Income Tax Appellate Tribunal - Pune
Kothari Vora Associates vs Assistant Commissioner Of Income-Tax on 31 July, 1995
Equivalent citations: [1996]57ITD171(PUNE)
ORDER
Chander Singh, Accountant Member
1. This appeal by the assessee for assessment year 1991 -92 has challenged the determination of the status as that of Association of Persons. The assessee had filed the return of income on 31 -10-1991 declaring income of Rs. 4,45,000. The said return was filed by the assessee in the status of a registered firm.
2. Previous to its dissolution, the assessee was carrying on the business as promoters and builders. The said firm was dissolved as per the dissolution dated 6-4-1989. After the dissolution, the capital assets belonging to the assessee-f irm were distributed amongst the partners. On the plot of out of Sr. No. 686/3 Bibwewadi, Pune, the assessee computed the fair market value as on 5-4-1989 at Rs. 9,00,000. After claiming the deduction under Section 48(2) of the Income-tax Act, 1961, the assessee arrived at net capital gain of Rs. 4,45,000 which was offered for taxation. The return of income was filed by the .assessee in pursuant to the deeming provision of Section 45(4) of the Act.
3. Before the Assessing Officer, the assessee claimed the status of a registered firm. It was pleaded that the long-term capital gains on distribution of assets accrued or arose to the firm as a deeming provision of Section 45(4) of the Act. Since the said provision deemed the income on distribution of assets amongst the partners, it also deemed that the firm should be accorded the status of a registered firm. For the purpose of claiming the benefit of registration, the assessee also filed Form No. 12 which was, however, delayed beyond the time prescribed by the Income-tax Act. The Assessing Officer was of the view that the assessee was not entitled to avail the benefit of registration. He further held that the provisions of Section 45(4) apply at the time of distribution of capital asset on the dissolution of the firm. Obliquely, the Assessing Officer made a reference that the income was taxable for the assessment year 1990-91. However, since the assessee had filed the return of income for assessment year 1991-92 he computed the income for the said year but denied the benefit of registration to the assessee.
4. On further appeal, the assessee pleaded before the CIT(A) that the Assessing Officer did not take into account the Board's Circular No. 495 dated 22-9-1987. The CIT(A) considered the arguments of the assessee as well as the Board's circular and was of the view that the Assessing Officer was justified in denying the benefit of registration to the assessee. The CIT(A) was also of the view that the assessee had rightly been assessed by the Assessing Officer in the status of an Association of Persons.
5. On these facts and the legal issues, the assessee has taken the following ground and the additional grounds :
1. Lower authorities erred in taxing firm income treating the dissolved firm as AOP ignoring the provisions of Section 45(4) and circular issued by CBDT the income be taxed in hands of firm as registered firm.
Additional grounds:
1. If the learned Assessing Officer was of the opinion as is clear from para 4 of assessment order, to which learned CIT (A) concurred, that the income at the time of distribution of capital assets was chargeable in the year of dissolution, he should have assessed the income for assessment year 1991-92, under appeal at 'NIL'.
2. The learned CIT(A) ought to have held that when the return of income was filed in the status of firm, the assessment in the status of AOP was not permissible. The assessment should also have been made in the status of Registered firm after considering Form No. 12.
3. Without prejudice to Ground No. 1 and 2, there was no justification to attribute status of AOP to the partners of dissolved firm who were merely co-owners and in distributing their assets had not 'associated for earning any income'. The notional gain shown on distribution of assets was not income much less than the income of an AOP.
4. Since the assessment of two partners of appellant-firm was completed under Section 143(1)(a) on 17-2-1992 by taking the share as of registered firm assessment in the status of AOP was not permissible in law.
