- (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order, dated October 10, 1980, for the assessment year 1977-78 under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income-tax Officer was not justified in refusing registration to the firm ?"
(2.) THE brief facts of the case are that the assessee is a partnership-firm consisting of the following five partners : JUDGEMENT_277_ITR211_1995Html1.htm The Income-tax Officer found that the profits as per the partnership deed were not divided amongst the parties and the division was only to the extent of 63 per cent. without there being any provision or mention in respect of the remaining 37 per cent. share of profits. The assessee was given an opportunity to explain as to why the registration should not be refused. It was contended by the assessee before the Income-tax Officer that the firm was constituted of six partners and Shri Mohanlal Kalidas was having 37 per cent. of the share. He retired from the business on November 6, 1972, and, therefore, the share to his profit was proportionately increased in the remaining partners. The Income-tax Officer rejected the contention of the assessee and the registration was refused. In the appeal preferred before the Appellate Assistant Commissioner, it was found that the genuineness of the firm has not been doubted and all the formalities which were required to be completed under Section 184 have been complied with. The profits have been divided amongst the partners in accordance with the deed of partnership and the only difference was that instead of 100 per cent. the entire profits have been divided among the remaining partners having the share of 63 per cent. Thus, the entire profits were divided and the registration was allowed. In the second appeal before the Income-tax Appellate Tribunal, the Tribunal found that the total profit according to varied shares have been divided. Reliance was also placed on the decision of the Andhra Pradesh High Court in the case of CIT v. Hyderabad Stone Depot [1977] 109 ITR 686 [FB]. Since the share of all the partners in the profits and losses was divided, the order of the Appellate Assistant Commissioner was upheld. We have considered the matter. The genuineness of the firm is not in dispute nor has it been pointed out that there is any other objection. After the retirement of Mohanlal Kalidas who was having 37 per cent. of the share, the remaining partners who were having 63 per cent. share, were credited with the profit in the ratio between the partners which was 63 per cent. The result of this division of profit was that the entire profit was distributed between these partners and the alleged undivided share of 37 per cent. came to the share of these five partners in the ratio of the share of profit and thus there was a division of the complete profit. In these circumstances, it cannot be said that the profits in accordance with the deed of partnership have not been distributed. Accordingly, we are of the opinion that the Income-tax Appellate Tribunal was right in holding that the Income-tax Officer was not justified in refusing registration to the firm.
(3.) THE reference is answered in favour of the assessee and against the Department with no order as to costs.;