TMI Blog1979 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... o existence with effect from June 1, 1966, under a partnership deed dated June 29, 1966. In the new partnership there were four partners, namely, Mothoo Ram, Prem Chand, son of Mothoo Ram, Ramesh Kumar and Naresh Kumar, sons of Prem Chand, who had equal share in profits and losses. It continued to carry on the same business in the name and style of M/s. Mothooram Prem Chand (hereinafter to be referred to as " the assessee-firm "). On March 27, 1967, the assessee-firm filed an application in Form No. 11A for registration for the assessment year 1967-68, relevant to the accounting period from April 1, 1966, to March 31, 1967. The ITO impounded the books of the assessee-firm for the period ending March 31, 1967, on August 28, 1969. The books had not been closed. The assessee, it is stated, made a number of applications to the ITO for returning the books and the inspection of records in order to enable it to file the return of the income. Ultimately, the assessee-firm filed the return of its income on August 26, 1971, after inspecting the record. It declared its income as Rs. 27,580. It, along with the return, filed statements of trading and profit and loss account prepared on estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re complied with. It is further contended by him that the assessee-firm did not prepare the profit and loss account in terms of cl. 7 of the partnership deed and divide the profits at the end of the accounting year and it filed the return relating to the relevant assessment year late, i.e., on August 26, 1971. He also contends that the profit was not divided by the partners which was a prerequisite for the grant of registration. In the circumstances, he submits that the registration could not be granted to the assessee-firm. We have given thoughtful consideration to the argument of the learned counsel. In order to decide the question it will be necessary to notice the relevant sections and rules. Chapter XVI deals with provisions applicable to firms. Section 184, which is a part of the Chapter, relates to applications for registration and s. 185 to the procedure on receipt of applications. The relevant portions of the said sections are as follows: " 184. Application for registration.--(1) An application for registration of a firm for the purposes of this Act may be made to the Income-tax Officer on behalf of any firm if-- (i) the partnership is evidenced by an instrument ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the original instrument evidencing the partnership at the date of the application together with a copy thereof. A certified copy of the instrument together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument cannot be produced ; (ii) and where any change or changes in the constitution of the firm or the shares of the partners have taken place during the previous year before the date of the application-- [a) the application shall be made in Form No. 11A; and (b) it shall be accompanied by the original instrument or instruments evidencing the partnership as in existence from time to time during the previous year up to the date of the application together with copies thereof. A certified copy of the instrument or instruments together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument or instruments cannot be produced ........" From a plain reading of the rules it is evident that the following conditions are essential for the registration of the firm : (1) The partnership should be evidenced by an instrument. (2) The individual shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application is made before the end of the previous year it is not possible that the profits might be worked out and divided as the balance-sheets are prepared at the end of the previous year. This matter has been considered by the Supreme Court in CIT v. Sivakasi Match Exporting Co. [1964] 53 ITR 204. After noticing s. 26A of the Indian I. T. Act, 1922, and the Rules framed thereunder, K. Subba Rao J. (as he then was), speaking for the court, observed that the jurisdiction of the ITO was confined to the ascertaining of two facts, namely : (i) Whether the application for registration is in conformity with the rules made under the Act. (ii) Whether the firm shown in the document presented for registration was a bogus one or had no legal existence. The relevant observations of the learned judge are as follows: " That the combined effect of section 26A and the rules made thereunder was that the Income-tax Officer could not reject an application made by a firm if it gave the necessary particulars prescribed by the rules, and if there was a firm in existence as shown in the instrument of partnership. A firm might be said to be not in existence if it was a bogus or not a ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing or crediting must be done by the time such application is made. The question being one as to the intention whether or not the profit or loss was meant to be divided between the partners, a belated division might give rise to an adverse factual presumption against the claim for registration but it cannot be an infringement of the requirements of law. Therefore where there was actual division and credit of the share of profit of each partner in their current account, though made later than the date of filing of application under section 26A, it cannot be said that the profits were not divided between the partners and there was, therefore, no ground to reject the claim for initial registration." It may be mentioned that s. 26A of the 1922 Act is replaced by ss. 184 to 186 of the Act. From the above discussion, it emerges that the income-tax authorities cannot refuse to register the firm if the applications are made in accordance with the provisions of ss. 184 and 185 and the rules mentioned above on the ground that the profits of the partnership had not been divided by the partners. However, the authorities can refuse to register the firm if there is any failure on the part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endments of 1952. The application for registration before the amendments contained the following clause : " We do hereby certify that the profits (or loss, if any) of the previous year were /divided or credited as period up to the date of dissolution were/will be shown in Section B of the Schedule and that the information given above and in the attached Schedule is correct." Now, the language used in the application form, as already stated above, is different. It may be highlighted that the clause provides that it is sufficient if the partners say that the profits will be divided or credited. Therefore, Mr. Awasthy cannot derive any benefit from the observations of their Lordships of the Supreme Court. He also placed reliance on Ganesh Lal Laxmi Narain v. CIT [1968] 68 ITR 696 (All). In this case, the learned judges followed the ratio in R. C. Mitter's case [1959] 36 ITR 194 (SC). For similar reasons the ratio in the case will not apply to the present case. Mr. Awasthy also made a reference to Sher-e-Punjab Silk Stores v. CIT [1973] 88 ITR 421 (SC), wherein their Lordships of the Supreme Court said that from a reading of s. 26A of the 1922 Act, and the rules 2, 3 and 6 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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