6. Shri K.A. Sathe, who represented the assessee before us took a legalplea that the provisions of Section 45(4) are in fact, inoperative in view of the Supreme Court decision in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49. By heavily relying on the said decision, he pointed out that the partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or the firm's assets all that is meant is property or assets in which all partners have a joint or common interest. It cannot, therefore, be said that, upon dissolution, the firm's rights in the partnership assets are extinguished. It is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of Section 2(47) of the I.T. Act,. 1961. There is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution. In other words, there is no transfer of assets by the dissolved firm to any of the partners. Though, the provisions of Section 45(4) were inserted with the admitted purpose of nullifying the said Supreme Court judgment but the learned Counsel pleaded that the amendment did not materially change the legal position and in fact, the said judgment is still applicable to the case of the assessee. In addition to the insertion of Section 45(4), the Legislature should have simultaneously amended the definition of 'transfer' under Section 2(47) and 'income under Section 2(24) of the Income-tax Act, 1961. Since there is no amendment in the definition of 'transfer' and 'income' under Section 2(47) and 2(24) respectively, the Supreme Court judgment still applies to the facts of the case and as a result there was no transfer which gave rise to the long-term capital gains. To buttress the arguments, the learned Counsel also relied on yet another decision of the Supreme Court in the case of CIT v. Ban key Lal Vaidya [1971] 79 ITR 594. He pointed out that this decision was, in fact, considered by the Supreme Court in the case of Malabar Fisheries Co. Ltd. (supra). According to the legal position, the learned Counsel pointed out, no capital gains accrued or arisen on account of the distribution of assets on dissolution. As a matter of fact, no assessment, therefore, was justified.
7. The learned Counsel also took us through Sub-section (4) of Section 45 inserted with effect from 1-4-1988 and pointed out that there are three deeming provisions in the said section, viz., (i) the profits or gains arising from the transfer of a capital asset by way of distribution of capital asset on dissolution of the firm or other association of persons or body of individuals; (ii) the capital gains so accrued would be chargeable to tax as the income of the firm, association, etc., of the previous year in which transfer took place for the purpose of Section 48 of the Act; and (iii) the fair market value of the asset on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer. Thus, the distribution of capital asset on dissolution has been made liable to tax on account of these three deeming provisions. There is however, fourth in-built deeming provision, viz., assessment after dissolution should be computed in the status of a registered firm. This is clear from the fact that the first part of Sub-section (4) of Section 45 mentions the word "a firm" and latter part "the firm". The plain reading of the section, in the opinion of the learned Counsel, clearly suggests that in case of a dissolved firm, the capital gains arising out of distribution of assets to the partners should be assessed in the status of a registered firm only. He also pointed out that the assessee had also filed Form No. 12 for continuation of registration. The firm was granted registration in the previous years and therefore, its continuation for the assessment year under appeal was legally warranted. The Assessing Officer, he argued, has not taken into account a declaration under Section 184(7) filed by the assessee.
8. The learned Counsel continued and argued that the Assessing Officer has no legal power to change the status of an assessee. The assessee had filed a return in the status of the registered firm and, therefore, the assessment should have been completed in the same status. Under the Income-tax Act, 1961, a firm and an Association of Persons are two different persons and independent units of assessments. The modes of assessing a firm and an Association of Persons are also different. Even if the identity of the members of a firm and of an Association of Persons is established, there cannot be a valid assessment altering the status declared in the return. In this regard, the learned Counsel relied on the decision of the Bombay High Court in the case of CIT v. Associated Cement & Steel Agencies [1984] 147ITR 776. The learned Counsel also pleaded that the ratio of the decisions of the Supreme Court in the case of CGT v. R. Valsala Amma [1971] 82 ITR 828 and Allahabad High Court in the case of CIT v. Smt. Vimla Lal [1983] 143 ITR 16 support the case of assessee.
9. As pleaded in the additional grounds of appeal, the learned Counsel pointed out that the assessment of two partners were completed on 17-2-1992. Since the Assessing Officer had exercised his option of assessing the partners, the benefit of registration should not have been denied to the assessee. In this regard, the learned Counsel placed reliance on the decision of the Bombay High Court in the case of CIT v. V.H. Sheth [1984] 148 ITR 169 and the decision of the Madras High Court in the case of Venkatakrishna Rice Co. v. CIT[1987] 163 ITR 129. He argued that under the scheme of Income-tax, the registered firm and its partners are two distinct entities and the ITO has a choice of either assessing the registered firm on its total income or its individual partners. If the Assessing Officer exercised the option of assessing first the individual partners on their shares of income from the registered firm, the benefit of registration to the assessee-firm cannot be denied. Since the Assessing Officer had completed the assessment, of two of the partners, by including their share of profit from the firm, he was precluded to assess the firm in the status of AOP.
