1. By this reference under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessees, the following question has been referred to this court for opinion :
'Whether, on the facts and in the circumstances of the case, was the refusal to register to the assessee-firm for the assessment year 1961-62 in accordance with law ?'
2. Short facts giving rise to this question may be stated : The assessment year relating to which this question has been posed is 1961-62, the relevant accounting year for which was S. Y. 2016 (i.e., November 1, 1959, to October 20, 1960). At Sangli a partnership firm named and styled 'M/s. Gandhi Fakirchand Chenabhai' carried on business from October, 1958, onwards. The instrument of partnership dated 17th January, 1959, governing the relations between the partners showed that the partnership consisted of five partners, viz., F. C. Gandhi, Babubhai, Shevantilal, Rameshchandra and Sureshchandra with respective shares of 12 nP., 25 nP., 25 nP., 19 nP., and 19 nP. It had been granted registration under section 26A of the Act for the earlier assessment years. During the relevant accounting period, viz., S. Y. 2016 (November 1, 1959, to October 20, 1960). One of the partners, F. C. Gandhi, died on August 28, 1960. The surviving four partners continued to carry on the said business under the said firm name and style with altered profit sharing proportions and the alteration of the profit sharing proportion and the alternation of the profit sharing proportion was recorded in an instrument of partnership dated 9th May, 1961, but the altered proportions of shares were made effective from 29th August, 1960. For the assessment year 1961-62, the assessee-firm applied to the Income-tax Officer for registration. Two applications were filed in that behalf, one on 22nd June, 1961, for the grant of renewal of registration and the other on 2nd June, 1961, for the grant of fresh registration. From the books of accounts and statements filed by the assessee-firm before the Income-tax Officer it appeared clear that the profits for the entire accounting period of S. Y. 2016 were ascertained, divided and credited to each of the four partners in accordance with their respective shares as shown in the first instrument of partnership dated 17th January, 1959, as if all the five partners existed on the last day of the relevant accounting year. The Income-tax Officer felt that accounts should have been made up and the profits should have been ascertained separately for the two periods of the accounting year, viz., one for the period from the commencement of the accounting year till the death of F. C. Gandhi and the other from next day after the death of F. C. Gandhi up to the end of the accounting year, that the former income should have been divided among five partners as per the first deed of partnership dated 17th January, 1959, and the latter income among four partners as provided in the second deed of partnership dated 9th May, 1961. Since the division of the income was not made, as he felt it should have been made, the Income-tax Officer called for an explanation from the assessee-firm and by its letter dated 22nd June, 1962, the assessee-firm gave an explanation that division was not made as suggested by the Income-tax Officer as the transactions from after the death F. C. Gandhi till the end of the accounting year were very small and the partners had decided to credit the profits as per the shares of the partners up to 28th August, 1960. The Income-tax Officer rejected the application filed by the assessee-firm for renewal of registration on the ground that the division of the business profits of the previous year was not made in the manner in which it should have been made for the two periods of the accounting year separately. The application for fresh registration was also rejected for three reasons : (a) that the second deed of partnership governing the relations of partners for the period subsequent to the death of F. C. Gandhi up to the end of the accounting year had been drawn up on 9th May, 1961, i.e., long after the close of the accounting year on 20th October, 1960, (b) that it was barred by time, and (c) that the declaration made in the application to the effect that the apportionment of the income of the previous year between the partners, who were entitled to share in such income was made as noted in paragraph 4 of the applications filed for registration and refused registration of the assessee-firm.
3. In the appeal preferred against the order of the Income-tax Officer the Appellate Assistant Commissioner upheld the view of the Income-tax Officer that assessment should be made as on an unregistered firm as constituted at the time of assessment, but directed the Income-tax Officer to 'allocate the profits of the firm on time basis and allocate the same to relevant partners of the first period from the income derived from the firm', because he took the view that the assessee-firm was an off-shoot of the old firm with five partners and the income of the firm up to the demise of F. C. Gandhi was otherwise assessable as in the hands of the five partners who constituted the firm. For the second period, he was of the view that the income of that period should be taxed as that of an unregistered firm. Against the direction given by the Appellate Assistant Commissioner, appeal was carried by the department to the Tribunal took the view that the direction given by the Appellate Assistant Commissioner was not in accordance with law and that the said order was liable to set aside. The Tribunal, therefore, restored the order passed by the Income-tax Officer.
4. Mr. Patil for the assessee-firm has contended before us that the rejection of the renewal of registration has proceeded on a wrong assumption made by the Tribunal that there has been merely a change in the constitution of the assessee-firm upon the death of F. C. Gandhi and, in fact, according to him, in the absence of any term to the contrary, in accordance with the provisions of section 42 of the partnership Act, the firm should have been taken to have been dissolved upon the death of F. C. Gandhi on 28th August, 1960, and, therefore, at any rate, renewal of the firm up to the date of the death of F. C. Gandhi should have been allowed. There is no doubt that the partnership deed does not contain any provision indicating that the same shall be continued and shall not be dissolved upon the death of any partner. In the absence of any such clause in the deed, the partnership must be taken to have been dissolved on August 28, 1960, upon the death of F. C. Gandhi. But, even on that basis, it is difficult to accept Mr. Patil's contention that renewal of registration for the period till the death of F. C. Gandhi should have been allowed. In our view, on a scrutiny of the application for renewal, copy of which has been annexed as annexure 'D' to the statement of the case, it will appear clear that this application for renewal has not been applied for only for that period of the accounting year co-terminus with the death of F. C. Gandhi. It had been applied for the whole of the accounting period which was relevant for the entire assessment year 1961-62. But apart from that, the application for renewal has been signed only by the remaining four partners and by none of the legal representatives of the deceased, F. C. Gandhi. It was urged by Mr. Patil that the other four partners, viz., Babubhai Fakirchand, Shevantilal Fakirchand, Rameshchandra Fakirchand and Sureshchandra Fakirchand, have put their signatures to this application and since they are the sons of the deceased, Fakirchand, the application should be taken to have been signed by them in their capacity as heirs and legal representatives of the deceased, F. C. Gandhi. It is not possible to accept this submission. In the first place, it cannot be disputed that these four partners were partners in their individual capacity in the old firm and they had signed the application for renewal in their capacity as such partners. Secondly, there is nothing to indicate that they had signed the application also as heirs and legal representatives of the deceased, F. C. Gandhi. Besides, since F. C. Gandhi died on 28th August, 1960, i.e. long after the Hindu Succession Act came into force, there would be other heirs of F. C. Gandhi, such as his widow or daughters, etc. In the absence of proper material being brought on record, it is not possible to say that the application for renewal was properly signed in accordance with the requirements of the provisions of section 26A and the relevant rules in that behalf. The application for renewal was, in our view, rightly rejected.
5. So far as the application for fresh registration of the assessee-firm made on 2nd June, 1961, is concerned, Mr. Patil fairly conceded before us that the same was obviously time-barred. If that be so, its rejection cannot be challenged.
6. In the result, we feel that refusal to register the assessee-firm for the assessment year 1961-62 was rightly held to be in accordance with law. The question referred to us is, therefore, answered in the affirmative, against the assessee-firm. The assessee-firm will pay the costs of the reference.
7. Question answered in the affirmative.