Decided on February 10,1971



Sriramulu, J. - (1.) THESE two references are made by the Hyderabad Bench of the Income-tax Appellate Tribunal, at the instance of two different assessees under Section 256(1) of the Income-tax Act, 1961. The question referred to us, for our opinion, in both the cases is : " Whether, on the facts and in the circumstances of the case, the assessee-firm was entitled to registration for the assessment year 1963-64, under Section 185 of the Income-tax Act, 1961 ?"
(2.) SINCE a common question of law arose on similar facts in both the cases, common arguments were addressed. Hence, it is convenient to dispose them of by a common judgment, although the assessees are different in both the cases The material facts giving rise to these references are : Consequent upon the death of Lasraj Khummaji, one of the four partners of M/s. Khummaji Milapchand and Co. (in R.C. No. 65 of 1968) and M/s. Sokalchand Indermal and Co., (in R.C. 82 of 68), on September 17, 1961, the assessee-firms were reconstituted by instruments of partnership dated April 17, 1962, by the admission of the three minor sons of Lasraj Khummaji, viz., jeevaraj, Indermal and Chandramal, to the benefits of partnership. Some other changes in the constitution of the firms were also effected, but those changes have no bearing on the question referred to us. The amount standing to the credit of the deceased partner, Lasraj Khummaji, in the account books of the previous firm on the last Diwali, i.e., November 8, 1961, was treated as the capital of the three minor sons, who were admitted to the benefits of the partnership of the assessee-firms. Clause 7 of the instruments of partnership of the re-constituted firms specifying the shares of the partners read thus ; Clause 7 : " The accounts of the firm will be closed by the end of every Deepavali year and partner No. 3, Jeevaraj, Indermal and Chandramal (being minors) is entitled to share in the profits only and the other partners will share profits and losses in the proportions set out against the name of each partner after setting apart Rs. 0'06 profits for go out (sic) of Rs. 1.06 nP. In R. C, No. 65/68 Clause 7: The accounts of the business shall be closed at the end of every Deepavali year and the profits or losses (the minor partners arc entitled only for profits), as the case may be, divided, equally between the partners after setting apart anna one share out of one rupee towards charity. " Both the firms applied to the Income-tax Officer, under Section 185 of the Income-tax Act, 1961, for the grant of registration for the assessment year 1963-64. The Income-tax Officer granted registration to the assessee-firms.
(3.) ON examining the records of the proceedings of the Income-tax Officer, the Commissioner of Income-tax was of the view that the grant of registration to the assessee-firms was not in accordance with law and was prejudicial to the interests of the revenue and, therefore, after issue of notice to the assessee-firms and after hearing them cancelled the orders of the Income-tax Officer granting registration to the assessee-firms and directed the Income-tax Officer to make assessments according to law. Aggrieved by the orders of the Commissioner of Income-tax cancelling registration, the assessee-firms filed appeals to the Income-tax Appellate Tribunal. The Appellate Tribunal sustained the orders of the Commissioner of Income-tax, but on only one ground that there is non-specification of the individual shares of the three minors (who were admitted to the benefits of the partnerships) in the profits of the business. At the instance of the assessees, the Hyderabad Bench of the Incometax Appellate Tribunal referred the above mentioned question for our opinion under Section 256(1) of the Income-tax Act, 1961 (hereinafter called "the 1961 Act").;

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