DHANAMALL SILK MILLS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) By this reference under section 256(1) of the Income-tax Act, 1961 ('the Act') at the instance of the assessee, the Tribunal has referred the following question of law to this Court for opinion:

(2.) The ITO did not assess the assessee in the status of a firm. He was of the opinion that as the assessee had not carried on any business after the transfer of its business to the Limited Company on 31-8-1971, the interest under section 214 received by it in the year under consideration was taxable under the head 'Income from other sources'. He also held that in the absence of any business there was no question of granting the assessee registration under section 184(7). He, therefore, took the assessee's status as an 'association of persons' and rejected the application made by the assessee under section 184(7). The assessee appealed against the above order to the AAC. The AAC agreed with the opinion of the ITO that the assessee was no more a firm which was entitled to registration under section 184(7). He, however, held that the proper status of the assessee would be 'body of individuals' and not 'association of persons'. In view of the above, he confirmed the order of the ITO under section 184(7). The assessee went in further appeal to the Tribunal. The Tribunal, on perusal of section 184(7) and the proviso thereto, was of the opinion that for continuation of the registration under section 184(7) for a particular year, it was incumbent that the firm existed as such during the previous year relevant to the said assessment year and without existence of the firm during such previous year, the question of allowing registration or continuance of registration under section 184(7) did not arise. The Tribunal held that, in the instant case, the business having been totally closed and there being no intention to carry on business and to share profits thereof, there can be no partnership or firm. The Tribunal observed that on transfer of the entire business of the firm to the Limited Company, the firm stood dissolved. No partnership firm existed thereafter. The Tribunal, therefore, held that the application of the assessee for continuance of registration was tenable and was rightly rejected by the ITO and upheld by the AAC. Hence, this reference at the instance of the assessee.

(3.) We have heard the learned counsel for the assessee. The question referred to us in this case is whether the Tribunal was right in refusing the continuance of the registration to the assessee under section 184(7). So far as the facts of this case are concerned, there is no dispute that the business for which the partnership was constituted came to an end on 31-8-1971 when the entire business was transferred to a Limited Company. There is also no dispute about the fact that thereafter neither any business was carried on by the partners nor it was intended to be carried on. The firm stood dissolved on transfer of the business to the Limited Company on 31-8-1971. Section 184 deals with the registration of firms and continuance of registration. In the instance case, the firm was registered as partnership firm for the period upto 31-8-1971. Under sub-section (7) of section 184, the registration granted to the firm for any assessment year may have the effect for subsequent assessment year provided there is no change in the constitution of the firm as evidenced by the instrument of partnership on the basis of which the registration is granted. In the instant case, the firm was constituted for carrying on a particular business. That business came to an end on 31-8-1971, and the firm got dissolved. The registration granted under section 184 no more existed. That being so, neither the dissolved firm could have applied for continuance of registration under section 184(7) nor the ITO could have passed any order under that section for continuance of the registration of the firm. The continuance of registration under sub-section (7) of section 184 contemplates existence of the firm during the period for which the continuance is sought for. In the instant case, the admitted position is that the firm was no more in existence after 31-8-1971. In that view of the matter, the Tribunal was right in holding that the assessee was not entitled to continuance of registration under section 184(7) as the firm for which the registration was sought for was no more in existence during the material period. We do not find any infirmity in that conclusion of the Tribunal.