Initial firm registration does not fail merely because prior division of profits was completed after filing the application.

Under section 26A of the Indian Income-tax Act, 1922, initial registration of a firm was not defeated merely because profits of the previous year had not been divided before the application was filed. The statutory scheme and prescribed form required only that the applicant certify that such profits or loss were divided or credited, or would be divided or credited; they did not impose a prior-division requirement for first-time registration. That stricter timing requirement applied to renewal, not initial registration. On the facts, the profits were in fact divided according to partners' shares and credited to their current accounts, though after the applications were filed.

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Issues: Whether non-division of the profits of the relevant previous year before filing an application for initial registration of a firm under section 26A of the Indian Income-tax Act, 1922, disqualifies the firm from registration.

Analysis: Under section 26A and the prescribed form, an applicant for initial registration has to certify that the profits or loss of the previous year were divided or credited or will be divided or credited. The statutory scheme and the form do not require that the division or credit must take place before the application is filed. In the case of initial registration, the assessee may divide or credit the profits after the close of the previous year, and even later, though delayed division may create an adverse factual inference. The requirement of prior division applies to renewal of registration, not to first-time registration. On the facts found, the profits were in fact divided according to the partners' shares and credited to their current accounts, though the entries were made after the applications were filed.

Conclusion: Non-division of profits before filing the application was not a valid ground to refuse initial registration, and the question was answered in favour of the assessee.

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