2006 (6) TMI 90 - HC - Income Tax

Firm's Registration Cancelled Due to Inclusion of Minor Partner and Forged Signatures

The High Court of Kerala upheld the cancellation of a firm's registration under section 186(1) of the Income-tax Act, 1961, due to the inclusion of a ... - Issues:1. Legality of cancellation of registration of a firm under section 186(1) of the Income-tax Act, 1961.Analysis:The judgment of the High Court of Kerala dealt with the challenge to the cancellation of registration of a firm under section 186(1) of the Income-tax Act, 1961. The firm in question consisted of five partners, including the father and sons. The registration of the firm was originally granted in 1972 based on an application for registration and a certified copy of the deed of partnership. However, it was later discovered that the father had forged the signatures of three partners and included a minor as a full-fledged partner, violating the Indian Partnership Act. The registration was subsequently cancelled by the Income-tax Officer. The court was tasked with determining the existence of a genuine firm and the validity of the cancellation order.In a previous case, the court emphasized the importance of allowing the firm to rectify defects in the registration application before cancellation. The Income-tax Appellate Tribunal, following the court's directions, set aside its previous order and instructed the Assessing Officer to provide the firm with an opportunity to explain and submit proper applications. The firm then attempted to cure the defects by submitting new applications and partnership documents signed by all partners. However, the Assessing Officer rejected these submissions, leading to the cancellation of the firm's registration for multiple assessment years.The court considered arguments from both the firm's counsel and the Revenue's senior counsel. The firm's counsel contended that the defects had been rectified after the court's directions and should relate back to the original date, rendering the cancellation unjust. On the other hand, the Revenue's counsel argued that a forged partnership deed could not be cured and that the firm was not validly constituted due to the forgery and inclusion of a minor partner. The court agreed with the Revenue's stance, stating that a forged document remains invalid and cannot be made genuine retroactively.Ultimately, the court upheld the cancellation of the firm's registration, emphasizing that the Assessing Officer was not at fault for not detecting the forgery earlier. The court highlighted that a valid partnership requires a genuine agreement among all partners, which was lacking in this case due to the forgery. Therefore, the writ appeal challenging the cancellation lacked merit and was dismissed.