1994 (11) TMI 176 - AT - Income Tax

Tribunal grants registration appeal for 1982-83 assessment year based on genuine partnership and profit sharing

DILIP KUMAR KALI CHARAN. Versus INCOME TAX OFFICER.

The Tribunal allowed the appeal challenging the refusal of registration for the assessment year 1982-83. It ruled in favor of the appellant, granting ... - Issues:Challenge to refusal of registration for assessment year 1982-83 under section 185(1)(b) - Genuine existence of firm in question - Distribution of profits in accordance with partnership deed - Application of Supreme Court decision in Khanjan Lal Sevak Ram case - Dispute over registration refusal - Interpretation of sections 184 and 185 of the Income Tax Act, 1961.Analysis:The judgment concerns the challenge to the refusal of registration for the assessment year 1982-83 under section 185(1)(b) of the Income Tax Act. The dispute revolves around the genuineness of the firm's existence and the distribution of profits as per the partnership deed. The Assessing Officer contended that the income of the firm was diverted to a trust, leading to the refusal of registration. The CIT(A) upheld this decision, citing discrepancies in profit distribution and non-compliance with the partnership deed. The appellant argued that the firm was genuine and validly constituted, emphasizing that the profits shown in the trust's hands did not belong to the firm. Reference was made to the Supreme Court decision in Khanjan Lal Sevak Ram case, highlighting differences in the provisions under the old Act of 1922 and the current IT Act of 1961.The Departmental Representative supported the CIT(A)'s order, asserting that the profits belonged to the firm and were not distributed as per the partnership deed. The Assessing Officer's scrutiny into the firm's genuineness for initial registration was deemed justified. The applicability of the Khanjan Lal Sevak Ram case was emphasized, and various legal precedents were cited to strengthen the argument against the appellant's registration claim.The Tribunal analyzed the provisions of sections 184 and 185 of the Income Tax Act, 1961, pertaining to firm registration. It was noted that while the firm in question was validly constituted, the dispute centered on profit distribution. Form No. 11 required partners to declare the correct division or crediting of profits, aligning with the partnership deed. The Tribunal delved into the Supreme Court's decision in the Khanjan Lal Sevak Ram case, emphasizing the importance of accurate profit sharing for registration renewal. A comparison was drawn between the facts of the cited case and the present matter, highlighting the absence of undisclosed profits in the appellant's case. The Tribunal clarified the separate implications of orders under sections 185 and 143(3) of the Act, stressing their distinct impacts on tax recovery and income computation.Regarding other cited cases, distinctions were drawn based on discrepancies in profit division and deliberate concealment of income. Legal precedents were discussed, including the Delhi High Court's ruling in CIT vs. Chander Bhan Hari Chand & Co., emphasizing the importance of partner assent in profit distribution. Ultimately, the Tribunal reversed the CIT(A)'s decision, ruling in favor of the appellant's registration entitlement based on the absence of evidence indicating non-genuineness of the firm and lack of benami transactions among partners.In conclusion, the appeal challenging the refusal of registration for the assessment year 1982-83 was allowed by the Tribunal.