COMMISSIONER OF INCOME TAX Vs. KANHAIYALAL RAMGOPAL KAWAI

JUDGEMENT

(1.) THIS reference arises out of the order of the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, in respect of the assessment year 1977-78 and the following question of law has been referred by the Income-tax Appellate Tribunal for decision by this court :

(2.) THE brief facts of the case are that the Income-tax Officer allowed registration to the firm under Section 185 observing that the firm was genuine and the profits had been divided in the account books in accordance with the terms of the partnership deed. THE Commissioner of Income-tax initiated proceedings under Section 263 and he took the view that the profits had not been divided by the assessee in accordance with the share ratio as stated in the partnership deed dated November 4, 1975. THE share of three partners, namely, Shri Brij Mohan, Shri Satyanarain and Shri Bhagwan Swaroop, was 35 per cent., 35 per cent. and 30 per cent. respectively, whereas the assessee has divided the profits to the extent of one-third each. Since profits having not been divided according to the share ratio as laid down in the partnership deed, the Commissioner of Income-tax took the view that the Income-tax Officer was in error in granting registration to the firm and that the order was erroneous and prejudicial to the interests of the Revenue. THE registration, therefore, was cancelled and the Income-tax Officer was directed to withdraw the consequential benefits. THE Commissioner of Income-tax rejected the plea of the assessee that there was no alteration in the share ratio and it was only a bona fide mistake and the said mistake was rectified by the assessee soon after receiving the notice issued under Section 186 from the Income-tax Officer.

(3.) THE reference is accordingly answered against the Revenue and in favour of the assessee. No orders as to costs.