10. The learned Counsel reiterates that the provisions of Sub-section (4) of Section 45 was a kind of package deal and if the profits or gains arising from the transfer of capital asset by way of distribution of capital asset on dissolution of a firm could be taxed, the firm also could be allowed the benefit of registration. He therefore, prayed that in the light of the legal principles laid down by various Courts, the benefit of registration should be allowed to the assessee-firm. The CIT(A) therefore, was not justified in upholding the order of the Assessing Officer in this regard.
11. The learned Senior Departmental Representative, Dr. Sunil Pathak, on ihe other hand, stoutely defended the order of the CIT(A). He pointed out that the provisions of Sub-section (4) of Section 45 were brought on the statute book with effect from 1-4-1988 mainly with a view to nullify the decision of the Supreme Court in the case of Malabar Fisheries Co. (supra). He argued that the arguments of the learned Counsel for the assessee, if accepted, will render Section 45(4) nugatory and the purpose of enactment by legislature will be nullified. In his view, the learned Counsel for the assessee is not legally justified in advancing the plea that the decision of the Supreme Court in the case of Malabar Fisheries Co. (supra) still holds good. Section 45, the learned departmental representative contended, is a charging section and is the complete code within itself. The capital gains arising on distribution of capital asset on dissolution can be computed and subjected to tax under Section 45 itself. There was no legislative necessity either to amend Section 2(47) or Section 2(24) to enlarge the definition of 'transfer' and 'income'. In view of the amendment to the section, the decision of the Supreme Court in the case of Malabar Fisheries Co. (supra) is no longer good law and therefore, the learned departmental representative, justified the action of the Assessing Officer.
12. The learned departmental representative continued and argued that the assessability of capital gains on distribution of capital asset on dissolution, in fact, has not been challenged by the assessee. The assessee himself has filed the return of income for the year under consideration. The learned departmental representative continued and pointed out that where an assessee has made a statement of facts he can have no grievance if the taxing authority taxes him in accordance with that statement. Since the assessee had filed the return showing the income from the long-term capital gains, he should have no grievance on the assets of such income. In this regard, the learned departmental representative has relied on the decision of the Bombay High Court in the case of Rameshchandra & Co. v. CIT[1987] 168 ITR 375.
13. The learned departmental representative further argued that the finding of the Assessing Officer and its approval by the CIT(A) that the capital gains chargeable to tax would have been assessed for assessment year 1990-91 is of no consequence. The assessee himself has filed the return of income for assessment year 1991 -92 and therefore, was liable to be assessed for the said year. Moreover, on the assessee's own admission the distribution of the capital asset took place on 11-8-1990 which fell in the accounting year relevant to the assessment year 1991-92. The provisions of Section 45(4) clearly mentions that such capital gains would be assessable in the previous year in which the transfer took place. Since the transfer took place in the previous year relevant to assessment year 1991 -92 the capital gains were liable to be taxed in the said year only.
14. The learned Senior Departmental Representative also justified the completion of assessment in the status of AOP. He pointed out that the assessee's reliance on the decision of the Bombay High Court in the case of Associated Cement & Steel Agencies (supra) is misplaced. He pointed out that in the said decision, the Assessing Officer had not issued the notice to the Association of Persons and yet made the assessment in the status of AOP. In other words, an opportunity of being heard was not allowed by the Assessing Officer. However, in the present case, the Assessing Officer vide his letter dated 9-2-1993 had pointed out to the assessee that there was no firm in existence and there was no declaration in Form No. 12 in the requisite form and, therefore, the Assessing Officer proposed to complete the assessment in the status of AOP. In such circumstances, the decision of the Bombay High Court in the case of Associated Cement & Steel Agencies (supra) was inapplicable. Moreover, the learned departmental representative continued, there is no provision either in the Income-tax Act, 1961 or in the rules made thereunder providing that where the ITO proposed to make assessment in a status different from the one in which the return is filed, a notice or a fresh notice, as the case may be, should be issued. Such a requirement cannot also be inferred from the principles of natural justice. In this regard, the learned departmental representative placed reliance on the decision of the Andhra Pradesh High Court in the case of CIT v. D. Seshagiri Rao [1990] 182 ITR 24.
