1983 (3) TMI 92 - AT - Income Tax

Partnership Deed Validity Upheld: Tribunal Grants Registration

Purnasree Cinema. Versus Income-Tax Officer.

Purnasree Cinema. Versus Income-Tax Officer. - ITD 005, 592, Issues Involved:1. Validity of the partnership.2. Refusal of continuation of registration due to Form No. 12 not being signed by all partners.Issue-wise Detailed Analysis:1. Validity of the Partnership:The case revolves around the partnership status of a business, Purnasree Cinema, following the death of Shri Purna Chandra Barick. The key contention was whether the partnership formed after his death was lawful and valid. The Commissioner (Appeals) directed the Income Tax Officer (ITO) to treat the assessee's status as an Association of Persons (AOP) rather than a genuine firm. The facts of the case reveal that Shri Purna Chandra Barick, before his death, had converted his cinema business into a partnership with his grandson, Netai Chandra Barick. Upon his death, his will appointed Smt. Sarala Bala Barick and Netai Chandra Barick as executrix and executor, respectively, and directed that the management of the cinema would remain with Netai Chandra Barick.The partnership deed dated 15-6-1970, formed after the death of Shri Purna Chandra Barick, included Netai Chandra Barick in his individual capacity and Smt. Sarala Bala Barick and Netai Chandra Barick jointly in their representative capacity holding the deceased's shares. The Commissioner (Appeals) held that the partnership was not valid because Smt. Sarala Bala Barick had no management rights over the property as per the will, and the partnership deed created a scenario where the estate of the deceased was a partner, which was not permissible under law. The Commissioner (Appeals) relied on the decision in National Non-Ferrous Industries v. CIT, where it was held that two persons collectively cannot be considered a single partner of a firm.However, the Tribunal found that the partnership was valid. The Tribunal noted that under section 211 of the Indian Succession Act, the executor or executrix derives title and interest from the will immediately upon the testator's death, and the property vests in the executor. The Tribunal also referred to section 311 of the Indian Succession Act, which allows the powers of several executors to be exercised by any one of them. Therefore, the partnership was valid even if Form No. 12 was not signed by Smt. Sarala Bala Barick. The Tribunal also referred to the Supreme Court decision in CIT v. Sir Hukumchand Mannalal & Co., which supported the view that a partnership is valid even if executors are taken jointly as a partner.2. Refusal of Continuation of Registration:The ITO refused to grant continuation of registration for the assessment year 1972-73 because Form No. 12 was not signed by Smt. Sarala Bala Barick. The assessee contended that the refusal was unjustified as the partnership was between Netai Chandra Barick in his individual capacity and the estate of P.C. Barick, represented by Netai Chandra Barick and Smt. Sarala Bala Barick. The Tribunal noted that under rule 24 of the Income-tax Rules, the declaration under section 184(7) in Form No. 12 should be signed by all partners. However, since Netai Chandra Barick and Smt. Sarala Bala Barick were jointly made one partner in their representative capacity, the signature of Netai Chandra Barick alone was sufficient.The Tribunal concluded that the defect pointed out by the ITO was not significant enough to refuse the continuation of registration. The partnership deed's preamble mentioned that the business would be managed by Netai Chandra Barick for the better interest of the partnership business. Therefore, the Tribunal directed that the assessee's claim for continuation of registration be allowed.Conclusion:The Tribunal allowed the appeal by the assessee, holding that the partnership was valid and the refusal to grant continuation of registration due to the absence of Smt. Sarala Bala Barick's signature on Form No. 12 was unjustified. The Tribunal directed that the assessee's claim for continuation of registration be allowed.