GULATI, J. - (1.) THIS is a reference under S. 256(1) of the IT Act, 1961. The assessment year involved is 1968-69. The question relates to the registration of the assessee-firm for the assessment year in question.
(2.) AN HUF of one Harnarain Mal Bahal carried on business in Banarasi goods. A partial partition took place on 2nd Oct., 1957 and the business was taken over by a partnership constituted by the following three partners; 1. Harnarainmal Bahal, Father 2. Madan Gopal Bahal, son 3. Jai Gopal Bahal, son All the partners had equal shares Madan Gopal Bahal died on 28th June, 1961 and a new partnership-deed was executed on 14th July, 1961 between the remaining two partners and Brij Gopal, Bahal, the son of the deceased partner. Harnarainmal Bahal also died on 16th Dec., 1966. There was a clause in the partnership deed dt. 14th July, 1961 that the partnership shall not dissolve on the death of a partner. The business was thus continued by the remaining partners. On 4th Jan., 1967, another partnership deed was executed between the remaining two partners Jain Narain Bahal and Brij Gopal Bahal. There is the following recital in the preamble of this deed- "Whereas one of the partner Lal Harnarainmal Bahal died on 16th Dec., 1966 and as provided in para 11 of the Deed of partnership dt. 14th July 1961 the partnership firm did not dissolve on the death of the above mentioned partner and the business of the partnership was continued to be carried on by the remaining two partners Sri Jai Gopal Bahal and Sri Brij Gopal Bahal as equal partners on the terms agreed to between them w.e.f. 17th Dec., 1966.: The accounting year of the firm for the asst. yr. 1968-69 was the period between 10th Oct., 1966 to 11th Oct., 1967. The assessee claimed registration for the old firm for the period 10th Oct., 1966 to 3rd Jan., 1967 and not upto 16th Dec., 1966 when Harnarainmal Bahal died. For the remaining period i.e. 4th Jan., 1967 to the end of the relevant previous year an application for fresh registration for the firm was made showing two partners. Similarly, two separate returns were filed for these two periods. The ITO refused renewal of registration to the old firm on the ground that the firm could not be registered for a part of the year and since there was change in the constitution of the firm an application for registration should have been made for the entire year. He refused registration to the new firm on the ground that the partners had to divide the profits in accordance with the terms of the partnership deed dt. 4th Jan., 1967. The same view was taken by the AAC. It may be mentioned that before the AAC a rectification deed was produced which purported to say. That the recital that the partners had continued the business from 17th Dec., 1966 was a typing mistake for 4th Jan., 1967. This rectification deed was held to be a bogus document. The assessee then went in second appeal before the Tribunal. The Tribunal has also taken the same view. It has held that the old firm consisting the three partners including Harnarainmal deceased was not entitled to the renewal of the registration as the firm had continued in existence even after his death and an application for fresh registration should have been made by the reconstituted firm. The Tribunal also held that the profits had not been correctly divided between the partners inasmuch as profits upto 16th Dec., 1967 were to be divided between three partners including Harnarainmal deceased and the profits for the remaining period were to be dividend between the remaining partners who constituted the firm after the death of Harnarainmal instead the profits upto 3rd Jan., 1967 had been divided between the three partners, as if Harnarainmal continued to be apartner uptil then even though he died on 16th Dec., 1966. The Tribunal also took the view that the so called rectification deed was not a genuine document, and was merely an after though. At the instance of the assessee the Tribunal has referred the following question of law for the opinion of this Court :- "Whether on the facts and in the circumstances of the case the assessee firm was entitled to registration under S. 185(1) of the IT Act, 1961 for the asst. yr. 1968-69 ?" Sec. 184 deals with the registration of the firms. It provides that any firm which is constituted under an instrument of partnership specifying the individual shares of the partners may apply before the end of the previous year for registration in the prescribed from and if the ITO is satisfied about the genuineness of the firm he will register it. Sub-s. (7) deals with the renewal of registration and provides :- (7) Where registration is granted to any firm for any assessment year, it shall have effect from every subsequent assessment year :- Provided that :- (1) there is no change in the constitution of the firm or the shares of the partners as evidence by the instrument of partnership on the basis of which the registration was granted; and (ii) the firm furnishes along with its return of income for the assessment year concerned, a declaration to that effect in the prescribe form and verified in the prescribed manner.
(3.) SUB -s. (1) then provides that where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. Clearly in the instant case there was a change in the constitution of the firm during the relevant previous year when Harnarainmal died and the firm stood constituted by the remaining two partners. As such, the firm should have applied for fresh registration for the whole assessment year.;