Bombay High Court and the Kerala High Court where similar issues were addressed. It was highlighted that the failure to credit profits to individual partners, as long as the shares were known, was a rectifiable error and did not invalidate the application for renewal of registration. The court emphasized that the firm had brought all profits into its accounts, and the failure to divide profits from the ration shops was a technicality that did not warrant denial of renewal. Ultimately, the court ruled in favor of the firm, stating that the error in profit distribution did not render the application for renewal invalid, and the firm was entitled to renewal of registration under section 26A of the Income-tax Act, 1922 for the relevant assessment year.