PUNJAB FRUIT CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question of law which has been referred for decision is as follows :

(2.) M /s Punjab Fruits Co., the firm, was a partnership firm and was constituted by a deed of partnership dated June 12, 1968. The firm, however, commenced its business w.e.f. June 6, 1968. It had 6 partners. Their names and shares in the profit and loss of the business were as under :

(3.) ON appeal, the AAC set aside the order of the ITO. He held that the firm was entitled to claim registration. He was of the view that the ITO only took into consideration the fact of dispute among the partners as existed on the date of compromise, i.e., July 30, 1970, rather than the fact as existed on June 30, 1969, when the profits of the firm were duly divided among all the partners where by Chhajju Mal and Suresh Kumar got Rs. 6,277 and Rs. 3,139 respectively. The AAC found that the credit balances in the accounts of these two partners on June 30, 1969, were Rs. 43,778 and Rs. 49,540 respectively. On the date of the compromise, however, balances in these two accounts came down to Rs. 22,801 and Rs. 45,200, which showed that the earlier credit balances had been acted upon by the two partners either by withdrawing the amounts from their accounts in the later period or by the loss having been debited to their accounts after June 30, 1969. He held that the firm was genuinely constituted of 6 partners and other formalities had been duly completed by the partners of the firm which entitled it to the claim for registration under S. 185 of the Act.