15. The learned departmental representative further contended that in the year under consideration, the benefit of registration cannot be allowed to the assessee. In order that the firm may be treated as registered, it is necessary that an instrument of partnership on the basis of which registration is claimed, should be in existence in the accounting year in respect of which the assessment is made. In the case of the assessee-firm, it is an admitted fact that it was dissolved on 6-4-1989 and therefore, there was no deed of partnership in existence for the year under consideration. Moreover, for the purpose of claiming registration, there must be business which must be carried on by all or any of the partners representing all and that as the assessee could not be said to be carrying on the business, it was not entitled to registration under the provisions of the Income-tax Act, 1961. Further, for claiming registration under Section 184 a partnership firm should make an application to the Assessing Officer before expiry of the relevant previous year. Unless an application for registration is accompanied by the partnership deed evidencing existence of the partnership firm, the benefit of registration cannot be given. For these and other propositions, the learned senior Departmental Representative has relied on the following decisions :
(1) Wazid Ali Abid Ali v. CIT[1988] 169 ITR 761 (SC) (2) Ramniklal Sunderlal v. CIT[1959] 36 ITR 464 (Bom.) (3) CIT v. M.P. Kolhe [1962] 46 ITR 1268 (Bom.) (4) ITC v. Birdhi Chand, Girdhari Lal [1955] 28 ITR 280 (Punj.) (5) Ramamohan Motor Service v. CIT [1979] 120 ITR 434 (AP) (6) N.V. Shanmugham & Co. v. CIT[1971] 81 ITR 310 (SC) (7) Ganga-Metal Refining Co. (P.) Ltd. v. CIT[1968] 67 ITR 771 (Cal.) (8) CIT v. Tulsi Ram Karam Chand [1981] 130 ITR 968 (Punj. & Har.).
16. The learned departmental representative pointed out that the case of Rajasthan High Court in George Talkies Circuit v. CIT[1988] 171 ITR 386 is similar to the case before us. He therefore, dealt at length with this decision.
17. In the case of George Talkies Circuit (supra), the assessee-firm was carrying on-business of film distribution. The firm and its partners were declared insolvent on November 17,1971, by the Additional District Judge and a receiver was appointed. The receiver continued the business of the firm. He filed a return for the assessment year 1976-77 in the status of an association of persons. The ITO and the Tribunal held that the assessment had to be made in the status of an unregistered firm. On a reference :
Held that on the adjudication of the firm as insolvent, it stood dissolved under Section, 41(a), of, the Partnership Act 1932 in the year 1971. Thereafter, the business was carried on by the receiver. It could not, therefore, be said that the disputed income arose to the firm. The income was assessable in the hands of the erstwhile partners as an association of persons.
18. To the assertion of the learned Counsel for the assessee regarding deeming provisions contained in Section 45(4) regarding registration, the learned departmental representative pointed out that there is no deeming provision as far as determination of status is concerned. The provision is very clear and, therefore, cannot be extended so as to read that the firm is entitled for registration. The interpretation of the provision should be such that it should bring out the intention of the Legislature. The beneficial interpretation does not apply where the provisions of the Act is clear and unambiguous. In this regard, the learned departmental representative placed reliance on the decision of the Bombay High Court in the case of CIT v. New Shorrock Spg. & Mfg. Co. Ltd.
