Decided on February 25,1994



T.V. RAJAGOPALA RAO, JUDICIAL MEMBER - (1.) THIS is an assessee's appeal for assessment year 1984-85 filed against the order dated 19-10-1990 passed by the Deputy Commissioner of Income-tax (Appeals), Vijayawada, dismissing the assessee's appeal and confirming refusal of registration under Section 185(1)(b) of the Income-tax Act, 1961. The facts of this case are as follows :
(2.) The assessee is a firm which deals in chemical fertilisers, pesticides, etc. Originally it was formed under the instrument of partnership deed dated 21-6-1980 made effective from 15-6-1980. There are three partners with the following profit sharing ratios marked against each : (1) Katta Ramakoteswara Rao 34% (2) Puddu Subramanyam 33% (3) Gadamsetty Subba Rao 33% The said partnership is a partnership at will. According to the revenue, Shri Katta Ramakoteswara Rao retired from the firm on 2-7-1983 on which date another partnership was drawn up inducting two new partners, namely, Sri Gadamsetty Satyanarayana and Shri Duddu Hanumantha Rao having the profit sharing ratios shown against each of their names as under : (1) Sri Duddu Subramanyam 35% (2) Sri Gadamsetty Subba Rao 35% (3) Sri Gadamsetty Satyanarayana 14% (4) Sri Duddu Hanumantha Rao 16% The latter firm filed Form Nos. 11 and 11A on 2-9-1983 along with the original partnership deed dated 2-7-1983 and also along with a true copy thereof seeking registration of their firm for assessment year 1984-85. According to the assessee, the previous year of the assessee-firm is the year ending with 31 -3-1984. In the application for registration it is stated that Sri Gadamsetty Satyanarayana and Shri Duddu Hanumantha Rao have been admitted to the partnership with effect from 1-4-1983 and, therefore, the new partnership carried on its business from 1-4-1983 to 31-3-1984 and since there are four partners in the partnership firm which was reconstituted, the assessee is entitled to initial registration under Section 185(1)(b) was in short the contention of the assessee. The contention of the revenue on the other hand, was that the reconstituted partnership under the partnership deed dated 2-7-1983 comes into effect only prospectively that is from 2-7-1983 itself. There was no earlier oral agreement among the four partners to the said deed under which they carried on the business as a partnership firm with effect from 1-4-1983. Therefore, when the partnership deed itself came into existence on 2-7-1983, it cannot be taken or there is no evidence on record to establish that the partnership came into existence even from 1-4-1983. Therefore, the earlier partnership dated 21-6-1980 continued upto 2-7-1983. When that is the correct position, from 1-4-1983 to 2-7-1983, it is only the old firm which was doing business and not the new firm comprised of four partners. The Income-tax Officer therefore, held that no genuine firm had come into existence from 1-4-1983 with'the constitution specified in the partnership deed dated 2-7-1983 and, therefore, the assessee-firm cannot be granted registration. Thus the registration sought for was refused by the Income-tax Officer by his order dated 25-2-1987. Aggrieved against those orders, the assessee went in appeal before the Deputy Commissioner (Appeals), Vijayawada. The Deputy Commissioner (Appeals) by his impugned orders confirmed the order of the Income-tax Officer refusing registration. Hence this second appeal made by the assessee. I have heard Shri M.J. Swamy and Shri D. Manmohan, the learned advocates for the assessee and Shri B. Rama Rao, the learned Departmental Representative.
