COMMISSIONER OF INCOME TAX Vs. HIRALAL AGRAWAL

JUDGEMENT

(1.) THIS is an income-tax reference under Section 256(1) of the Income-tax Act, 1961. On the direction given by this court, the Tribunal has sent the following question of law :

(2.) THE brief facts giving rise to this case are that the Commissioner of Income-tax after examination of the assessment record for the assessment years 1976-77 and 1977-78 and of the partnership deed executed on November 6, 1972, noticed that the firm comprised the following partners with the shares in profits and losses as mentioned against each name : <FRM>JUDGEMENT_21_ITR218_1996Html1.htm</FRM>

(3.) THE Commissioner of Income-tax, after considering the various written submissions placed by the assessee, observed in his order under Section 263 of the Income-tax Act that Section 187(2) clearly lays down that where there is a change in the shares of the partners, the same would amount to change in the constitution of firm and in that case, the assessee would have to apply for fresh registration under Section 185 and accordingly the declaration given in Form No. 12 seeking continuation of registration under Section 184(7) was not in order. Section 184(8) clearly provides that where any change in the constitution has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section. THE Board's circulars cited by the assessee are only in respect of cases where a minor admitted to the benefit of partnership becomes a full-fledged partner. It has been provided that where there is no change in the profit/loss sharing ratios a new partnership deed may not be necessary. THE same would not be applicable to the facts of the instant case where there had been change in the profit/loss sharing ratios and, therefore, in view of the clear provisions of Sections 187(2) and 184(8), the assessee should have sought fresh registration for the assessment years 1976-77 and 1977-78 and a declaration filed in Form No. 12 for these two years was not in order. THE Income-tax Officer's action in acting on the said declaration and in allowing continuation of registration for the assessment years 1976-77 and 1977-78 was, therefore, erroneous in so far as it is prejudicial to the interests of the Revenue. THE authority, therefore, directed the Income-tax Officer to make fresh assessment in accordance with law. Against this order of the Commissioner of Income-tax, the assessee filed the appeal before the Tribunal. THE Tribunal after examining the order of the Commissioner of Income-tax held that the view taken by the Commissioner is not correct, and allowed the appeal of the assessee. Hence, this reference application was moved by the Revenue and reference was called by this court under Section 256(2) of the Income-tax Act.