2002 (11) TMI 60 - HC - Income Tax

Kerala High Court Upholds Partnership Firm's Registration Under Income-tax Act Despite Banking Activities

The High Court of Kerala ruled in favor of the partnership firm, allowing registration under the Income-tax Act despite engaging in banking activities ... 1. Whether, in view of the fact that the assessee is accepting deposits, etc., the Tribunal is right in law and fact in holding that the assessee is only a money-lender and 'is not carrying on the business of banking' ? - 2. Whether, the asses see is entitled to registration under the Income-tax Act ?' - Tribunal has rightly understood this position and held that since the assessee-firm is registered under the Indian Partnership Act besides holding licence under the Money Lenders Act the provisions of section 11 of the Companies Act are satisfied. In other words the inhibition contained under section 11 is not attracted. We are perfectly in agreement with the interpretation placed by the Tribunal on the provisions of section 11 of the Companies Act and in holding that the assessee is entitled to the benefit of registration for this year. We think it is unnecessary to answer the first question referred to us in view of the interpretation placed by us on the provisions of section 11 of the Companies Act. We accordingly decline to answer the first question. So far as the second question is concerned, we answer the same in the affirmative, i.e., in favour of the assessee and against the Revenue. Issues:1. Whether the assessee is only a money-lender and not carrying on the business of bankingRs.2. Whether the assessee is entitled to registration under the Income-tax ActRs.Analysis:1. The respondent-assessee, a partnership firm engaged in banking business, applied for registration under the Income-tax Act. The Assessing Officer rejected the application citing section 11 of the Companies Act and Banking Regulation Act. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal ruled in favor of the assessee, granting registration. The key contention was whether the firm, with more than ten partners, conducting banking activities, was eligible for registration. The Tribunal considered the firm's registration under the Indian Partnership Act and licensing under the Money Lenders Act as meeting the requirements of section 11 of the Companies Act, thereby justifying registration.2. Section 11 of the Companies Act prohibits partnerships with more than ten persons from engaging in banking activities unless registered under the Act or other Indian laws. The provision also outlines the consequences of non-compliance. The judgment emphasized that for a partnership to conduct banking business legally, it must be formed under the Indian Partnership Act and registered accordingly. The Tribunal correctly interpreted these requirements, stating that the assessee's compliance with the Indian Partnership Act and Money Lenders Act exempts it from the restrictions of section 11. Consequently, the court declined to address the first question and ruled in favor of the assessee for registration under the Income-tax Act.In conclusion, the High Court of Kerala decided in favor of the assessee, holding that the firm, despite engaging in banking activities with more than ten partners, was entitled to registration under the Income-tax Act. The judgment clarified the legal provisions of section 11 of the Companies Act and the Banking Regulation Act concerning partnerships involved in banking businesses, emphasizing compliance with relevant laws for eligibility.