1973 (8) TMI 22 - HC - Income Tax

Partnership Deed Extension Upheld, Firm Registration Valid under Income-tax Act

The High Court determined that the partnership deed dated May 23, 1961, did not establish a new partnership but rather extended the existing one beyond ... Partnership Deed - Fresh deed was executed before the end of the term of the old partnership - Whether fresh registration would be necessary when there is no change in constitution - Whether, on the facts and in the circumstances of the case, the assessment for the assessment year 1962-63 after granting registration to the assessee-firm was wrong in law, as held by the Commissioner and the Tribunal - answer the reframed question in the negative, in favour of the assessee and against the department. I hold that, on the facts and in the circumstances of the case, the assessment was correctly made by the Income-tax Officer on grant of registration to the assessee-firm in accordance with section 184(7) of the 1961 Act Issues Involved:1. Whether the instrument of partnership dated May 23, 1961, brings into existence a new partnership.2. Whether the registration was correctly annulled in the circumstances of the case.Detailed Analysis:Issue 1: Whether the instrument of partnership dated May 23, 1961, brings into existence a new partnership.The Tribunal had concluded that the partnership deed dated May 23, 1961, constituted a new partnership due to changes in the terms of the partnership. However, the High Court found that there was no change in the personnel or the shares of the partners between the original partnership deed dated May 31, 1956, and the new deed. The High Court noted that the changes in terms were not substantial enough to create a new partnership. The new deed was executed to extend the partnership beyond its original five-year term, which was permissible under section 17(b) of the Partnership Act. Thus, the High Court held that the new deed did not bring into existence a new partnership but merely continued the old one.Issue 2: Whether the registration was correctly annulled in the circumstances of the case.The Commissioner of Income-tax had annulled the registration of the firm on the grounds that a new partnership deed required a fresh application for registration under the Income-tax Act, 1961. The Tribunal upheld this decision, but the High Court found that both the Commissioner and the Tribunal had misapplied the law. The High Court emphasized that under section 184(7) of the 1961 Act, once registration is granted, it continues for subsequent years unless there is a change in the constitution of the firm or the shares of the partners. Since there was no such change, the requirement for renewal under the new Act was fulfilled by filing the correct form (Form No. 12). The High Court concluded that the annulment of the registration was incorrect, and the assessment made by the Income-tax Officer was valid.Conclusion:The High Court held that the assessment for the assessment year 1962-63, after granting registration to the assessee-firm, was not wrong in law. The Tribunal and the Commissioner had erred in their interpretation, and the registration granted for the year 1961-62 should continue under the 1961 Act. The High Court answered the reframed question in the negative, in favor of the assessee, and against the department, stating that the assessment was correctly made by the Income-tax Officer. The assessee was awarded costs of the reference, with a hearing fee assessed at Rs. 100.