NAINSUKHDAS JAINARAIN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the assessment year involved is 1969-70. The assessee-firm filed a declaration in Form No. 12 of the I.T. Rules, 1962, for a continuation of registration up to August 4, 1968, and also an application in Form No. 11A for a fresh registration. According to Form No. 12, there were six partners up to August 4, 1968. Form No. 11A showed that there was a change in the constitution of the firm with effect from August 5, 1968, by a fresh deed of partnership dated August 5, 1968, between two partners, Shri Ramlal Daga and Sri Srinarain Daga, the remaining four partners having retired earlier. It was stated before the ITO that one of the partners, Sri Srinarain Daga had retired on March 30, 1968, and that a division of profits had been made proportionate to the periods of the different constitutions of the firm. There was no deed of partnership of the five partners after the retirement of Shri Srinarain Daga. The ITO, however, did not accept that there was a change in the constitution of the firm on March 31, 1968, on account of the retirement of Sri Srinarain Daga. He held that the four partners retired on August 4, 1968. The ITO, further, held that there was no proper ascertainment of profits of the firm for the two different periods and that the shares were not allocated between the partners of the originally constituted firm according to their shares in the deed of April 23, 1966. The ITO, accordingly, refused registration under Section 185(1)(b) of the. I.T. Act, 1961.

(2.) Aggrieved by the aforesaid decision, the assessee went up in appeal before the AAC. It was submitted on behalf of the assessee before him that the profit sharing ratio could not be in accordance with the original partnership deed of April 23, 1966, as Sri Srinarain Daga had retired, according to the assessee, on March 30, 1968. The assessee also filed a copy of the notice of Sri Srinarain Daga dated February 5, 1968, by which he had purported to retire from April 1, 1968. The AAC was of the view that these facts were inconsistent with the declaration in Form No. 12 and that if the return was true, the declaration form was untrue and no registration could be allowed on the basis of the declaration Form. In respect of the period from August 5, 1968, he also took the view that the profits of the two periods were not correctly ascertained and the allocation of profits between the partners was not in accordance with the partnership deed dated August 5, 1968. It was urged before the AAC that the firm had not been held to be not genuine and that the profits according to time basis had been properly allocated between the partners. So the registration should have been allowed. The AAC was of the view that profits of different periods should have been ascertained according to the mercantile system and not on time basis and there was no correct ascertainment of profits for the period from August 5, 1968, to August 21, 1968, due to the confusion of the date of retirement of the partner, Sri Srinarain Daga and, accordingly, there was no correct allocation of profits as per the deed of August 5, 1968. He, therefore, upheld the order of the ITO.

(3.) Aggrieved the assessee went up in further appeal before the Tribunal. It was submitted before the Tribunal, on behalf of the assessee, that the ITO did not accept that Sri Srinarain Daga retired on March 30, 1968, and the ITO held that all the four partners retired on August 4, 1968. It was urged that this is a mistake in understanding the real position about the retirement of Sri Srinarain Daga and in fact he had retired on August 4, 1968, and the error in accounts about the allocation of profit between the partners up to August 4, 1968, should have been allowed to be rectified. Reliance was placed on certain decisions of the Supreme Court to which we shall also refer. It was submitted that the registration should have been allowed at least for the period from August 5, 1968, to the end of the accounting period as there was a proper deed of partnership for that period. The Tribunal was of the view that the ITO had held that four partners retired on August 4, 1968, and Sri Srinarain Daga did not retire on March 30, 1968. The ITO, according to the Tribunal, found that profits for the period up to August 4, 1968, had not been allocated between the partners according to their shares as per the deed of April 23, 1966. The assessee did not plead before the Revenue authorities that there was any mistake in allocating the shares between the parties up to August 4, 1968. Rather, the assessee's case, according to the Tribunal, before the AAC was that Sri Srinarain Daga had retired on March 30, 1968, in pursuance of the notice dated February 5, 1968. The assessee did not correctly ascertain the profits for the last period according to the mercantile system which it followed and, consequently, for this period also there was no proper allocation of profits between the partners as per the deed of August 5, 1968. For the reasons aforesaid, the Tribunal was of the view that there was no case for interference with the order of the AAC. The appeal by the assessee was, accordingly, dismissed.