GWALIOR TEXTILES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) At the instance of the assessee, the Tribunal, Allahabad, has referred the following three questions of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the supplementary partnership deed dt. 25th Jan., 1973, was not a genuine document till 27th Nov., 1980? 2. Whether the Tribunal was legally correct in holding that there was no defect in the partnership deed dt. 19th Jan., 1973, in terms of Section 185(2) of the Act? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the provisions of Sub-section (1) of Section 186 of the Act were applicable to the case?"

(2.) Briefly stated, the facts giving rise to the present reference are as follows : The present reference relates to the asst. yrs. 1973-74 to 1977-78. The applicant is a firm. It has been constituted under a partnership deed dt. 19th Jan., 1973, and consists of six partners, namely, Hazi Jalaluddin, Ziauddin, Salahuddin, Alauddin, Mohd. Ansari and Km. Fatima Khatoon, besides two minors, namely, Abu Bakar and Imtiaz Ahmad, alleged to have been admitted to the benefits of the partnership. Clause (3) of the partnership deed dealt with the sharing of profits and losses amongst the partners. It reads as follows : "That the partners shall share the profits and losses arising out of the partnership business in the ratios mentioned below : 1. Hazi Jalaluddin 0.15 p. in a rupee 2. Ziauddin 0.10 p. in a rupee 3. Salahuddin 0.15 p. in a rupee 4. Alauddin 0.10 p. in a rupee 5. Mohd. Ansari 0.15 p. in a rupee 6. Km. Fatima Khatoon 0.15 p. in a rupee 7. Abu Bakar 0.10 p. in a rupee 8. Imtiaz Ahmad 0.10 p. in a rupee

(3.) The applicant made an application for grant of registration in Form 11/11A of the IT Rules, 1962 (hereinafter referred to as "the Rules"), on 27th March, 1973, relating to the asst. yr. 1973-74. The ITO found that the application had been filed within the prescribed period and that all the legal formalities have also been complied with. He accordingly passed an order under Section 185(1)(a) of the Act granting registration. He also allowed renewal of registration for all subsequent years under Section 184(7) of the Act. Subsequently, the ITO noticed that under Clause (3) of the partnership deed, even the minors had been required to share in the losses and was, therefore, of the view that the applicant-firm was not entitled to the benefit of registration for the year 1973-74 and was consequently also not entitled for renewal of registration for all subsequent years. After issuing a show-cause notice on 16th Oct., 1980, and considering the reply filed by the applicant, the ITO cancelled the registration granted for the asst. yr. 1973-74 and also withdrew the renewal of registration for subsequent years. Feeling aggrieved, the applicant preferred separate appeal before the AAC who accepted the submissions that non-mention of the share in the losses to be suffered by the minors was a mere typographical or technical mistake which could not lead to cancellation or withdrawal of registration which had already been granted after careful consideration by the ITO. He was also of the view that in any case it was a defect in the partnership deed which could be rectified under Section 185(2) of the Act within a period of one month of the date of its intimation and since the notice was issued on 16th Oct., 1980, rectification made on 27th Nov., 1980, through the supplementary partnership deed was well within time. He, therefore, cancelled the order of the ITO passed under Section 186(1) of the Act and restored the original order granting registration and renewal of registration for different years.