Decided on November 30,1994



Moksh Mahajan, Accountant Member - (1.) THE order of the learned Commissioner of Income tax (Appeals) for assessment year 1982-83 whereby the order of the Assessing Officer passed under Section 185(1)(b) whereby refusal of registration was confirmed, has been challenged by the assessee.
(2.) Shri C.S. Aggarwal who appeared on behalf of the assessee submitted that the assessee's claim for registration was refused on the ground that there was no genuine firm in existence for the various reasons as discussed in the assessment order passed under Section 143(3) in the case of the assessee for the aforesaid assessment year. According to the Assessing Officer, it was the assessee who carried on wholesale business in sarees, the income of which was diverted to the trust M/s. K.C. Dilip Kumar Pvt. Family Specific Trust. The learned CIT (Appeals) on the other hand was of the view that the profits earned were not distributed in accordance with the constitution so specified in the deed of partnership. This was for the reason that the income shown in the hands of the trust was held to belong to the assessee-firm. Another reason stated for disallowing the claim of registration was that the part of the profits was not divided or credited in the manner shown in the Application Form No. 11. This was supported by the decision of the Supreme Court in the case of Khanjan Lal Sewak Ram v. CIT [1972] 83 ITR 175. In fact, argued the learned A.R.. the profits shown in the hands of the trust belonged to it and as such were not assessable in the hands of the assessee-firm. The decision of the Supreme Court in the case of Khanjan Lal Sewak Ram (supra) was delivered under the old Act of 1922 where the provisions were different from that of Act, 1961. Apart the aforesaid case pertained to renewal of registration and not the fresh registration as is the case of the assessee. As per the provisions of Sections 184 and 185, there is no requirement for the profits to be distributed as per the ratio laid down in the partnership deed. What is required is that the firm is validly constituted and is genuine. As there is no conclusive evidence to show that the firm was not genuine, the registration was wrongly refused. In support the reliance was placed on various case laws. The learned Departmental Representative on the other hand, heavily supported the order of the CIT (Appeals). It was argued that it was proved beyond doubt that the income shown in the hands of the trust actually belonged to the assessee-firm and as such the entire profits were not distributed as per the share ratio specified in the partnership deed. Considering that this was the year of initial registration, the Assessing Officer was well within his right to enquire into the genuineness of the firm and then refused the registration. The ratio in the case of Khanjan Lal Sewak Ram (supra) squarely applies to the case of the assessee whereas the other cases cited are distinguishable. In the circumstances there is no merit in the arguments of the learned AR that the assessee's claim for registration was wrongly rejected. Various decisions were relied upon.
(3.) WE have considered the rival submissions. Examining the assessee's claim under the 1961 Act, we find that a firm may be assessed as registered or to be treated as unregistered one. An application for registration is to be made under Section 184 and the procedure to be followed on receipt of application, is contained in Section 185 of the Act. As per the provisions prevailing at the relevant point of time, the essential conditions are- (a) an application to be made on behalf of the firm. This has to be as per rules 22 to 24 of the Income-tax Rules, 1962. As per these rules, the application has to be filed either in Form No. 11, Form No. 11A or Form No. 12A as the case may be, for registration or for continuation of registration; (b) the firm is to be evidenced by instrument of partnership deed; and (c) partnership is to be valid and genuine and should be constituted as specified in the instrument.;

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