V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated October 30, 1981, under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1974-75 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-firm is entitled to registration ?"
(2.) THE brief facts of the case are that the firm, Messrs. Ramchandra Udhavdass, was constituted by a deed dated February 5, 1972, consisting of Ramchandra, Udhavdass and Gurnamal sharing the profits and losses at 40 per cent., 35 per cent. and 25 per cent., respectively. THE registration for the assessment year 1973-74 was granted by the Income-tax Officer. THE firm follows the calendar year as its previous year. Ramchandra expired on July 24, 1973, and, therefore, in accordance with the provisions of Clause 7 of the partnership deed dated February 5, 1972, Smt. Sakhi Bai was admitted as a partner with effect from July 25, 1973, in place of Ramchandra. THE new deed of partnership was executed on August 21, 1973. THE Income-tax Officer granted registration to the firm under Section 185(1) of the Income-tax Act, 1961, on March 22, 1976. Later on, proceedings under Section 186(1) of the Act were initiated, as the Income-tax Officer found that in the return filed by the firm for the assessment year 1974-75 on July 1, 1974, the profit for the period from January 1, 1973, to December 31, 1973, has been distributed to Ramchandra, Udhavdass and Gurnamal. Since the profit up to July 24, 1973, the date on which Ramchandra expired, was not worked out and the entire profit up to December 31, 1973, was credited to the account of Ramchandra without making any entry in the account of Smt. Sakhi Bai, the new partner, the profits were considered as not divided in accordance with the terms of the partnership deed for the assessment year 1974-75. A notice was issued to the assessee on March 12, 1979, for cancellation of the registration earlier granted. THE assessee filed its reply and it was submitted that the books of account were not closed on July 24, 1973, and the firm was not dissolved on the death of Ramchandra and only Smt. Sakhi Bai was taken in his place as partner. THE share of Sakhi Bai was posted in the old account of Ramchandra and was also posted in a separate account named as Ramchandra Sakhi Bai. It was also submitted that because the profit of the firm could have been ascertained only on the last day, i.e., December 31, 1973, therefore, on the death of Ramchandra, his legal heir, Smt. Sakhi Bai, was the owner of the share of the profit. THE Income-tax Officer found that there is no account in the name of Sakhi Bai in the books of account and the entire amount of profit has been credited in the account of Ramchandra Sakhi Bai. According to the Income-tax Officer, the entire profit could not have been credited to the account of Ramchandra since she was not a partner for the whole of the year. A copy of the accounts as existing in the books of account for the assessment years 1973-74, 1974-75, 1975-76 and 1976-77 was also submitted. Since the profit for the assessment year 1974-75 was not divided and credited to the account of Sakhi Bai, the Income-tax Officer was of the view that the profit was not divided amongst the partners in accordance with the share specified in the deed of partnership and, therefore, the assessee-firm cannot be said to have been genuinely constituted as per the partnership deed. THE registration which was granted under Section 185 was cancelled and the firm was treated as an unregistered firm. The appeal before the Appellate Assistant Commissioner was dismissed. In second appeal before the Income-tax Appellate Tribunal, it was found that the account of Ramchandra had been closed by transferring a sum of Rs. 37,660.60 to the account of Smt. Sakhi Bai and the share of profit was only to the extent of Rs. 14,074.24 for the period from July 25, 1973, to December 31, 1973, and the amount of Rs. 37,660.60 was sufficient to include the profit of Sakhi Bai. The rest of the amount was distributed to Sakhi Bai and her sons as heirs of Ramchandra. A finding was recorded by the Tribunal that "on the facts it is difficult to hold that the firm became non-genuine for the assessment year 1974-75 and not for the subsequent years". The Tribunal came to the conclusion that it was only crediting the amount of profit due to Sakhi Bai in the wrong account and as such the orders passed by the Income-tax Officer and the Appellate Assistant Commissioner were set aside. We have considered the matter. In the present case, the dispute is as to whether the firm was not genuine and, therefore, was not liable for registration. Basically, this is a question of fact and a finding has already been recorded by the Income-tax Appellate Tribunal in favour of the assessee. On facts the dispute has arisen on account of not crediting the profit for the period from July 25, 1973, to December 31, 1973, in the account of Smt. Sakhi Bai. Clause 7 of the partnership deed dated February 5, 1972, reads as under : "Clause 7 of the deed dated February 5, 1972 : That the relationship between the partners will be governed by the Indian Partnership Act in force save and otherwise that on death or demise the partnership shall not be dissolved but shall continue to be carried on by the surviving partners and the legal representatives of the deceased." The firm was granted registration for the assessment years 1973-74 and 1975-76. It was on the basis of the above clause that the books of account were not closed on July 24, 1973, and the same set of books continued till December 31, 1973, in accordance with Clause 7 of the partnership deed and the partnership continued by the surviving partners and the legal representatives of the deceased. The share of Ramchandra could have been proportionately credited to his account or the account of his legal heirs, but the entire amount of Rs. 37,778.44 was credited to the account of Ramchandra. In the next year, i.e., 1975-76, a sum of Rs. 5,000 was withdrawn by Santosh Kumar, son of Ramchandra, and the balance amount of Rs. 37,660 was carried forward. In the assessment year 1976-77, Rs. 30,000 were withdrawn by Gurna Mal, son of Sakhi Bai, and Rs. 30,000 by Santosh Kumar and the balance amount of Rs. 37,660 was given to Sakhi Bai. Thus, the account was closed. There were minor factual disputes also with regard to the nature of the account and name, etc., which were ignored by the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal has come to the conclusion that unequal distribution of the amount between the legal heirs could not be a ground for considering the fact that the firm is not a genuine one. From the overall facts, it is found that it is neither a case of unequal distribution of profits or a case where profits have not been distributed in accordance with the instrument of partnership because the other partners, namely, Gurna Mal and Santosh Kumar, were entitled to receive the profit which they received and the third partner was entitled to the share in the profit from January 1, 1973, to July 24, 1973, and Sakhi Bai was entitled to the profit from July 25, 1973, to December 31, 1973. Instead of distributing the profit separately the amount was credited in one account only, may be because only one set of books of account was maintained. The finding which has been recorded by the Tribunal that the profit due to Sakhi Bai was credited to a wrong account would not disentitle the firm from registration. Even by subsequent events it was found that the profit which should have been distributed in accordance with the deed of partnership shall be deemed to have been distributed and it was only the balance amount standing in the account of Ramchandra which was distributed unevenly amongst the legal heirs and that fact did not affect the validity of registration. No question has been framed that the finding which has been recorded by the Tribunal is perverse. A finding of fact which has been recorded by the Tribunal has to be considered to be conclusive and on these facts we are of the view that the Tribunal was justified in holding that the assessee-firm was entitled to registration. Consequently, the reference is answered in favour of the assessee and against the Revenue. ;