RAVINDRA INDUSTRIES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Income -tax Appellate Tribunal, Ahmedabad Bench 'C', has referred the following two questions, said to be arising out of its appellate order in I.T.A. No. 2120/(Ahd) of 1981 for the assessment year 1976 -77, for our opinion :

(2.) FROM a perusal of the order of the Tribunal and the Commissioner of Income -tax, we are of the opinion that the questions suggested by the assessee and referred to us by the Tribunal do not bring out the controversy in its proper perspective and require reframing and, in our opinion, the only question that arises out of the Tribunal's order is : 'Whether, in the facts and circumstances of the case, the Tribunal was justified in law in affirming the decision of the Commissioner of Income -tax for cancelling the order of registration granted in favour of the petitioner -firm by the Income -tax Officer and directing to give effect to the same ?'

(3.) THE Commissioner of Income -tax holding the opinion that the Income -tax Officer instead of allocating the income of the firm for the first period, i.e., from January 1, 1975, to March 31, 1975, amongst three partners and the income for the remaining period between two partners according to the respective partnership deeds, allocated the entire income of the firm for the whole year only between Shri P.R. Shah and Shri N.M. Sindhe equally. Since the income of the assessee -firm was not properly allocated and distributed, the Income -tax Officer should not have granted registration. Granting of registration under the circumstances narrated above has not only resulted in an erroneous order but is also prejudicial to the interests of the Revenue. On this basis after issuing show -cause notice to the firm, he made an order cancelling the registration of the firm on August 27, 1981. On appeal, the Tribunal affirmed the conclusion of the Commissioner and upheld the order under section 263 cancelling the registration and directing the Income -tax Officer to give effect to that order accordingly. The Tribunal found that on March 31, 1975, there was a change in the constitution of the firm inasmuch as one of the partners, Shri H.N. Shah, retired from the firm leaving behind two partners, namely, Shri P.R. Shah and Shri N.M. Sindhe. Both the partners had an equal share in the profits and losses of the assessee -firm and an equal share was distributed for the whole year. Nothing was given to the retired partner, i.e., Shri H.N. Shah. On these premises, the Tribunal further concluded 'to sum up the case, the condition for registration is that the profits should be distributed as provided in the deed of partnership. The same condition has not been fulfilled in the case. Therefore, in our opinion, the Commissioner of Income -tax has rightly cancelled the order of the Income -tax Officer and he was fully justified in directing the Income -tax Officer to give effect to his order.' In coming to the conclusion that requirement of allotment of share to the partners including to the retired partners at the close of the accounting period, it distinguished the Supreme Court decision in CIT v. Ashokbhai Chimanbhai : [1965]56ITR42(SC) on the ground that there was no agreement between the retiring partner and the remaining partners about non -allotment of the shares up to the date of retirement and also on the ground that facts of the decision in Ashok Chimanbhai's case : [1965]56ITR42(SC) were different and the ratio was laid down in a different context.