1. The question that has been referred for our determination i :
'Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the assessee was not entitled to be treated as a registered firm for 1962-63 ?'
2. By an indenture of partnership dated March 18, 1960, four persons, namely, S. V. Tambe, S. S. Tambe, V. S. Tambe, and D. S. Tambe, entered into an agreement to carry on restaurant business and agreed to share the profits thereof respectively, at the ratio of 22 nPs., 34 nPs., 22 nPs. and 22 nPs. Under clause 2 of the partnership deed the partnership was to commence with effect from January 1, 1960. Under clause 7 thereof the accounting year was to be the calendar year or any other year as might be decided from time to time. In actual practice, the accounts were kept on calendar year basis. Under clause 9 thereof the partnership was to be a partnership at will. Clause 11 of the partnership deed is as under :
'11. In the case of death or insolvency of any of the partners, this partnership shall be carried on by the remaining partners along with any additional partner or partners who shall share in the share of the outgoing partner on the terms and conditions that will then be decided by the remaining partners except in case the outgoing partner assigns his share to any person or persons, in which event it will vest in such assignee or assignees of such outgoing partner.'
3. In the course of the very first year of existence of the partnership on October 3, 1960, one of the partners, S. V. Tambe, expired. The business was, however, continued to be carried on by the remaining partners without executing any fresh deed of partnership or entering into any written agreement about the division of profits. In the account books of the firm, however, the profits of the surviving partners were allocated as under :
S. S. Tambe .... 40%V. S. Tambe .... 30%D. S. Tambe .... 30%
4. For the assessment year 1961-62, the Income-tax Officer allowed initial registration passing the following order :
'The firm was reconstituted on January 1, 1960, and Shri V. S. Tambe and Shri D. S. Tambe were admitted as partners. Thereafter, on October 10, 1960, Shri S. V. Tambe expired. The business is carried on by the remaining three partners. The registration is granted to the firm as constituted at the end of the account year.
5. The income is allocated amongst the partners as under :
Rs.1. Shri S. S. Tambe ..... 8492. Shri V. S. Tambe ..... 5743. Shri D. S. Tambe ..... 395-----2,392' (sic)-----
6. For the assessment year 1962-63, the assessee put in two applications for original registration in Forms Nos. 11 and 11A (the former form is to be used when there is no change in the constitution of the firm or the shares of the partners of the firm applying for initial registration during the previous year before the date of the application, while the latter form is to be used when there are such changes). On the very date on which these applications were made, namely, on September 29, 1962, the assessee also filed a declaration under section 184(7) of the Income-tax Act, 1961, in Form No. 12 for obtaining renewal of registration. In all these forms, the names of the three surviving partners, S. S. Tambe, V. S. Tambe and D. S. Tambe were shown with their revised shares of profit, i.e., 40%, 30% and 30%, respectively.
7. The Income-tax Officer declined to register the firm. He took the view that the partnership firm which came into existence with effect from January 1, 1960, had four partners and one partner thereof, S. V. Tambe, expired on October 3, 1960. Subsequently, no fresh deed has been executed in support of the revised sharing of profit or loss as referred to in their application for registration. Apart from the original deed of partnership dated March 18, 1960, no other deed of partnership between the three partners appears to have been produced. The Income-tax Officer, in the absence of a written deed of partnership as it existed in the calendar year 1961, declined registration of the firm of three partners for the assessment year 1962-63.
8. In an appeal filed by the assessee before the Appellate Assistant Commissioner it was contended on their behalf that since the firm was registered for the assessment year 1961-62, and there was no change in the constitution of the firm so registered, the Income-tax Officer ought to have held that the registration granted for the year 1961-62 automatically entitled the assessee to renewal of registration in the following year, when a declaration as contemplated by section 184(7) is filed. This contention urged on behalf of the assessee was accepted by the Appellate Assistant Commissioner. In the course of his order he pointed out that the Income-tax Officer while passing the order under section 185 for the assessment year 1961-62 had expressly stated that even though there was change in the constitution of the firm, the shares of the partners were divided according to the terms of the partnership deed because such contingency had been expressly provided under the partnership deed. He pointed out that in the relevant previous year for the assessment under consideration there was no change in the constitution of the firm or the shares of the partners on the basis of which registration was granted for earlier year. As a declaration as contemplated by the proviso to sub-section (7) of section 184 was furnished, according to him to Income-tax Officer was under an obligation to renew the registration of the firm under the provisions of section 184(7) of the Act.
