Om Prakash, J. - (1.) FOLLOWING the direction given by this court under Section 256(2) of the Income-tax Act, 1961 (briefly, the Act), the Income-tax Appellate Tribunal referred the following questions relating to the assessment year 1976-77 for the opinion of this court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the evidence and material other than the partnership deed dated January 20, 1973, could be considered for ascertaining the shares of partners in profits and losses on the minor becoming major ?
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that Instruction No. 1161, dated April 4, 1973, issued by the Central Board of Direct Taxes was binding on the Commissioner of Income-tax while passing the order under Section 263 ? Whether, on the facts and in the circumstances of the case in view of the Allahabad High Court decision in Badri Narain Kashi Prasad v. Addl CIT [19781 115 ITR 858, the Tribunal was legally correct in modifying the order of the Commissioner of Income-tax dated September 7, 1978, under Section 263 and in directing the Income-tax Officer to make enquiry whether there was a change in the shares of the partners as evidenced by the partnership deed dated February 20, 1973, on the lines indicated in the Board's instructions and to decide the issue of continuance of registration afresh ?" The undisputed facts are that for the assessment year 1973-74, the assessee-firm was granted registration, vide order dated October 30, 1973. The assessment on the assessee-firm for the assessment year 1976-77 came to be completed on September 14, 1976, and on the basis of a declaration filed under Section 184(7) of the Act, the continuation of registration was allowed. In the said declaration one Munawar Hussain, a minor, who was admitted to the benefits of the partnership, was declared as a partner. 2. During the scrutiny of the case for the assessment year 1977-78, the Income-tax Officer noticed that Munawar Hussain was shown as major. It came to the notice of the Income-tax Officer that Munawar Hussain had attained majority on June 13, 1975, that is, during the previous year ending March 31, 1976, relevant to the assessment year 1976-77. 3. Following the decision of a Division Bench of this court in the case of Ganesh Lal Laxmi Narain v. CIT [1968] 68 ITR 696, the Commissioner of Income-tax took the view that when the minor admitted to the benefits of the partnership, attained majority and elected to continue as a partner in the firm, there was a change in the constitution of the firm within the meaning of Section 184(7)(i) of the Act, which according to the Commissioner of Income-tax should have been evidenced by a fresh partnership deed. The Commissioner of Income-tax being of the view that the grant of continuation of registration on the basis of the declaration furnished by the assessee, was erroneous, in so far as that was prejudicial to the interests of the Revenue, initiated proceedings under Section 263 of the Act. Relying on the Full Bench decision of this court in the case of Badri Narain Kashi Prasad v. Addl CIT [1978] 115 ITR 858, the Commissioner of Income-tax was of the view that "The redistribution of the shares in the loss on the minor attaining majority has also to be ascertained". He further held as follows (paragraph 6, page 16, of the paper book) : "Applying the ratio of the Full Bench, referred to above, it is, therefore, clear that the partnership deed dated 20th January, 1973, did not provide as to how the profits or losses would be divided amongst the partners after any of the partners becomes major. In this case, therefore, there was a change in the constitution of the firm when Sri Munavvar Hussain (minor) attained majority and, therefore, the assessee was not entitled to continuation of registration under Section 184(7)." (underlining by the court) This is how the Commissioner of Income-tax held that the Income-tax Officer's order granting continuation of registration is erroneous and prejudicial to the interests of the Revenue, He thus cancelled the order of the Income-tax Officer granting continuation of registration for the assessment year 1976-77 and directed the Income-tax Officer to treat the assessee in the status of unregistered firm for the purposes of assessment for the assessment year 1976-77.
(3.) THE Appellate Tribunal relying on the Full Bench decision in the case of Badri Narain Kashi Prasad [1978] 115 ITR 858 (All) held that when the minor admitted to the benefits of the partnership, attained majority and elected to continue as a partner of the firm that did not amount to a change in the constitution of the firm and, therefore, the assessee-firm was entitled to the grant of continuation of registration on the basis of the declaration, provided the Assessing Officer was satisfied in view of Instruction No. 1082 dated August 4, 1977, issued by the Central Board of Direct Taxes that the minor upon attaining majority did not agree to share the losses and the major partners of the assessee-firm continued to share the losses the same way, as they agreed to share the losses before the minor attained majority. THE Appellate Tribunal, in view of the aforesaid instruction, was of the view that it was the duty of the Assessing Officer to make inquiry into the fact whether the minor upon attaining majority agreed to share the losses and if so, whether the shares in losses as agreed upon in the original partnership deed, have undergone a change and that if upon such inquiry the Assessing Officer comes to the conclusion that the minor upon attaining majority did not agree to share the losses and the liability to share the losses of the major partners as evidenced by the original partnership deed, remained unaltered, then no fresh partnership deed was required to be executed. THE Appellate Tribunal taking the view that the aforesaid instruction of the Central Board of Direct Taxes was binding on the departmental authorities, modified the order of the Commissioner of Income-tax and directed the Income-tax Officer "to hold an inquiry as to whether there has been a change in the shares of the partners as evidenced by the instrument of the partnership . . . and then decide the issue of continuance of registration afresh in accordance with law." The clear finding recorded by the Commissioner of Income-tax is that "there was a change in the constitution of the firm, when Munawar Hussain 'minor' attained majority and, therefore, the assessee was not entitled to the continuation of registration under Section 184(7) ". Such finding was given by the Commissioner of Income-tax, because one of the minors admitted to the benefits of the partnership, attained majority during the previous year relevant to the assessment year 1976-77. The Appellate Tribunal was clearly of the view that on the facts and in the circumstances of the case, there was no change in the constitution of the firm. However, the Appellate Tribunal relying on Instruction No. 1082 dated August 4, 1977, issued by the Central Board of Direct Taxes was of the view that it was the duty of the Assessing Officer to satisfy himself whether the minor upon attaining majority agreed to share the losses and if so whether the shares in losses as evidenced in the original partnership deed, has undergone change. The Tribunal was of the view that if the minor after attaining majority agreed to share the losses with other partners then there would be a change in the share ratio of losses and that would require to be evidenced by a fresh partnership deed.;