TaxTMI 
TaxTMI 
1962 (6) TMI 56
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment year 1956-57. The assessee is a firm of two partners each having an equal share, constituted under an instrument of partnership dated November 15, 1955. It applied for registration of the firm under section 26A of the Income-tax Act for the said assessment year but the department refused to grant registration on the following two grounds: "(1) The divisible profits of the firm were not wholly divided between the two partners and, therefore, the rules of registration were not fully complied with by the assessee in that respect; and (2) A portion of the profits carried to the charity account amount to distribution of profits among others than those who are partners of the firm." This order of the assessing authority wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stributing them in the year of assessment would incur the consequence of rejection of registration. Section 26A, which deals with registration of firms, runs as follows: "(1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed, and it shall be dealt with by the Income-tax Officer in such ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctions A and B. Section A has to contain particulars of the firm as constituted at the date of application and Section B has to contain the particulars of the apportionment of the income, profits or gains (or loss) of the business in the previous year between the partners who in that previous year were entitled to share therein. Rule 6 makes provision for the certificate of registration to be renewed for a subsequent year on an application made in that behalf in accordance with the preceding rules: "To The Income-tax Officer,... 1. We...beg to apply for the renewal of the registration of our firm under section 26A of the Indian Income-tax Act, 1922, for the assessment for the income-tax year.... 3. We do hereby further certify th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofit and loss at least once in every year after the commencement of the business by our firm and the resulting net profit or loss shall be adjusted in equal shares to the accounts of the partners." Clearly, the instrument of partnership contemplates the division of all the profits and it leaves no scope for the carrying of any portion of the profits to the next year's account. In that situation, the denial of registration of the firm by the department could not be regarded as erroneous. In support of the proposition enunciated by Sri Ranganathachari that it was not necessary that all the divisible profits should be divided amongst the partners in the accounting year itself and it was enough if they could be divided at a later dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....certificate given was that the profits of the assessment year would be actually divided or credited and, since no time was fixed under the certificate for division of profits, failure to divide them within a particular time was not considered fatal to the registration of the firm. Thus, the situation there is dissimilar to that arising under the relevant rules and the statutory provision here. Chhotalal Devchand v. Commissioner of Income-tax [1958] 34 I.T.R. 351 does not come to the rescue of the assessee either. The question that fell to be considered in that case was whether it was the two firms of the constituent members thereof that entered into partnership with an individual and whether the partnership so constituted was a valid partn....