- (1.) The Tribunal, New Delhi, has referred the following question of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as 'the Act') for opinion of this Court: Whether the Hon'ble Tribunal was correct in law in granting registration to the assessee-firm holding that a genuine firm has come into existence whereas the constitution as specified in the instrument of partnership has not been given effect to inasmuch as the profits were not shared by the three partners only but also by other three persons ?
(2.) The reference relates to the asst. yr. 1982-83. Briefly stated, the facts giving rise to the present reference are as follows: Respondent-assessee (hereinafter referred to as the 'assessee') has constituted a partnership vide partnership deed dt. 19th Oct., 1980 consisting of three partners having shares in profit and loss of 50 per cent, 40 per cent and 10 per cent, respectively, arising out of the business of purchase and sale of sarees in wholesale. Application for registration along with original partnership deed was filed on 16th March, 1981. ITO refused the registration on the following two reasons: (a) that assessee-firm did purchase and sale of cloth on wholesale basis and no business activities of the so-called trust were there. Even so-called trust M/s K.C. Dalip Kumar Kali Charan Family (specified trust) divided amongst so-called beneficiaries of the said trust, profit derived by their respective partners from the assessee's firm. (b) That it was an attempt to evade tax by using false representation to obtain an unjust advantage on account of non-production of original account books. The account books produced before me were rewritten which were impounded by me, in IT Department, registration is a privilege and a legal device to reduce its tax liability. The order of ITO has been confirmed by the CIT(A). Assessee further filed appeal before the Tribunal, which was allowed. Tribunal held as follows: 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 IT 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. In the case of the assessee it is not disputed that the firm is validly constituted. The dispute is only with regard to the distribution of the profits which according to the Department, have not been made as per the shares specified in the partnership deed. In this context we find that while Section 184 speaks of the individual shares of the partners being specified in the instrument, Section 185 talks of the power of the AO to enquire into the genuineness of the firm. Form No. 11 which is relevant in the case of the assessee requires the following declaration to be made by the partners:
(3.) We hereby declare that none of the partners of the firm was, at any time during the previous year upto the date of this application, in relation to the whole or any part of his share in the income or property of the firm, a benamidar of any other partner to whom he is not related as spouse or minor child.;