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Commissioner of Income-tax Vs. M.V. Krishnaiah and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberR.C. No. 134 of 1978
Judge
Reported in[1986]157ITR257(AP)
ActsIncome Tax Act, 1961 - Sections 182(4), 184, 184(1), 184(7) and 185
AppellantCommissioner of Income-tax
RespondentM.V. Krishnaiah and anr.
Appellant AdvocateM. Suryanaryana Murthy, Adv.
Respondent AdvocateJ.V. Srinivasa Rao, Adv.
Excerpt:
.....satisfied requirement of section 184 (1) (i) - no statutory requirement as to particular form of partnership deed - entries in day book coupled with original deed can be treated as instrument of partnership. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the..........?' 2. the facts necessary for appreciating the contentions of the parties are as follows : by a deed of partnership dated december 16, 1970, four partners were carrying on business. the accounts of the firm are to be closed by the end of december each year, that is, the accounting year is the calendar year. the partnership was registered under the provisions of the indian partnership act and registration was also granted by the income-tax officer under section 185 of the income-tax act. the firm continued to carry on business and, while so, on august 3, 1973, one of the partners by name aswathanarayanaiah died. he left a will by which he directed that his three daughters were to step into his shoes as partners in terms of clauses 7 and 8 of the partnership deed. the said clauses of.....
Judgment:

Upendra Lal Waghray, J.

1. This is a reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue by the Income-tax Appellate Tribunal, Hyderabad, in which the following question is referred for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the entries in the day book on August 4, 1973, coupled with the partnership deed dated December 16, 1970, would constitute an instrument of partnership as required under section 184 of the Income-tax Act, 1961 ?'

2. The facts necessary for appreciating the contentions of the parties are as follows : By a deed of partnership dated December 16, 1970, four partners were carrying on business. The accounts of the firm are to be closed by the end of December each year, that is, the accounting year is the calendar year. The partnership was registered under the provisions of the Indian Partnership Act and registration was also granted by the Income-tax Officer under section 185 of the Income-tax Act. The firm continued to carry on business and, while so, on August 3, 1973, one of the partners by name Aswathanarayanaiah died. He left a will by which he directed that his three daughters were to step into his shoes as partners in terms of clauses 7 and 8 of the partnership deed. The said clauses of the partnership deed are as follows :

' (7) It is decided that in the event of the sudden death of any partner or in the event of any partner applying : to adjudge him as an insolvent, the firm should not be closed but, on the other hand, it should be continued up to the end of that year ending with 31st December and then the profits and losses should be arrived at up to that period;

(8) It is decided to permit to join the firm again the legal representative of such deceased partner as partner provided all the partners give consent therefor.'

3. On August 4, 1973, in the day book of the firm, the following entries were made :

'To M. Aswathanarayanaiah account : Dr. Cr.According to your will dated July 27, 1973,your capital of Rs. 92,770.77 is debited to 92,770.77your account duly crediting to your daughters'accounts in this firm. M. Aswathanarayanaiah diedon August 3, 1973. As per clauses 7 and 8 ofthe partnership deed dated December16, 1970, and the will, his heirs, i.e., daughters,(i) Sakuntalamma (1/3rd of 25% ofM. Aswathanarayanaiah)(ii) Annapurnamma (1/3rd of 25% ofM. Aswathanarayanaiah)(iii) Sobha Devi (1/3rd of 25% ofM. Aswathanarayanaiah)are admitted to-day (August 4, 1973) as partners.'

