1987 (6) TMI 98 - AT - Income Tax

Partnership Firm Registration Upheld for Business Continuation in ITAT Appeal

Income-Tax Officer. Versus Tirumalai Traders.

The Appellate Tribunal ITAT Hyderabad-B dismissed the revenue's appeal, upholding the registration granted to the reconstituted partnership firm for the ... A Partner, Assessment Year, Business Assets, Equity Shares, Partnership Firm Issues:Granting registration to a reconstituted partnership firm for the assessment year 1981-82.Analysis:The appeal before the Appellate Tribunal ITAT Hyderabad-B was regarding the registration granted to a reconstituted partnership firm for the assessment year 1981-82. The firm was initially constituted with five partners carrying on various businesses, including trading in cotton and building construction. However, there was a reconstitution of the firm in the previous year, where a private limited company was admitted as a partner with a 60% share. The firm had no income from business for the assessment year 1981-82, only rental receipts, and declared a net loss. The Inspecting Assistant Commissioner contended that the firm was not genuine as it was formed only to transfer the business to the private limited company. On appeal, the Commissioner (Appeals) granted registration, stating that there was only a temporary pause in business activities. The revenue argued that since no business was conducted in the assessment year and rental income alone cannot constitute a business, the firm did not meet the criteria for registration. The Tribunal noted that the firm was constituted to carry on the existing business of trading in cotton, which was later taken over by the private limited company. The Tribunal upheld the registration, emphasizing that the partners were engaged in promoting the business even though there was a pause in income generation during the previous year. The Tribunal agreed with the Commissioner (Appeals) that the firm was genuine and entitled to registration, confirming the registration granted.In conclusion, the Appellate Tribunal ITAT Hyderabad-B dismissed the appeal by the revenue, upholding the registration granted to the reconstituted partnership firm for the assessment year 1981-82. The Tribunal emphasized that the firm was genuine as it was constituted to carry on the existing business, which was temporarily paused for the transfer to the private limited company. The Tribunal highlighted that the partners' involvement in promoting the business, even during the pause in income generation, indicated the genuineness of the firm. The Tribunal affirmed the decision of the Commissioner (Appeals) and confirmed the registration of the partnership firm.