COMMISSIONER OF INCOME TAX Vs. UDAYALAXMI HARDWARE STORES

JUDGEMENT

(1.) In this reference arising under section 256(1) of the Income-tax Act, 1961, made by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax, the following questions of tax are referred for the opinion of this court:

(2.) A firm was constituted under a deed of partnership dated 2/04/1970. There were three partners. A minor by name Narasimha Rao was admitted to the benefits of the partnership. A fresh deed of partnership was executed on 5/04/1971 specifying that the partnership evidenced by the deed dated 5/04/1971, came into existence with effect from 1/04/1971. Narasimha Rao who was previously admitted to the benefits of partnership was a party to this deed of partnership and he was described as a major on 1/04/1971. The assessee-firm constituted under the deed dated 5/04/1971, applied for registration under section 184 of the Income-tax Act (hereinafter referred to as "the Act") for the income-tax assessment year 1972-73. While the assessment proceedings for the year 1972-73 were still pending, the income-tax Officer seems to have passed an order granting registration to this firm for the assessment year 1972-73. During the course of the assessment enquiry, the Income-tax Officer found that Narasimha Rao attained majority only on 28/04/1971, and he was not a major either on 1/04/1971, from which date the assessee-firm came into existence or on 5/04/1971, when the partnership deed was executed. The Income-tax Officer, therefore, held the view that the partnership deed executed on 5/04/1971, describing Narasimha Rao as major partner was ab initio void, in as much as Narsimha Rao, being a minor on 5/04/1971, could not be a contracting party to the partnership agreement and he could not also be burdened with any share in losses while he continued to be a minor. Since an order registering the partnership firm was already passed for the assessment year 1972-73, the Income-tax Officer invoked section 186 of the Act and cancelled the registration granted to the assessee-firm. In as much as the registration was cancelled for the assessment year 1972-73, the Income-tax Officer declined to continue registration to the assessee-firm under section 184(7) of the Act for the next assessment year 1973-74.

(3.) The assessee appealed against the Income-tax Officers order cancelling the registration under section 186 of the Act for the Income-tax assessment year 1972-73. The Appellate Assistant Commissioner allowed the assessees appeal and granted registration for the assessment year 1972-73 and continuation of registration for the assessment year 1973- 74. The Income-tax Officer filed appeals to the Income-tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner granting registration. The Tribunal upheld the orders of the Appellate Assistant Commissioner and dismissed the appeals filed by the Income-tax Officer. The tribunal purported to follow two decisions of this court in dismissing the appeals filed by the Income-tax Officer and in affirming the grant of registration. One was the decision in CIT v. Badjanapara Salt Co. [1974] TLR 19 (AP) and another was in CIT v. Balaji Pictures [1983] 144 ITR 807 (AP). Aggrieved by the order of the Tribunal, the Commissioner of Income-tax applied for and secured the present reference.