PANDEY S P Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference by the Income-tax Appellate Tribunal, Patna Bench, under Section 256(1) of the Income-tax Act, 1961 (hereinafter called "the 1961 Act"). In the statement of the case mention of Section 66(1) of the old Act seems to be a mistake as the assessment year in question is 1962-63 governed by the 1961 Act. Sheo Prasad Pandey, Kesho Prasad Pandey and Kamla Prasad Pandey are three brothers. They along with one Srimati Phuleshwari Devi, who is said to be their mother, constituted a partnership by a partnership deed dated May 31, 1956; the partnership commenced from June 1, 1956. All the four partners had equal shares. The partnership deed was registered on June 8, 1956, in the registration office, and it was registered with the Income-tax Officer for income-tax purposes for the first time on March 11, 1958, in relation to the assessment year 1957-58. For every successive year the partnership was registered till the assessment year 1961-62. For the assessment year 1962-63, under a confusion which was common, the assessee filed an application for renewal of registration in Form No. I.T. I-A. THIS was an application for renewal of registration under the Income-tax Act, 1922 (hereafter referred to as "the 1922 Act"). THIS application was filed on April 16, 1962. Eventually, the assessee filed an application in the correct form on December 17, 1962, which was described as Form No. 12 under the Rules which came into force after coming into force of the 1961 Act. THIS was a declaration under Section 184(7) of that Act. The Income-tax Officer accepted the declaration and completed the assessment on March 15, 1963. In his order he recorded that the partners had filed a declaration under Section 184(7) on December 18, 1962, and since there was no change in the constitution of the firm, registration of the firm was granted for the assessment year 1962-63. Allocation of the profits assessed was made accordingly equally among the four partners.

(2.) LATER on, the departmental authorities noticed that the partnership dated May 31, 1956, was for a fixed term of five years. It, therefore, expired on May 31, 1961. In the course of the enquiry in a letter dated March 23, 1964, the assessee had explained that there was a fresh deed executed on May 23, 1961, and it was claimed that it had the effect of continuing the old partnership. A copy of this deed was furnished to the Income-tax Officer on April 27, 1964.

(3.) THE Commissioner of income-tax had referred to the case of National Motor Company v. Commissioner of Income-tax, [1963] 48 LT.R. 986 (Bom.) for the proposition that if under an instrument of partnership it his been constituted for a fixed term, then on the expiry of that term registration of the firm could not be allowed. THE argument advanced before the Commissioner with reference to Section 17(b) of the Partnership Act was rejected. THE Tribunal seems to hold that the partnership created by the deed dated May 23, 1961, was a new one and, hence, registration could not be allowed on the basis of a declaration filed by the assessees in accordance with Section 184(7) of the 1961 Act. I shall presently show that both the Commissioner and the Tribunal have committed errors of law and have misdirected themselves in that they have not applied the correct principle of law which was applicable to the facts of the case.