TaxTMI 
TaxTMI 
2000 (2) TMI 52
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....from the books of account of the firm that the profit of the firm was shared among the partners at variance with clause 6 of the partnership deed. He found from the accounts that the profit of the firm was shared at the rate of 50 : 25 : 25 as against 1/3rd share as found in the deed of partnership. The Income-tax Officer held that the firm was not a genuine firm and invoked the provisions of section 186(1) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"), and cancelled the registration granted to the firm. The Commissioner of Income-tax (Appeals) upheld the order of the Income-tax Officer. The Appellate Tribunal on further appeal by the assessee, dismissed the appeal preferred by the assessee on the view that there was no genuine firm in existence as registered and the assessee had not made any attempt to rectify the error already occurred. The Tribunal held that on a plain reading of section 186 of the Act, there was no genuine firm in existence and the firm was not constituted in accordance with the partnership deed dated July 26, 1977. The assessee has challenged the order of the Appellate Tribunal. Mr. R. Janakiraman, learned counsel for the assessee,....
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....rovides that the application should be in the prescribed form and shall contain the prescribed particulars. Rule 22(2)(i) of the Income-tax Rules, 1962, provides that the application shall be made in the prescribed form and the prescribed form is Form No. 11. Under clause (4) of Form No. 11, the partners should specify that the profits of the firm relevant for the previous year were/will be divided or credited as shown in the Schedule and there is also a requirement that the information given in the Schedule should be verified to be correct, and in the Schedule to Form No. 11, the partners are required to state the mode of sharing the balance of the profits or loss and specify the percentage of the share of the profit or loss of the sharer. Section 185 of the Act prescribes the procedure to be followed on receipt of the application for registration and under section 185 of the Act, the Income-tax Officer is required to inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership and if he is satisfied that there is or was during the previous year in existence, a genuine firm with the constitution so specified, he shall pass an order in....
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....claim the benefit of registration, the firm must strictly comply with all the requirements of the section concerned and the substantial compliance with the rules would not be sufficient for the grant of registration. It is in the light of the decisions of the Supreme Court, that the question whether the assessee is entitled to the registration of the firm has to be considered. The Allahabad High Court in Setha Ram Dhanvir Singh v. CIT [1980] 123 ITR 150, on a more or less similar factual situation held that if the Income-tax Officer finds that factually the division of profit or loss was at variance with the shares specified in the instrument of partnership, it would be open to the Income-tax Officer to cancel the registration of the firm. The reasoning of the court was that the expression, "genuineness of the firm" in section 186 of the Act would indicate that the firm applying for registration must be really in existence and the partners are collectively carrying on the business and the conditions like the specified constitution of the firm, the identity of the partners and their shares in the profit or loss of the firm's business should be satisfied, The Allahabad High Court he....
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....division of profits not in accordance with the instrument of partnership, it is not necessary for the Income-tax Officer to grant a fresh opportunity to the assessee to rectify the defects as the defects contemplated in section 185(2) of the Act would not cover conscious defect committed by the assessee in the division of profits among the partners not in accordance with the terms of the partnership deed. We are of the view that the question of granting an opportunity would arise had there been some defect in the form filed for the purpose of registration. We hold that where according to the accounts, the profits of the firm have already been divided, the granting of an opportunity to rectify the defect in the form would be an empty formality and would serve no purpose as the profits have already been divided among the partners in a particular manner as exhibited in the accounts and the accounts cannot be rewritten contradicting the actual division of profits among the partners, particularly in a case where it was found that the error committed was not accidental, but deliberate in the division of profits. N. S. S. Sokkalingam Chettiar and Co. v. CIT [1966] 60 ITR 671 (Mad), is a ....
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....sion of the Supreme Court in the case of CIT v. Sivakasi Match Exporting Co. [1964] 53 ITR 204, and submitted that the jurisdiction of the Income-tax Officer to grant registration is confined to two aspects : (i) whether the application for registration was in conformity with the rules made under the Act ; and (ii) whether the firm shown in the document presented for registration was a bogus one or had no legal existence. The decisions of the Supreme Court in Sivakasi Match Exporting Co.'s case [1964] 53 ITR 204 and in Agarwal and Co.'s case [1970] 77 ITR 10 (SC), are not applicable to the facts of the case. In both the cases, the Supreme Court was not dealing with the question whether the firm would be regarded as a genuine firm though the profits of the firm were not distributed in accordance with the terms of the partnership deed and in the statutory declaration, a different profit-sharing ratio was indicated. The Supreme Court in Ratanchand Darbarilal v. CIT [1985] 155 ITR 720 after noticing the decision in Sivakasi Match Exporting Co.'s case [1964] 53 ITR 204 (SC), held that one of the essential conditions for the registration of a firm is that the profit or loss of the busine....
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....ovisions of section 271(4) of the Act and submitted that if the profits of the registered firm have not been distributed in accordance with the shares of partners as shown in the instrument of partnership, the partners would be liable to pay penalty, and he submitted that the Income-tax Officer should have proceeded under the provisions of section 271(4) of the Act and should not have cancelled the registration of the firm on the ground that it is not a genuine firm. In other words, according to learned counsel for the assessee, the only remedy available for the Income-tax Officer would be to levy penalty under section 271(4) of the Act and he has no power to cancel the registration under section 186 of the Act. We are unable to accept the contention of learned counsel for the assessee. Section 271(4) of the Act provides for levy of penalty on the partners in a case where the profits of the firm were not distributed in accordance with the terms of the partnership deed, but, on the other hand, section 186 is intended to operate against the firm in such contingency, the registration of the firm is liable to be cancelled under section 186 of the Act on the ground that the firm is not ....