1986 (3) TMI 136 - AT - Income Tax

Firm Registration Denied Due to Invalid Post-Retirement Agreement

Income-Tax Officer. Versus Santhosh Wines.

Income-Tax Officer. Versus Santhosh Wines. - ITD 018, 061, Issues:Registration of the firm under section 185(1)(a) of the Income-tax Act, 1961.Analysis:The appeal concerns the registration of a firm constituted under a partnership deed. Initially, the firm consisted of five partners, including four ladies and one male partner. A subsequent agreement was executed where the male partner expressed his desire to retire, and his share was to be taken over by one of the lady partners with retrospective effect. The Income Tax Officer (ITO) rejected the registration application, citing discrepancies in the apportionment of profit and loss not in line with the partnership deed. On appeal, the Appellate Assistant Commissioner (AAC) allowed registration, emphasizing that the losses were properly allocated as per the partnership instruments. The revenue appealed this decision.The departmental representative argued that a new partnership deed should have been executed upon the male partner's retirement, which was not done. He contended that the agreement executed post-retirement cannot have retrospective effect and does not constitute a valid partnership deed. The counsel for the assessee maintained that the change in the firm's constitution did not affect its genuineness, and the existing partners were entitled to sign the registration application. The Tribunal analyzed the situation and held that the retrospective effect given in the agreement was not valid, and the profit/loss allocation did not adhere to the original partnership deed. Drawing parallels with a Gauhati High Court case, the Tribunal concluded that the agreement did not serve as a new partnership deed, rendering the firm ineligible for registration.The Tribunal found that the agreement post-retirement did not serve as a valid partnership deed and could not have retrospective effect. The allocation of profits/losses did not align with the original partnership deed, leading to the rejection of the registration application. Citing a Gauhati High Court case, the Tribunal emphasized the importance of adhering to the terms of the original partnership deed for registration eligibility. The Tribunal reversed the AAC's decision and upheld the ITO's refusal to grant registration to the firm.In conclusion, the Tribunal disallowed the registration of the firm due to discrepancies in the post-retirement agreement, which did not conform to the original partnership deed. The retrospective effect given in the agreement was deemed invalid, and the profit/loss allocation was not in accordance with the partnership terms. The Tribunal's decision was based on the principle that a valid partnership deed must govern profit-sharing and other aspects for registration eligibility.