Court denies firm's registration renewal due to unclear loss apportionment in partnership deed post-partner change.

Additional Commissioner Of Income-Tax Versus Gauri Vishwanath Dal Mills

Additional Commissioner Of Income-Tax Versus Gauri Vishwanath Dal Mills - [1977] 107 ITR 274, 1976 CTR 244 Issues:
Renewal of registration for assessment years 1963-64 and 1964-65 based on a change in the constitution of the firm within the meaning of section 187(2)(a) or section 187(2)(b) of the Income-tax Act, 1961.

Analysis:
The case involved a dispute regarding the renewal of registration for the assessment years 1963-64 and 1964-65 due to a perceived change in the constitution of the firm. The firm, originally constituted under a partnership deed in 1956, faced scrutiny when the Income-tax Officer noted a deviation in the apportionment of losses among partners for the assessment year 1962-63. The disagreement arose from Harish Chandra attaining majority during that year, leading to a contention that a fresh partnership deed should have been executed. Despite the Appellate Assistant Commissioner and Tribunal ruling in favor of the firm, the department persisted in challenging the renewal of registration for subsequent years.

The department argued that a change in the constitution of the firm occurred with the alteration in the shares of losses following Harish Chandra's majority, necessitating the execution of a new partnership deed. The Tribunal was urged to consider whether the firm's constitution had changed within the meaning of section 187(2) of the Income-tax Act, 1961. Reference was made to a Division Bench decision and subsequent doubts regarding its applicability, leading to a larger Bench hearing.

The legal representative for the department cited the Supreme Court decision in Mandyala Govindu & Co. v. Commissioner of Income-tax, emphasizing the necessity for the Income-tax Officer to ascertain partners' shares in losses before granting registration. The representative contended that a change in the shares of losses, as in this case, constituted a change in the partners' shares under section 184(7) of the Act, warranting denial of registration renewal.

The Court delved into the legal framework governing firm registration, emphasizing the significance of a partnership deed specifying individual partners' shares and compliance with procedural requisites for registration under section 184. Drawing parallels with past judicial interpretations, the Court highlighted the importance of clarity regarding partners' shares in profits and losses in the partnership deed.

Relying on the Supreme Court's decision in Mandyala Govindu's case, the Court concluded that a change in the shares of losses post-Harish Chandra's majority did not align with the partnership deed's provisions, rendering the firm ineligible for registration renewal. The Court refrained from opining on prior conflicting decisions but clarified that the ruling was specific to the case's circumstances akin to Mandyala Govindu's case.

Ultimately, the Court held that the firm was not entitled to the renewal of registration for the assessment years 1963-64 and 1964-65, citing the lack of clarity on loss apportionment following the change in partners' shares due to Harish Chandra's majority. Given the absence of representation from the assessee, no cost orders were issued.