Gujarat High Court
Harish Weaving Industries vs Commissioner Of Income-Tax on 7 August, 1991
Equivalent citations: [1992]194ITR274(GUJ)
JUDGMENT R.K. Abichandani, J.
1. The Income-tax Appellate Tribunal has referred to this court for opinion the following question under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act") :
"Whether, on the facts and in the circumstances of the case, the assessee-firm was entitled to registration for the period from December 28, 1971, to November 6, 1972, under the deed of partnership dated December 28, 1971 ?"
2. The assessee-firm originally consisted of two partners, namely, Chhotalal and Chhaganlal with 4 minors having been admitted to the benefits of the partnership. On December 28, 1971, a deed of dissolution was executed indicating that the said partnership was dissolved with effect from October 19, 1971. On the same day, a new partnership deed was executed showing that a new partnership between Chhaganlal and Natvarlal with 4 minors having been admitted to the benefits of the partnership had come into existence from October 28, 1971. An application for registration of the firm was made in Form No. 11 on April 25, 1972 for Samvat year 2028, i.e., for the period from October 28, 1971, to November 6, 1972. The partnership deed dated December 28, 1971, was relied upon by the firm to show that it came into existence from October 28, 1971. The Income-tax Officer, however, found that, though the new firm is purported to have come into existence from October 28, 1971, Chhotalal who is said to have retired from the partnership with effect from October 19, 1971, had continued to operate the bank account during the period from November 18, 1971, to December 30, 1971. The Income-tax Officer, therefore, held that he was not satisfied that there was a genuine firm in existence with the constitution as specified in the instrument of partnership dated December 28, 1971 and, accordingly, he refused registration to the firm in terms of section 185(1) of the said Act.
3. The Appellate Assistant Commissioner negatived the alternative plea which was put up before him that even if Chhotalal had continued to be a partner in the firm up to November 5, 1972, the benefit of registration should have been granted to the firm at least from January 6, 1972, up to November 5, 1972. The Appellate Assistant Commissioner rejected this plea relying upon the decision of the Calcutta High Court in CIT v. Kejriwal Traders [1969] 71 ITR 463 in which it was held that it was not permissible to break the periods of the accounting year and allow piecemeal registration. The Tribunal, on appeal, found that though the partnership deed dated December 28, 1971, recorded that the new partnership came into existence from October 28, 1977, the facts of the case indicated that that was not so and that the new partnership in fact came into effect from December 28, 1971, i.e., when the partnership deed was executed. The Tribunal, relying upon the decision in Kejriwal's case [1969] 71 ITR 463 (Cal), negatived the contention raised on behalf of the assessee-firm that, in any case, the benefit of registration should be granted to the assessee-firm for part of the accounting period, i.e., for the period from December 28, 1971, being the date on which according to the Tribunal the new firm was constituted, up to November 5, 1972. Section 184 of the said Act provides for application for registration of the firm for the purposes of the said Act. Such application may be made either during existence of the firm or after its dissolution as provided in sub-section (2) of section 184. The application is required to be in the prescribed form. The procedure to be adopted on receipt of such application is provided in section 185 of the said Act which requires that the Income-tax Officer on receipt of such application for registration of a firm shall enquire into the genuineness of the firm and its constitution as specified in the instrument of partnership and, if he is satisfied that there is or was, during the previous year, in existence, a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year. There is no indication in the provisions of section 184 or section 185 that registration can be granted only if the firm remains in existence throughout the previous year. On the contrary, the words, "there is or was during the previous year in existence" would indicate that even if a genuine firm has come into existence for any period during the previous year, it would be eligible to apply for registration. A person including a firm can start business at any time during the year and if a firm starts business in the midst of its accounting year, it cannot be said that it is ineligible merely for that reason to apply for registration under section 185 of the said Act. In Wazid Ali Abid Ali v. CIT [1988] 169 ITR 761, the Supreme Court, after analysing the provisions of sections 182 to 189 of the said Act contained in Chapter XVI thereof, held that the decision of the Tribunal that the assessee was entitled to the benefit of registration for a part of the previous year and that the total income in such case should be apportioned between the partners who were entitled to receive the profits accordingly as they were entitled to share the profits, the firm being assessed as a registered firm in respect of the profits ending on such date forming part of the previous year and as an unregistered firm in respect of the profits for the remaining part of the previous year, was a correct conclusion. The Supreme Court found that, where the firm was dissolved on the death of a partner, that would not make the registration up to the date of the death of the deceased partner invalid and the firm would be entitled to the benefit of registration. The Supreme Court held that it would in fact be just and equitable that such firm should have that limited benefit. The decision of the Supreme Court in Wazid Ali Abid Ali's case [1988] 169 ITR 761 clearly lays down the proposition that the benefit of registration can be granted to a firm even for a part of the previous year. This decision was followed by the Rajasthan High Court in CIT v. Mohammed Hussain Hassan Ali [1989] 175 ITR 18 in which it was held that it must be taken as settled that even where there is no dissolution of the firm on the death of a partner on account of a contract to the contrary in the deed of partnership, benefit of registration up to the date of death of the partner can be given under section 184(7) of the Act for a portion of the year, since the firm continued in the same capacity till the death of its partner. It was held that the earlier decision of that court in Udaipur Soap Factory v. CIT [1987] 167 ITR 613 to the extent that it was contrary to the decision of the Supreme Court in Wazid Ali's case [1988] 169 ITR 761 cannot be considered good law. In Addl. CIT v. Sunder Lal Banwari Lal [1985] 156 ITR 617 (Delhi) where the partner had died on March 3, 1965, it was held that the firm was entitled to registration from July 1, 1964 to March 3, 1965, i.e., for a portion of the accounting year. In view of the decision of the Supreme Court in Wazid Ali's case [1988] 169 ITR 761, the decision of the Calcutta High Court in CIT v. Kejriwal Traders [1969] 71 ITR 463 in which it was held that it was not permissible to break the periods of the accounting year and to allow piecemeal registration of the instrument of partnership under section 26A of the Indian Income-tax Act, 1922, is no longer good law. The observation of the Calcutta High Court that one would normally think that the instrument of partnership must be in existence for the whole of the accounting year and not for a part of the accounting year, which is sought to be inferred from the observations of the Supreme Court in R. C. Mitter and Sons v. CIT [1959] 36 ITR 194, is not warranted from the passage set out therein which is as follows (headnote) :
"The words 'constituted under an instrument of partnership' in section 26A of the Income-tax Act include not only firms which have been created by an instrument of partnership but also those which may have been created by word of mouth but have been subsequently clothed in legal form by reducing the terms and conditions of the partnership to writing."
4. In any event, in view of the decision of the Supreme Court in Wazid Ali's case [1988] 169 ITR 761, the view that no registration of the firm can be made for a portion of the financial year, as taken by the Calcutta High Court in Kejriwal's case [1969] 71 ITR 463, stands impliedly overruled.
5. In this view of the matter, we hold that the assessee-firm was entitled to registration for the period from December 28, 1971, to November 6, 1972, under the deed of partnership dated December 28, 1971. The question is, therefore, answered in the affirmative and in favour of the assessee.
6. The reference stands disposed of accordingly with no order as to costs.