EKAMBARANATHAN CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE common question of law arising out of the orders of assessment of income of the assessee for the assessment years 1978-79 to 1980-81, referred to us for our consideration reads as under:

(2.) THE assessee is a firm constituted by a deed of partnership dated July 26, 1977, consisting of E. Vishalakshmi Ammal, K. Thulasiram and K. Gnanapandian. Clause 6 of the deed of partnership provides for the profit-sharing ratio amongst the partners and according to that, all the three partners are entitled to share the profits equally at the rate of one third each. THE Income-tax Officer found from the books of account of the firm that the profit of the firm was shared among the partners at variance with Clause 6 of the partnership deed. He found from the accounts that the profit of the firm was shared at the rate of 50 : 25 : 25 as against l/3rd share as found in the deed of partnership. THE Income-tax Officer held that the firm was not a genuine firm and invoked the provisions of Section 186(1) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"), and cancelled the registration granted to the firm.

(3.) THE essential conditions for the grant of registration of a firm under the provisions of Section 26A of the Indian Income-tax Act, 1922, were considered by the Supreme Court in R. C. Miter and Sons v. CIT , and the Supreme Court held that the following conditions should be satisfied for the grant of registration to the firm (page 198) :