Commissioner of Income Tax vs Ramraj Finance

R. Jayasimha Babu, J.—The Revenue has caused this reference, which relates to the assessment years 1971-72 to 1973-74. The questions

referred to us are :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the assessee-firm is entitled to

registration for the assessment year 1971-72 and that no material or evidence was brought on record by the Department so as to deny the benefit

of registration to the assessee ?

Whether, the Appellate Tribunal''s further finding that the question of genuineness of the firm, the share of the partners and the distribution of

profits can be gone into and examined only at the time of grant of registration for the first time and once registration has been granted, the renewal

is automatic is correct in law ?

The assessee is a partnership firm, which was constituted under a deed of partnership dated April 1, 1969. It consists of four partners. The

share of each of those partners in the profit and loss of the firm has been set out in the partnership deed. The firm was registered u/s 184 of the Act

and the registration continued up to the year 1970-71. The assessee applied in the prescribed form a declaration for continuance of the

registration. The Assessing Officer refused the continuation on the ground that the assessee had, in a settlement proceeding, agreed to have the

income of another firm, by name, Seth Kishanchand Ramchand, included in the total income of the assessee-firm and taxed accordingly. The view

of the Assessing Officer was affirmed by the appellate authority, but was reversed by the Tribunal.

The Tribunal held that there was no independent material or evidence to show that the other firm had no independent existence. It found that the

constitution of this firm had not been changed, and also that the profit-sharing ratio had not been altered. The Tribunal further held that for

continuation of registration, the Assessing;0fficer was not required to go into the profit-sharing ratio.

Though the Tribunal was not right in observing that the registration if sought to be continued, it is not open to the Income Tax Officer to apply his

mind to the profit-sharing ratio, and the identity of partners, nevertheless, on the facts found by the Tribunal, the Tribunal''s decision must be held to

be correct.

The effect of the inclusion of the income of the other firm in the income of the assessee-firm is only to boost the income of the assessee-firm and

no more. The partners do not change, nor is the profit-sharing ratio altered by reason of that inclusion. That was also not the case pleaded by the

Revenue before the Tribunal. There was no ground on the basis of which the authority could decline to continue the registration of the firm.

Whatever action the Revenue may wish to take to penalise the partners for not disclosing the full extent of their income, was still open to the

authorities to initiate, but the facts found did not warrant a refusal to continue the registration.

The first question referred to us must be answered in favour of the assessee. The second question is really hypothetical. If an answer is to be

provided, it has to be in accordance with the law laid down by the Supreme Court in the case of Commissioner of Income Tax, Kanpur Vs. Nitya

Nand Devkinandan, . The law having been settled by the Supreme Court and being binding on all the authorities in the country, the law has to be

ascertained with reference to that decision of the Supreme Court, The second question is answered in favour of the Revenue. No costs.