High Court Of Allahabad
CIT vs. Shiv OM Kutir Udyog
Section 184(7)
Asst. Year 1982-83
R.K. Agrawal & Prakash Krishna, JJ.
IT Ref. No. 129 of 1992
22nd February, 2005
Counsel Appeared :
A.N. Mahajan, for the Revenue
JUDGMENT
By the court :
The Tribunal, New Delhi, has referred the following question of law under s. 256(1) of the IT Act, 1961, hereinafter referred to as “the Act”, for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-firm was entitled to continuation of registration under s. 184(7) of the IT Act, 1961 ?”
The present reference relates to the asst. yr. 1982-83. Briefly stated the facts giving rise to the present reference are as follows :
The respondent is a partnership firm which had been granted registration under the Act in the preceding year. For the assessment year in question, it had filed a declaration in terms of s. 184(7) of the Act seeking continuation of the registration of the firm. The AO had declined to grant registration on the ground that the profits were not divided amongst the partners in accordance with the partnership deed. It may be mentioned here that certain cash credits amounting to Rs. 52,000 were surrendered by the respondent at the time of assessment. The P&L a/c showed a net profit of Rs. 552 which had been distributed amongst the partners of the firm and the amount of Rs. 52,000 which represented unexplained cash credits and subsequently surrendered by the respondent were not distributed amongst the partners of the firm. The order was upheld in first appeal by the AAC. However, in further appeal the Tribunal has directed the AO for granting continuation of the registration. The Tribunal has held as follows : “In this case admittedly registration had earlier been granted to the assessee for earlier years and the assessee had, for the year under consideration, duly filed a declaration in Form No. 12, as required by s. 184(7) of the Act. The declaration in Form No. 12 does not require an assessee to declare that the profits/losses of the firm have been distributed amongst the partners in accordance with the terms of the partnership deed. Continuation of registration under s. 184(7) is automatic on the filing of the required declaration and if the ITO considers that the declaration under s. 184(7) is incorrect or is of the opinion that during the previous year no genuine firm was in existence then the option open to him is to cancel registration in accordance with s. 186 of the Act. In this case by the order dt. 30th March, 1985, passed under s. 184(7), the AO has not cancelled the registration. What he says is that continuation of registration under s. 184(7) is not allowed. This could not be done because the ITO is nobody to allow or not to allow continuation of registration under s. 184(7). Once a declaration has been filed under s. 184(7) and the firm was registered for an earlier year, the registration will have effect for every subsequent year for which declaration is filed. Therefore, on its very face the order passed by the AO was untenable in law. Further on the merits, the mere fact that the assessee had certain income, which he did not disclose, does not mean that the profits of the firm have not been divided amongst the partners in the agreed profit-sharing ratio. Reliance was placed by the AO on the case of Khanjan Lal Sewak Ram vs. CIT (1972) 83 ITR 175 (SC). That was a case in which some of the partners had asserted that the secret profits earned by the firm were not distributed to them. One of the partners had even filed a suit for rendition of accounts and the Tribunal had found, as a fact, that the black market profits of the firm were not distributed amongst the partners in accordance with the profit-sharing ratio. In the case before me there is no such material on the basis of which it could be assumed that the undisclosed profit introduced in the books of account in the form of cash credits was not distributed amongst the partners in accordance with their respective shares. In Addl. CIT vs. Chanderbhan Harichand & Co. (1980) 126 ITR 709 (Del), it was held by the Hon’ble High Court that the mere fact that some of the partners made a secret profit is not by itself sufficient to justify the conclusion that there was a change in the constitution of the firm. Then in CIT vs. Swaroop Chand Kojuram Barmer (1986) 54 CTR (Raj) 104 : (1985) 154 ITR 660 (Raj), the Hon’ble Rajasthan High Court held that undisclosed income of a partnership firm can be presumed to have been distributed in the same manner as the disclosed income. Such a presumption could be raised in the present case also and the AO has placed no material on record for the assumption that the amount of cash credit surrendered by the assessee-firm as its income was not properly distributed amongst the partners. In my view, therefore, the AO had no material to hold that the assesseefirm was not a genuine firm. For the above reasons the appeal is allowed and the order passed by the AO purporting to decline continuation of registration is hereby annulled.”
We have heard Sri A.N. Mahajan, learned standing counsel for the Revenue. Learned standing counsel submitted that as the amount of cash credit had been surrendered by the respondent itself in the course of the assessment proceedings, it was incumbent upon the firm to distribute the said amount by treating it as profit amongst the various partners in terms of their shares specified in the partnership deed and as they have failed to do so the respondent was not entitled for continuation of registration in view of the first proviso to sub-s. (7) of s. 184 of the Act, the share of the partners as evidenced by the instrument of partnership is also changed. The contention is misconceived.
The profits have been divided amongst the partners in terms of the partnership deed. So far as the surrender of unexplained cash credit amount of Rs. 52,000 is concerned, it may be mentioned here that the same is to be treated as income under the deeming provisions of s. 68 of the Act on account of a legal fiction and no adverse inference regarding change of shares of partners as evidenced by the instrument of partnership can be drawn if this income is not distributed amongst the partners. Moreover, we find that this Court in the case of CIT vs. K.P. Gupta & Sons (1998) 144 CTR (All) 8 : (1998) 231 ITR 954 (All), has held that from the reading of sub-s. (7) of s. 184 of the Act, it is manifest that the assessee-firm has to establish only two ingredients for claiming continuation of registration : (1) that there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership which was the basis for granting the registration; and (2) that the firm furnished a declaration to that effect in the prescribed form within time. It is not disputed that the assessee-firm furnished the declaration in the prescribed form for claiming continuation of registration. Also, there was no finding either by the ITO or by the AAC that there was change in the constitution of the firm or change in the profit-sharing ratio, as evidenced by the partnership deed on the basis of which registration was granted for the preceding year. As there was no change in the constitution of the firm or in the profit-sharing ratio amongst the partners of the firm, the Tribunal was justified in annulling the order declining the continuation of registration.
We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.
[Citation : 279 ITR 322]