19. The learned departmental representative continued and stated that the assessee did not file an application for registration and even the application for continuation of registration under Section 184(7) was delayed. The assessee did not file any condonation petition. In the absence of an application for condonation of delay in filing an application for registration of the firm, the ITO was duty bound to reject the said application. The law is clear that an application for registration has to be made within the time specified. An application beyond the time can be entertained if sufficient cause is shown for the delay to the satisfaction of the Assessing Officer. Where a firm makes delay in applying for registration and does not apply to the Assessing Officer for condonation of delay giving sufficient reasons, it cannot plead for an opportunity to show cause, before the Assessing Officer rejects the application for registration. In this regard, the learned departmental representative has placed reliance on the decision of the Orissa High Court in the case of Kalinga Saw Mills v. CIT[1975] 99 ITR 102 and Madhya Pradesh High Court decision in the case of Miss Motiram Pasumal v. CIT[1984] 145 ITR 734.
20. The learned departmental representative continued and argued that the assessment in the case of partners has not been completed as alleged by the learned Counsel for the assessee. It was merely an intimation under Section 143(1)(a) of the Act. This issue, the learned departmental representative, pointed out, is covered against the assessee by the order of the Tribunal in ITA No. 1990/(PN)/1994 dated 20-4-1995. On this score also, the assessee is not entitled to registration.
21. The learned departmental representative points out that the assessee is not entitled to registration and that the Assessing Officer has rightly made assessment in the status of AOP. Alternatively, however, without prejudice, he pleads that the status may be taken as unregistered firm.
22. In reply, the learned Counsel for the assessee pointed out that the income has been brought to tax on account of deeming provision of Section 45(4) of the Act. If the income could be deemed under the said provision, the issue of registration should also be deemed. If the income is assessed under the said provision, then the status should also be assumed as that of a registered firm. The learned Counsel, therefore, reiterates that the status of registered firm should be accorded to the assessee-firm.
23. We have heard the rival submissions in the light of judicial decisions brought to our notice. For the sake of convenience, we reproduce Sub-section (4) of Section 45 of the Act as under :
45(4): The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of Section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.
24. This amendment to Section 45, by way of insertion of Sub-section (4) was brought on the statute book with effect from 1-4-1988. The said amendment explains that the profits or gains arising from the transfer of a capital asset by way of distribution of capital asset on dissolution of a firm shall be chargeable to tax as the income of the firm in the previous year in which the said transfer has taken place. This amendment to section was necessitated on account of several decisions including that of the Supreme Court decision in the case of Malabar Fisheries Co. (supra). In the said decision, it was held that on dissolution there is no transfer of assets to the partners within the meaning of Section 2(47) of the Act. The capital gains tax on such distribution on dissolution, was therefore, not liable to be assessed. To nullify the said decision, the amendment to Section 45 was introduced by the Finance Act, 1987. The Government was aware that one of the devices used by the assessee to evade tax on capital gains was to convert an asset held independently and asset of the firm in which the individual was a partner. In this regard, we may refer to the decision of the Supreme Court in Karlikeya V. Sarabhai v. CIT[1985] 156 ITR 509 which had set at rest the controversy as to whether such a conversion amounted to transfer. The Court held that such conversion fell outside the scope of capital gain taxation. The rationale advanced by the Court was, that the consideration for the transfer of the personal asset was indeterminate, being the right which arose or accrued to the partner during the subsistence of the partnership to get his share of profit from time to time and on dissolution of the partnership to get the value of his share from the net partnership asset.
25. With a view to blocking this escape route for avoiding capital gains tax, the Finance Act, 1987 has inserted a new Sub-section (3) in Section 45. The effect of this amendment was that the profits and gains arising from the transfer of a capital asset by a partner to a firm shall be chargeable as the partner's income of the previous year in which the transfer took place. Conversely, the conversion of the partnership assets into individual assets on dissolution or otherwise also formed part of the same scheme of tax avoidance. To plug these loophole the Finance Act, 1987 brought on the statute book, a new Sub-section (4) in Section 45 of the Act. The effect was that the profits or gains arising from the transfer of a capital asset by a firm to a partner on dissolution or otherwise would be chargeable as the firm's income in the previous year in which the transfer took place and for the purposes of computation of capital gains, the fair market value of the asset on the date of transfer would be deemed to be the full value of the consideration received or accrued as a result of transfer. Thus, in our view, the Supreme Court and various above High Court decisions, were successfully nullified by insertion of Sub-section (3) and (4) to Section 45 of the Act. We are only concerned here with Sub-section (4) of the said section.
