1987 (7) TMI 79 - HC - Income Tax

Court grants registration to firm under Income-tax Act, upholding valid partnership deed and partners' rights.

The High Court held that the assessee-firm was entitled to registration under section 185 of the Income-tax Act. The court found that the partnership deed ... Actual Cost, Depreciation, Investment Allowance Issues:- Whether the assessee-firm is entitled to registration under section 184 (185) of the Income-tax ActRs.Analysis:The case involved a dispute regarding the registration of an assessee-firm under the Income-tax Act. The firm was initially constituted by a deed of partnership dated May 8, 1969, with four partners. Subsequently, there were changes in the composition of the firm, leading to a partnership deed dated July 24, 1975, and another on October 1, 1975. The Income-tax Officer refused registration based on the deed of October 1, 1975, leading to appeals. The Tribunal dismissed the appeal, citing that the earlier deed was not acted upon and the later deed could not have retrospective effect. The High Court analyzed the situation and concluded that the partnership deed dated October 1, 1975, did not violate any provisions of the Contract Act or Partnership Act. The court emphasized that partners could arrange among themselves as long as it was not prohibited by law. The court noted that the minors' rights could be enforced in accordance with the law, but the registration could not be refused based on unenforced rights.The court further discussed the principles regarding the ascertainment of profits in a partnership firm, emphasizing that profits are determined at specific intervals and partners' rights to profits arise accordingly. The court highlighted that the partnership deed required accounts to be made up only at the year-end, making it impossible to ascertain profits or losses until then. The court rejected the Tribunal's objections, stating that the deed of October 1, 1975, was legally valid and partners had the freedom to enter into agreements as they choose. The court also addressed the contention regarding minors' rights under section 30(4) of the Partnership Act, noting that the minors did not enforce their rights and the deed did not violate the said provision.Ultimately, the court held that the grounds on which the Tribunal refused registration were legally unsustainable. The court ruled in favor of the assessee-firm, stating that they were entitled to registration under section 185 of the Income-tax Act. The reference was answered accordingly, with no costs awarded.