1986 (4) TMI 113 - AT - Income Tax

Appellate Tribunal orders registration for partnership firm despite minor profit-sharing deviations

Sardana Cloth Store. Versus Income-Tax Officer.

Sardana Cloth Store. Versus Income-Tax Officer. - ITD 018, 445, Issues:1. Refusal of registration to a partnership firm under section 185(1)(a) of the Income-tax Act, 1961 for the assessment year 1982-83.Detailed Analysis:The appeal before the Appellate Tribunal ITAT DELHI-D concerns the refusal of registration to a partnership firm under section 185(1)(a) of the Income-tax Act, 1961 for the assessment year 1982-83. The primary contention is that the learned AAC, Rohtak Range, Rohtak erred in confirming the order of the ITO that refused to register the appellant-firm. The partnership firm, engaged in the purchase and sale of cloth, underwent changes due to the death of a partner and the induction of a new partner. The original partnership deed was executed on 22-6-1981, and a fresh registration application was filed on 23-9-1981. However, discrepancies arose regarding the distribution of profits among the partners, leading to the ITO's refusal of registration.The ITO's basis for refusal included the failure to comply with the terms and conditions of the partnership deed, as well as the absence of the original partnership deed or a certified copy with the registration application. The AAC concurred with the ITO, deeming the firm not genuine based on the specified constitution, citing a relevant judgment. The appellant, represented by Shri C. S. Aggarwal, argued against this decision, citing various judicial pronouncements to support their case. The revenue, represented by Shri S. P. Jain, vigorously supported the ITO and AAC's orders.In the analysis of previous judgments, the Tribunal highlighted the importance of adhering to the partnership agreement in profit distribution for registration entitlement. Reference was made to cases where minor deviations in profit sharing did not invalidate registration claims. Notably, a case involving a family firm illustrated that even slight irregularities could be rectified with penalties, emphasizing the genuineness of the firm. This analysis formed the basis for overturning the lower authorities' decisions and directing the ITO to grant registration to the appellant-firm.Ultimately, the Tribunal concluded that the allocation of one-third share to each partner was in accordance with the partnership deed and surrounding circumstances. The refusal of registration based on technicalities was deemed unjustified, especially considering the submission of the original partnership deed during assessment proceedings. As a result, the appeal was allowed, and the ITO was instructed to grant registration to the partnership firm under section 185(1)(a) of the Income-tax Act, 1961 for the relevant assessment year.