1. This is a reference made under S. 66(2) of the Indian I.T. Act, 1922. The assessee-firm had applied for renewal of registration under S. 26A of the Indian I.T. Act, 1922. The ITO found that year after year the profit or loss of the assessee-firm was not being distributed but carried forward in the books of the firm and, therefore, the firm was not entitled to renewal of the registration. He, therefore, refused to renew the registration of the firm.
2. When the firm took up the matter in appeal to the AAC, the AAC confirmed the order of the ITO. It seems to have been admitted before the AAC that the assessee had not duly distributed the profits amongst the partners. This is clear from the following part of his order :
'A vital requirement for the grant of registration under the Act is that profits should be duly distributed amongst the partners. The assessee admits that this has not been done and the net profit as per the profit and loss account is retained in the said account as such, without even being credited to the respective partners' accounts. It was stated that because the profits were meagre, the distribution has not been made.'
3. The firm then took up the matter in appeal further to the Appellate Tribunal. It appears from the order of the Tribunal that no material was produced to show that the profits were either distributed or credited to the individual account of the partners of the firm. In a very brief order, the Tribunal disposed of the appeal and observed :
'The assessee's authorised representative was not in a position to place before us any material to show that there has been distribution of the profits among the partners at any subsequent date. In the absence of proper facts to show that the firm has distributed the profits as is required by the rules the claim for renewal of registration cannot be granted.'
4. The appeal, therefore, came to be dismissed.
5. At the instance of the assessee as directed by the High Court under S. 66(2), the Tribunal has referred the following question for consideration :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in refusing registration to the applicant ?'
6. On behalf of the assessee, Mr. Mehta has contended that the order of the Tribunal proceeds on misapprehension that it was necessary for renewal of registration that there has to be actual distribution of profits amongst the partners and, according to the learned counsel, it was sufficient compliance with the provisions of S. 26A read with the Rules if the shares of the profits are credited to the accounts of the partners. According to the learned counsel, this has been done and the authorities were, therefore, not right when they refused to renew the registration of the firm.
7. It is not possible for us to read the observations made by the Tribunal that no material was placed to show that there has been distribution of profits amongst the partners in the restricted sense in which the learned counsel wants us to do. We have reproduced earlier that part of the order of the AAC in which the AAC has observed that the share of the partners in the profits has not even been credited to the respective partner's account. The Tribunal was hearing an appeal against this order and when the Tribunal confirmed the order, we must reasonably construe the order of the Tribunal to mean that the word 'distribution' was used not in the sense of actual distribution of profits, but in the sense of allocating the profits to the share of each partner. It was sought to be contended on behalf of the assessee that the Tribunal did not look into the accounts and, according to the learned counsel, the profits have been distributed in the sense that the share of each partner has been credited to his account. It is difficult to entertain this grievance since the Tribunal has clearly observed that no material has been placed before it to show that the profits were distributed between the partners. It was for the assessee to produce the necessary material before the Tribunal so as to satisfy the Tribunal that the AAC and the ITO had erred in holding that the shares of the individual partners in profits had not been credited to their accounts. There is nothing on the record to show that the correctness of the statement made by the AAC in his order can be disputed. The assessee has not taken steps in this court for the production of the necessary material which could have been made part of the statement of the case, if he had so desired.
8. We may also point out that, referring to the law relating to the application for renewal of registration, the Supreme Court has in Sher-e-Punjab Silk Stores v. CIT : 88ITR421(SC) , pointed out that from the relevant provisions it is clear that in the case of an application for renewal of registration of a firm it is incumbent on the part of the assessee-firm to have divided the previous year's profits before it makes its application for renewal. The Supreme Court has in that case referred to rr. 2, 3 and 6 of the Indian I.T. Rules, 1922, and S. 26A of the Indian I.T. Act, 1922.
9. In our view, there is no reason to interfere with the findings recorded by the Tribunal, the AAC as well as the ITO. The reference must, therefore, be answered in the affirmative and against the assessee.
10. The assessee to pay the costs of this reference.