Om Prakash, J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (briefly "the Act, 1961"), by the Income-tax Appellate Tribunal, Allahabad Bench, which at the instance of the assessee has referred to this court the following question for our opinion : "Whether, on the facts and in the circumstances of the case, the registration already granted to the assessee was rightly cancelled under Section 186(1) of the Income-tax Act, 1961 ?"
(2.) THE assessee, a firrn constituted under a deed of partnership dated December 29, 1967, came into being with effect from December 11, 1967, with the following constitution : JUDGEMENT_119_ITR170_1988Html1.htm Pawan Kumar was a minor when the aforesaid deed was executed and, therefore, he was simply admitted to the benefits of the partnership. He was not liable to share losses. The firm was granted registration for the assessment year 1969-70 and the registration was continued for the next following years till the assessment year 1975-76 on the basis of declaration filed in Form No. 12 by the firm. For the assessment year 1976-77 also, the assessee-firm filed a declaration in Form No. 12 on June 29, 1976, along with the return. The Income-tax Officer, however, discovered that Pawan Kumar whose date of birth was September 19, 1951, attained majority on June 19, 1969, and that the partnership deed dated December 29, 1967, did not contain any provision as to how the losses would be distributed after the minor attained majority. He also noticed that no Form No. 11A indicating change in the share ratio in. losses was filed by the assessee. As the partners had unequal shares in profits and losses of the firm, the Income-tax Officer took the view that the assessee-firm was not entitled to registration in the absence of the redistribution of shares in losses being shown in the partnership deed. He, therefore, by the impugned order purportedly passed under Section 186(1) of the Act, 1961, held that "the continuation of registration granted in earlier year is refused in the assessment year 1976-77".
(3.) THE assessee appealed to the Appellate Assistant Commissioner who accepted the contention of the assessee that the registration could not be cancelled under Section 186(1) on the facts and in the circumstances of the case and he, therefore, annulled the Income-tax Officer's order. He held that registration can be cancelled only on the ground that there was no genuine firm in existence, that Section 186 cannot be invoked when the firm in fact remained in existence and that the registration cannot be cancelled merely on the ground that no codicil was filed after the minor had become a major. The Revenue then appealed to the Tribunal. Relying on the decision of the Supreme Court in the case of R. C. Mitter andamp; Sons v. CIT [1959] 36 ITR 194, the Tribunal took the view that the assessee had failed to fulfil condition No. 5 as laid down by the Supreme Court and, therefore, there was no genuine firm in existence with the constitution specified in the instrument of partnership. It was also held that there was no provision for the distribution of losses amongst the partners when Pawan Kumar attained majority and elected to be a full-fledged partner. In the absence of any new partnership deed having been filed after the minor attained majority, the Tribunal held that Sri Pawan Kumar continued to be a partner only to enjoy the benefits of the partnership and that such a situation was contrary to law, inasmuch as no major partner could be admitted only to the benefits of the partnership. The Tribunal was of the view that when a minor attains majority, either the original partnership deed or a supplementary deed should have spelled out as to how the losses would be shared amongst the partners. The Tribunal, therefore, took the view that there was no genuine firm in existence during the previous year relevant to the assessment year 1976-77. The order of the Appellate Assistant Commissioner was, therefore, reversed and that of the Income-tax Officer was restored by the Tribunal.;