Commissioner of Income Tax vs Patliputra Engineering Corpn.

This is a reference made by the Tribunal, Patna Bench ''A'' u/s 256(1) of the income tax Act, 1961 (''the Act''). The following question of law has been framed by the Tribunal for the opinion of this Court: Whether, on the facts and in the circumstances of this case, the Tribunal was correct in allowing the claim of continuation of registration of the firm for the period up to 10-12-1967?

The relevant facts are very brief and can be gathered from the statement of the case itself. The assessment year in question is 1969-70. The assessee-firm consisted of three partners, namely, (1) Shri Jagmandir Das Jain, (2) Shri Ashok Kumar Konodia and (3) Shri B.L. Kedia. The first two persons retired on 10-12-1967. The business, goodwill, rights, assets and liabilities of the firm remained with Shri B.L. Kedia, who became liable to discharge the liability of the partners. From 11-12-1967, another partnership was formed by Shri B.L. Kedia and Baxiram Kedia. The firm applied for continuation of registration u/s 184(7) of the Act up to 10-12-1967, the date on which the first partnership ceased to exist. 2. The ITO did not accept the plea of the assessee and refused to continue the registration u/s 184(7). The order of the ITO has been marked Annexure A to the statement of the case.

The assessee went up in appeal before the AAC. He agreed with the view taken by the ITO. The order of the AAC has been marked Annexure B to the statement of the case.

On further appeal by the assessee to the Tribunal, the Tribunal, having considered all the narrations made in the partnership deed, held that the firm dissolved after the retirement of the two partners, namely, on 10-12-1967. According to the Tribunal, it was a case of succession of the firm and continuation of registration claimed for the period up to 10-12-1967 was proper.

We find no error in the order of the Tribunal, which is well supported by a Bench decision of this Court in the case of S.P. Pandey and Brothers Vs. Commissioner of Income Tax, in which it was held that section 184(7) provides that, where registration is granted to any firm for any assessment year, it shall have effect for every subsequent year, provided that (i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which registration was granted, and (ii) the firm furnishes along with its return of income for the assessment year concerned, a declaration to that effect in the prescribed form. It-was further held that section 187(2) provides that, for the purpose of section 187, there will be deemed to be a change in the constitution of the firm if one or more of the partners ceased to be partners or one or more new partners are admitted, or where all the partners continue, with a change in their respective shares or in the shares of some of them. It is an admitted fact, in the instant case, that the first firm continued to exist till 10-12-1967. There is, therefore, no error in law in the Tribunal''s order allowing the claim of continuation of registration of the firm up to the period ending 10-12-1967. We, accordingly, answer the question in the affirmative, against the revenue and in favour of the assessee. In the circumstances of the case, however, there shall be no order as to costs.