(3.) THE assessee filed a paper book containing 10 pages before this Tribunal. THE learned Counsel for the assessee submitted that the whole case of the assessee was put forward in an application addressed to the Income-tax Officer dated 24-2-1987 a copy of which is marked at page 6. On 12-2-1987, the Income-tax Officer gave a notice to the assessee to prove the genuineness of the firm. He posted the case on 23-2-1987 for enquiry. On the same day, the above petition was filed explaining the case of the assessee before the Income-tax Officer. In the said petition, it is made very clear that the assessee-firm was formed by the partnership deed dated 21-6-1980 and it had carried on business upto 31-3-1983, that is comprised of three partners, that on 1-4-1983 one of the partner, namely, Shri Katta Ramakoteswara Rao retired from the firm relinquishing his interest and two other partners, namely, Shri Gadamsetty Satyanarayana and Sri Gadamsetty Hanumantha Rao were admitted as partners of the firm from 1 -4-1983 and they along with the two old partners entered into an oral partnership which was subsequently reduced into writing in the partnership deed dated 2-7-1983 filed before the Income-tax Officer together with the application for registration for assessment year 1984-85. In the partnership deed dated 2-7-1983, by mistake it was stated that Shri Katta Ramakoteswara Rao retired from the firm with retrospective effect from 1 -4-1983 and the reconstituted partnership shall be deemed to have commenced business from 1 -4-1983. In fact Shri Katta Ramakoteswara Rao retired from 1-4-1983 and the two other partners are taken as new partners into the firm on 1-4-1983 itself. Thus the position would be made very clear if a copy of the retirement deed dated 10-7-1983 entered into by Shri Katta Ramakoteswara Rao is perused which is filed along with the petition. THE retirement deed is in Telugu and it is furnished at pages 7 to 9 of the paper book. It is executed on non-judicial stamp papers of Rs. 5 worth. It is executed on 10-7-1983. It is stated in the preamble that Shri Katta Ramakoteswara Rao, Sri Daddu Subramanyam and Shri Gadamsetty Shubba Rao together entered into a partnership deed on 21-6-1980 and carried on business in chemicals, fertilisers and pesticides in Addanki under the name and style of Hanuman Traders. THEy did business upto 31-3-1983. Subsequently Shri Katta Ramakoteswara Rao expressed his desire to retire from the partnership for which the remaining two partners had agreed. For the business carried on from 21-6-1980 to 31-3-1983, the debts and liabilities were agreed to be taken over by the remaining two partners. Hereafter the retiring partner has nothing to do with the stocks as well as the debts and liabilities of the firm which carried on the business from 21-6-1980 to 31-3-1983. THE remaining two partners are at liberty to continue the same business under the same caption either by themselves or by enlisting some other persons. Sri Katta Ramakoteswara Rao agreed to retire from the business after accepting whatever amount that is remaining in his account in the books of the firm on 31-3-1983. Hitherto, the books of the firm used to be with Shri Katta Ramakoteswara Rao and they were agreed to be handed over to the remaining two partners under the stipulation of the retirement deed. Thus, the learned Counsel for the assessee contended that in-fact from 1-4-1983, the remaining two partners of the old firm after enlisting two new partners, began carrying on the business originally under an oral agreement which was subsequently reduced to writing under the partnership deed dated 2-7-1983. Thus under the new partnership deed it conducted business right from 1-4-1983 to 31-3-1983 and, therefore, the assessee is entitled to registration. THE learned Counsel also argued that the recitals of the partnership deed dated 2-7-1983 are quite in accordance with the terms of the retirement deed dated 10-7-1983. THE learned Counsel submitted, however, that the words that Sri Katta Ramakoteswara Rao retired from the business with retrospective effect from 1-4-1983 which was found mentioned in para 2 of the preamble portion of the deed dated 2-7-1983 is only a typographical mistakes. THEre is no question of Katta Ramakoteswara Rao retiring from partnership with retrospective effect from 1-4-1983. In fact he retired from the business on 31-3-1983 itself as was clearly mentioned in his retirement deed. So also, the words that the business of partnership shall be deemed to have commenced with retrospective effect as and from 1-4-1983 mentioned in para 3 of the partnership deed dated 2-7-1983 are also typographical mistakes. THEre is no question of the business deemed to be continuing with effect from 1-4-1983. In fact the business of the reconstituted firm began from 1-4-1983.;

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