9. In an appeal by the revenue it was urged before the Tribunal on behalf of the revenue that if regard be had to the provisions of the deed of partnership dated March 18, 1960, there was no valid firm in existence after the death of S. V. Tambe to which registration or renewal of registration could be granted for the assessment year 1962-63. In the alternative it was urged on behalf of the revenue that since the shares of the three continuing partners were not specified in the instrument of partnership, the firm was not entitled to be treated as registered. The contention on behalf of the revenue was accepted by the Tribunal. The Tribunal in the course of its order observed that under section 184(7) registration granted in the earlier year will be effective in the subsequent year, if the firm files a declaration that 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 the registration was granted. This means that for section 184(7) to come into operation, there should be an earlier registration on the basis of a partnership agreement setting forth the constitution of the firm and the shares of the partners. The Tribunal posed a query 'Where is such a partnership deed in this case ?' There was only one partnership deed executed on March 18, 1960, stating that the partnership came into operation with effect from January 1, 1960. After the death of the partner there was no other deed amongst the three surviving partners showing their respective shares. The Tribunal also observed in the course of its judgment that if there is no earlier registration of the firm which enables the assessee to file a proper declaration under section 184(7) it is obvious that section does not govern the assessee's case. The registration granted earlier does not thus come to the rescue of the assessee since that registration was not based on an instrument of partnership evidencing the constitution or the shares of the partners. In view of this reasoning the Tribunal set aside the order that was passed by the Appellate Assistant Commissioner and restored the order that was passed by the Income-tax Officer. The question above set out arises from this order of the Tribunal.
10. Mr. Patil, on behalf of the assessee, submitted that the assessee is entitled to the benefit of the provisions of section 184(7) of the Act as, for the assessment year 1961-62, registration was granted to the firm and a declaration as contemplated by the proviso to the said sub-section was furnished when the application for renewal of registration was made. He also indirectly wanted to suggest that the initial firm of four partners came to an end on October 3, 1960, when one the partners, S. V. Tambe, expired and thereafter a fresh application for registration was made for the period October 4, 1960, to December 31, 1960, asking for registration of the firm of the three surviving partners with their respective shares of 40%, 30% and 30%. His submission was that if once registration was granted to the firm of the surviving partners irrespective of the fact whether it was supported by a partnership deed or not, the assessee was entitled to the benefit of the provisions of section 184(7) and it was not open to the taxing authorities and the Tribunal to refuse renewal of registration of the assessee firm. On the other hand, Mr. Joshi, on behalf of the revenue, contended that section 184(7) of the Act has no application in the present case, because there is both a change in the constitution of the firm and the shares of the partners. He also pointed out that there was no instrument of partnership evidencing the shares of the three surviving partners on the basis of which registration could ever be granted. He, therefore, submitted that the Tribunal was right in restoring the order of the Income-tax Officer refusing to grant renewal of registration.
11. At the outset, it may be stated that when questions about particular facts necessary for determination of the matters in controversy in this reference were put to the counsel, nobody was in a position to give a categorical answer, probably because, there was no other person to give instructions to them nor the necessary records were before the court.
12. For the assessment year 1961-62 the firm which was granted registration by the Income-tax Officer was the firm consisting of four partners which was constituted under the deed of partnership dated March 18, 1960. Even though that firm should be treated as dissolved, or a change in the constitution thereof should be regarded as having occurred on the death of S. V. Tambe, one of the partners thereof, on October 3, 1960, there does not appear to be any fresh application for registration made by the three surviving partners with their respective altered shares. One thing is, however, clear that there is no instrument of partnership among the three surviving partners specifying their revised shares and in the absence of such a deed it is quite clear that the provisions of sub-section (7) of section 184 cannot be attracted. The material part of the said sub-section is as under : -
'184(7) Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment 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 the registration was granted; and.....'
13. In the absence of relevant material on record it appears that initial registration was prima facie granted to the partnership of four partners constituted under the deed for partnership dated March 18, 1960. After one of the partners, S. V. Tambe, died on October 3, 1960, even though it was open to the surviving partners to carry on the business on the terms and conditions that may be decided upon by them there was no fresh deed of partnership indicating their respective shares. In fact there is no material to indicate that registration is granted to the firm of three partners with their respective revised shares of 40%, 30% and 30%. However, if the order of the Income-tax Officer is to be interpreted as registration having been granted to such a firm constituted of the three surviving partners, then there was no instrument of partnership evidencing the respective shares of the partners who constituted this firm. Therefore, if at all it was so granted it was erroneously done. What really appears to have been done in the present case is that but for the original partnership deed dated March 18, 1960, there was no other partnership deed and for the assessment year 1962-63 the earlier deed of partnership executed on March 18, 1960, is of no avail because in the partnership which was working during the relevant accounting year, namely, calendar year 1961, there was a change in the constitution of the firm as well as in the shares of the respective partners of the firm. When such is the position, the provisions of sub-section (7) of section 184 of the Act are not attracted and the Tribunal was right in taking the view that the new partnership of three partners with revised shares was not entitled to registration especially when there was no deed of partnership evidencing the respective shares of the partners.
14. In the result, our answer to the question referred is in the affirmative. The assessee shall pay the costs of the revenue.