4. The remaining three partners as well as the three daughters of the deceased and two witnesses have signed at the foot of the said entry. On August 22, 1973, information was sent to the Registrar of Firms intimating the death of the deceased and that his three daughters are admitted into partnership and would continue as partners up to December 31, 1975. A return was filed by the assessee-firm on August 2, 1974, together with Form No. 12 under rule 24 of the Income-tax Rules for entire calendar year 1973 relevant to the assessment year 1974-75. In the declaration under the said Form No. 12, it is mentioned that there was no change in the constitution of the firm till August 3, 1973, that is, date of death of the partner. The declaration was signed by the surviving partners and the three daughters. When the assessment proceedings were taken up in October, 1974, the assessee came forward with two returns, one for the period January 1, 1973, to August 3, 1973, and the other for the period August 4, 1973, to December 31, 1973, on the ground that the firm stood dissolved on the death of the said partner and that a new firm came into being from August 4, 1973. The assessee made a request to the Income-tax Officer that it should be treated as a registered firm at least till August 3, 1973. The Income-tax Officer did not grant continuation of registration. The Income-tax Officer based his decision on the grounds that there was a change in the constitution of the firm by death of the partner and, therefore, the assessee should have filed Form No. 11A along with a fresh instrument of partnership and that in view of clauses 7 and 8 of the partnership deed, on the death of the partner, there was no dissolution of the firm and hence section 187(2) still applied. Consequently, he passed an order treating the assessee as an unregistered firm. This order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner.

5. The assessee carried the matter in further appeal to the Tribunal. The Tribunal took note of the fact that there was no controversy about the firm being genuine and the entries being true. It held that the entries in the day book which were signed by the three continuing partners and the three daughters of the deceased who were admitted as partners (who became partners consequent on the death of the deceased) together with the original partnership deed constituted an instrument of partnership. The Tribunal further held that in view of the facts of this case, application under section 184(4) read with sub-section (8) of the said section in Form No. 11A framed under rule 22 should have been filed. The assessee had instead filed Form No. 12 framed under the same rule 24 under a bona fide impression that the application was required to be made under section 184(7). The Tribunal noted that the particulars and the declaration required in Form No. 11A are substantially the same as required in Form No. 12. In view of its findings that the entries in the book read with the partnership deed-constituted an instrument of partnership and there was no doubt about the genuineness of the firm or the correctness of the entries and observing that the situation had arisen due to the mistake on behalf of the assessee, it directed the assessee to file an application in Form No. 11A along with the instrument of partnership and a petition to condone the delay in filing the same before the Income-tax Officer within a period of one month. This was to be considered by the Income-tax Officer in accordance with section 182(4) read with sub-section (8). It rejected the contention of the Revenue that there was no instrument of partnership in this case and, hence, the requirements of section 184(1)(i) are not satisfied. The opinion of this court is sought only on the question mentioned above, i.e., whether the entries in the day book dated August 4, 1973, coupled with the partnership deed dated December 16, 1970, constitute an instrument of partnership for the purpose of section 184 of the Act. The entry in the day book is signed by the three existing partners as well as the three daughters of the deceased partner and specifies the share of each daughter. This, along with the original partnership deed, satisfies all the requirements of law regarding partnership agreement. Section 184(1)(i) requires that a partnership should be evidenced by an instrument of partnership and does not prescribe any particular form. The said provision in the Income-tax Act is to ensure that an application is made for registration under the Act by a genuine partnership firm, the terms of which agreement are evidenced by writing. The registration under the Income-tax Act, no doubt, allows taxation at a concessional rate and an applicant must satisfy the statutory requirements for getting registration. As there is no statutory requirement as to the form of the partnership deed, the Tribunal was right in treating the entries coupled with the original deed as an instrument of partnership.

6. It was sought to be contended on behalf of the Revenue that the Tribunal ought not to have allowed the assessee to change its application from one in Form No. 12 to Form No. 11A. This argument does not arise for decision on the question referred and the cases on which reliance was placed. viz., K. C. Trunk & Bucket Factory v. CIT Mandyala Govindu & Co. v. CIT : [1976]102ITR1(SC) and Sri Ramamohan Motor Service v. CIT : [1973]89ITR274(SC) are not relevant. Even on merits, we find that the decision of the Tribunal is just on the facts an the circumstances of the case. The question referred is answered in the affirmative, i.e., against the Revenue and in favour of the assessee. The assessee shall have its costs. Advocate's fee Rs. 250.


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