26. As already mentioned above, Sub-section (4) of the said section is a deeming provision where the profits or gains arising from the transfer of a capital asset by way of distribution of capital asset on dissolution of a firm has been made liable to tax in the year of distribution. This deeming provision mentions the words "dissolution of a firm" and "shall be chargeable to tax as the income of the firm". The question to be considered is that on the deemed income where the expression "a firm" or "the firm" occur, entitles the assessee for the registration. In our view, these two expressions mentioned in Sub-section (4) is to identify the assessable entity prior to the dissolution. The fiction in Sub-section (4) of Section 45 had been created for a limited purposes of bringing to tax the profits or gains arising from the transfer of capital asset by way of distribution of capital asset on the dissolution of a firm. The fiction in every system of jurisprudence is created to prevent a mischief or remedy any inconvenience that might result from the general rule of law. No fiction has, ever been enacted so as to work an injury to the fiscal provisions. In other words, the fictions normally prevent the mischief. The mischief rule as enunciated in Heydon's case (1584) 3 Co. Rep. 7a, was discussed by the Supreme Court in the case of Dr.Baliram Waman Hiray v. Mr. Justice B.Lentin[1989] 176 ITR l. The following principles enunciated in Heydon 's case are firmly established and are still in force and effect, viz., that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered: (1) what was the common law before the making of the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy Pariiament has resolved and appointed to cure the disease of the commonwealth; and (4) the true reason of the remedy. And then, the office of all the Judges is always to make such construction as shall suppress the mischief and advance the remedy, and to suppress subtle inventions and evasions for the continuance of the mischief and pro privato commodo and to add force and life to the cure and remedy according to the true intent of the makers of the Act pro bono publico. There is now the further addition that regard must be had not only to the existing law but also to prior legislation and to the judicial interpretation thereof.
27. Applying the principles laid down in Heydon's case (supra), the mischief rule referred to above, we find that the provisions of Sub-section (4) of Section 45 were brought on the statute book to remedy the mischief and advance the case of the revenue. As already discussed above, there was avoidance of capital gains tax on transfer of capital asset on dissolution of the firm and in order to remedy the situation Sub-section (4) of Section 45 was inserted. The interpretation of this provision could be harmonious so as to advance the remedy and suppress the mischief. We are therefore, of the view that the learned Counsel for the assessee was not judicially correct in stating that the assessee was still governed by the principles laid down in the case of Malabar Fisheries Co. (supra). We do not find any necessity for the corresponding amendment to Section 2(47) and Section 2(24) of the Act. Section 45 is a charging section and the complete code in itself. The said section provides that the profits and gains arising from the transfer of a capital asset by way of distribution of capital asset on dissolution of a firm are chargeable to tax in the previous year in which the distribution took place. We therefore, need not go to Section 2(47) or Section 2(24) to decide whether the distribution of capital asset on dissolution is chargeable to tax or not. For this purpose, Section 45 is enough to bring to tax the capital gains on distribution of capital asset on dissolution of a firm. The fiction created in Section 45(4) to bring to tax the capital gain on distribution of capital asset on dissolution was for a limited purpose of bringing to tax the capital gains. This fiction, in our view, cannot be extended so as to treat the dissolved firm as a registered firm in the year in which the distribution took place. In other words, under the provisions of Sub-section (4) of Section 45 of the Act, the firm cannot be suo motu treated as the registered firm.
