Income Tax Appellate Tribunal - Chandigarh
Decent Dyeing Co. vs Income-Tax Officer on 29 September, 1994
Equivalent citations: [1995]52ITD60(CHD)
ORDER
J. Kathuria, Accountant Member
1. This appeal by the assessee pertains to assessment year 1982-83 and challenges the refusal to allow renewal of registration to the assessee-firm.
2. This appeal was late by three days. We have looked into the explanation of the assessee in this regard and have heard the learned D.R. on the point. For the reasons explained, the delay of three days is hereby condoned.
3. The assessee-firm was granted registration for assessment year 1981-82 as well as for assessment year 1983-84, i.e., the immediately preceding and the succeeding years. For assessment year 1982-83, which is an intervening year, the assessee had applied for continuation of registration. It appears that all the legal formalities like filing of Form No. 12 etc., in time duly stood complied with. The Assessing Officer, however, noticed that as per the books of account taken into possession by the department, there was no division of profits amongst the partners of the assessee-firm. It was also noticed by him that Shri Ram Murthi Sood, one of the partners, had been withdrawing money from the firm for his personal purposes and withdrawals from the bank had not been accounted for in the books of assessee-firm. The Assessing Officer treated this as withdrawal of profits from the assessee-firm by Shri Ram Murthi, partner, over and above his specified share ratio. Continuation of registration was disallowed and the firm was treated as URF for the assessment year 1982-83.
4. The learned CIT(A) upheld the order of the Assessing Officer and also relied on the Supreme Court decision in R.C. Mitter & Sons v. CIT[1959] 36 ITR 194.
5. Shri L.P. Dhir, the learned counsel for the assessee, submitted that according to Section 184(7) of the Act, division of profits amongst the partners was not a pre-requisite for granting continuation of registration to a firm. It was submitted that in Form No. 12, the assessee-firm was to certify that there was no change in the constitution of the firm or the shares of the partners and that none of the partners of the firm was a benamidar of any other partner. It was submitted that, legally speaking, there was no requirement in law to have divided the profits of the partners. Our attention was drawn to the language used in Form Nos. 11 and 11-A in which there was a reference to the division or crediting of profits amongst the partners which was missing in Form No. 12. The firm had divided the profits as per the statement of income submitted along with the return which amounted to division of profits amongst the partners. It was also submitted that the decision of the Supreme Court in R.C. Mitter & Sons' case (supra) was in respect of registration and not continuation of registration. It was also submitted that withdrawal of moneys in excess of one's share by a particular partner would not amount to withdrawal of profits contrary to the terms and conditions of the partnership deed and that the lower authorities had misdirected themselves by taking this irrelevant circumstance into cognizance for the purpose of disallowing continuation of registration to the assessee-firm.
6. The learned D.R. on the other hand, contended that distribution or crediting of the profits amongst the partners was the basic condition for allowing registration or continuation of registration. The learned D.R. strongly supported the orders of the lower authorities.
7. We have carefully examined the rival submissions. We find substantial merit in the reasoning of the learned counsel for the assessee. The case records of the assessee were produced before us for our perusal by the learned D.R. It was found that along with the return of income for assessment year 1982-83, the assessee-firm had filed a statement of income in which the total profits of Rs. 39,584 stood divided between two partners equally at Rs. 19,792 each. In our opinion, division of profits in the statement of income would be enough compliance of the rules even if it was held that division or crediting of profits was basic to the allowance of continuation to the registration. We hold and direct accordingly. We also do not accept the proposition enunciated by the revenue authorities that a mere excessive withdrawal by one partner would tantamount to withdrawing the profits over and above the ratio stipulated in the partnership deed. The withdrawals of moneys from the accounts would not necessarily mean withdrawals of profits. Moreover, whether a particular withdrawal is ledgerised or not may speak volumes for the improper maintenance of accounts but that would not be a good enough reason for disallowing continuation of registration. Taking all the facts and circumstances of the case into account, we hold that the assessee was entitled to continuation of registration, particularly when in the immediately preceding and succeeding years the assessee had been accorded the status of a registered firm.
8. Appeal stands allowed.