GRACE PHARMA DISTRIBUTORS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income-tax Appellate Tribunal has referred the following question for our opinion under section 256(2) of the Income-tax Act :

(2.) The assessee-firm was originally constituted by a deed of partnership dated 8/05/1969, comprising of four partners, namely, (1) Smt. Kamala Bai, (2) Smt. Geeta Bai, (3) Smt. Indravati Bai, and (4) Sri Ramsharan Agarwal. The first two partners were having 30% share each and the latter two 20% each. The accounting year was the financial year. On 1/04/1975, there was a change in the constitution of the firm. Two major partners, Smt. Kamalesh Gupta and Smt. Parameswari, were taken in as partners, and two minors, Sanjay and Sandeep, sons of one Sundarlal, were admitted to the benefits of the partnership. This arrangement was recorded in the partnership deed dated 24/07/1975. According to this, each of the six major partners was entitled to a 1/7th share. The two minors were entitled to a 1/4th share each. Of course, the minors were not liable for losses. On the basis of the partnership deed dated 24/07/1975, the partners applied in Form No. 11A on 16/08/1975, for registration of the firm.

(3.) On 1/10/1975, there was a further reconstitution of the firm. The minors ceased to be admitted to the benefits of the partnership, and their mother, Smt. Kamalesh S. Gupta, was admitted as a full-fledged partner. A partnership deed was also executed on the same day according to which all seven partners were entitled to a 1/7th share each. It was further provided in the partnership deed that the profits for the period 1/04/1975, to 30/09/1975, shall be distributed among the six partners, i.e., six major partners only, and the profits for the period 1/10/1975, to 31/03/1976, shall be divided among the seven partners. The division was to be made by apportioning the profits on time-basis. On the basis of the partnership deed dated 1/10/1975, the partners filed another Form No. 11A on 15/12/1975, for registration. The accounts were settled only at the end of the year, i.e., on 31/03/1976, and the profits distributed in accordance with the terms of the partnership deed dated 1/10/1975.