28. This brings us to the issue whether under any other provisions, the benefit of registration could be extended to the assessee. The significance of registration of a partnership firm under the Income-tax Act lies in the fact that after registration the firm would be liable to assessment of income-tax at lower rate than what otherwise would be in the case of an unregistered firm. In other words, the provisions regarding registration of a firm are the beneficial provisions which allow certain advantages in payment of taxes. Such an advantage, in our view, cannot be extended in a deeming provision such as Section 45(4) of the Act. Moreover, the right of registration is a creature of a statute and can be claimed only in accordance with the statute which confers it. The right to apply for registration is not a vested right but only a privilege given to the firm and the privilege can be enjoyed when the requirement under the statute are fully complied with. The registration of a firm, confers certain benefits on the firm and therefore strict compliance of the provisions of the Act and the rules made thereunder is necessary. In order to avail the benefit of registration, the assessee should proceed in strict conformity with the relevant provisions of the Act and the Rules. To constitute a partnership in law, there must be (1) an agreement entered into by two or more persons; (2) the agreement must be to share the profits of a business; and (3) the business must be carried on by all or any of those persons acting for all. All these three elements must be present before a group of persons can be held to be partners of a partnership. To claim the benefit of registration, the partnership must be evidenced by the deed of partnership, the shares in profit as well as loss of the partners should be defined and an application on behalf of and signed by all the partners should also be filed. Such an application also should be within the prescribed time limit. Unless these conditions are fulfilled, the benefit of registration cannot be allowed to a group of persons. In the case before us, the firm was dissolved on 6-4-1989 and therefore, for assessment year 1991-92 there was no firm in existence, there was no partnership deed and also there was no application for registration or its continuation. The fiction of Section 45(4) does not permit us to extend the benefit of registration under the other provisions, viz., 182, 183, 184 and 185, etc., of the Income-tax Act, 1961. The assessee has neither been evidenced by the instrument of a partnership nor there is an application for registration and therefore, the registration or continuation thereof is legally impossibility. We also consider pertinent to mention that the deeming provision of Section 45(4) do not override the provisions contained in Sections 182 to 185. In order to claim the registration, the assessee has to fulfil the conditions laid down in Sections 182 to 185 of the Act. Unless these conditions are fulfilled, the benefit of registration cannot be allowed to the assessee.
28A. As per additional grounds of appeal, the assessee has also pleaded that the Assessing Officer as well as the CIT(A) were of the opinion that the capital gains on distribution of capital asset was liable to be taxed in assessment year 1990-91. We have heard the parties to the dispute and we find that there is no substance in the contentions raised. The careful reading of the assessment order as well as the appellate order, shows that these were only the observations of the revenue authorities and was not a finding of fact. Even if it was a finding of fact it cannot be accepted by us as it is contrary to the provisions of the Income-tax Act. The profits or gains arising from the transfer of capital asset by way of distribution of capital asset on the dissolution of a firm is chargeable to tax in the previous year in which the transfer took place. In the case before us, the transfer took place on 11-8-1990 which is relevant to assessment year 1991 -92. Thus, the assessment was rightly made for the year under appeal.
29. The learned Counsel for the assessee had also placed reliance on the decisions of Bombay High Court in the case of V.H. Sheth (supra) and of the Madras High Court in the case of Venkatakrishna Rice Co. (supra), which in our opinion, do not advance the case of the assessee. There was no completion of assessment in the case of partners as alleged by the assessee, it was only an intimation under Section 143(1)(a) of the Act sent by the Assessing Officer. This intimation, in our opinion, cannot be called as completion of assessment. Moreover, this issue has been discussed in detail by us in ITA No. 1990/(PN)/1994 dated 20th April, 1995 in the case of Master Monit M. Bhate and Master Rahul M. Bhate, Sangli. Following the reasons recorded in our aforesaid appellate order, we reject the contentions of the assessee.
30. This brings us to the issue of determination of status of the assessee before us. We have carefully gone through the judicial decisions relied upon by the learned departmental representative and we are of the view that the assessee was rightly assessed as the AOP. As already mentioned, there was no firm in existence and therefore, the profits or gains arising from the transfer of capital asset by way of distribution of capital assets on dissolution was liable to be taxed in the status of AOP. We therefore, uphold the order of the CIT(A).
31. With the result, the appeal is dismissed.