Court cancels firm's registration for non-compliance with partnership deed

The court upheld the cancellation of the firm's registration under section 186 of the Income-tax Act, 1961. The firm failed to divide undisclosed income between partners as required by the partnership deed and certificate, rendering the registration false. The court referenced a Supreme Court case where renewal was denied for similar non-compliance. As the undisclosed income was not distributed in accordance with the partnership deed, the firm was deemed non-genuine, leading to the cancellation of registration. The department's decision was affirmed, and the Commissioner was awarded costs of Rs. 200.

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Issues:
Cancellation of firm's registration under section 186(1) of the Income-tax Act, 1961 due to undisclosed income and non-compliance with partnership deed requirements.

Analysis:
The case involved a firm with two partners, where a cash credit in the name of a third party was discovered during assessment. The firm admitted that the credit was actually its income but had not been included in the profit and loss account. The Income-tax Officer found that the undisclosed income was not divided between the partners as per their shares specified in the partnership deed. This led to the cancellation of the firm's registration under section 186 of the Act.

The registration of a firm under section 184 of the Act requires an application containing a partnership deed specifying individual shares and a certificate confirming profit division as per the deed. In this case, the firm failed to divide the undisclosed income between partners as required by the partnership deed and the certificate in Form No. 11. The Tribunal confirmed that the undisclosed income was not credited to partners' accounts or divided outside the books, rendering the certificate false.

The judgment cited a Supreme Court case where a firm's registration renewal was denied due to non-compliance with profit division requirements. Similarly, in this case, the undisclosed income was not distributed among partners as per the partnership deed, leading to the firm being deemed non-genuine. Consequently, the cancellation of the firm's registration was upheld under section 186 of the Act.

The court ruled in favor of the department, affirming the cancellation of the firm's registration. The Commissioner was awarded costs amounting to Rs. 200.

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