JUDGMENT : A. K. Sinha, J. – In pursuance of this courts order dt. 25-1-1978 the ITAT Patna Bench, Patna, has submitted a Statement of Case and referred the following question of law for opinion of this court u/s. 256(2) of the IT Act, 1961 (hereinafter referred to as the Act) :
“Whether, on the facts and in the circumstances of this case, the Tribunal is correct in law in allowing registration without giving a specific finding as to whether the firm was genuine or not ?”
2. The assessee went before the Tribunal. The Tribunal found that the grounds for refusing registration by the ITO and the Appellate Commissioner could not be taken as valid grounds and if the assessee made a proper application for registration and if the partnership was duly constituted by the partnership deed and also if the profit was allocated in terms of the partnership in the books; the registration could not be rejected.
3. Thereafter by order of this court the question, as aforesaid, has been referred for the opinion of this court u/s. 256(2) of the Act.
4. The ld. senior standing counsel for the revenue has contended that the registration could not be allowed without there being a specific finding that the firm was a genuine one.
5. It is true that for registration of the firm certain procedures have to be followed u/s. 184 of the Act. Thereafter u/s. 185 of the Act on receipt of the application for registration of the firm an enquiry also is envisaged by the ITO with regard to the genuineness of the firm and if the ITO is not satisfied then he is entitled to pass an order refusing to register the firm.
6. It is true that the execution of a partnership deed is not itself a talisman which can entitle the firm to be registered as, apart from the execution of the partnership deed, there must also be circumstances and facts to show that the deed come into existence and it carried business.
7. In the instant case the ld. senior standing counsel for the revenue concedes that the procedures to be followed u/s. 184 of the Act were duly complied with and the ld. senior standing counsel has made grievance so far as the procedural defect is concerned. The only submission advanced by the ld. senior standing counsel for the revenue is that the lower authorities had held that the partnership was not genuine and the Tribunal without going into the question of genuineness of the firm wrongly allowed registration of the same. The ld. senior standing counsel for the revenue submitted that the partnership deed was not acted upon, as found by the lower authorities.
8. In order to appreciate the submission advanced by the senior standing counsel for the revenue it is desirable to quote the operative part of the Tribunal order.
“Registration could be refused if the partnership is found to be not genuine. The lower authorities have taken the ground such as inadequacy of capital, efficiency, non-withdrawal by one of the partners and the account books not being maintained in regular course of the business, etc., which could not be taken as valid grounds for refusal of registration. If the assessee made proper application for registration the partnership was duly constituted by the partnership deed and the profit was allocated in terms of the partnership in the books, the registration could not be rejected. This view is supported by the decision of the case of Agarwal and Co. v. CIT (1970) 77 ITR 10 (SC).”
9. A perusal of the order of the Tribunal at once shows that the Tribunal was seized of the question that it had to test the genuineness of the firm. With this awareness in law, the Tribunal tested the grounds on which the registration was refused by the lower authorities and held those could not be valid ground for refusal of registration. Having held that these grounds were not valid grounds for refusal of registration then takes up the test for registration of the firm and has held that there being proper application for registration and the partnership being duly constituted and further having held that profit was allocated in the partnership in the books, it held that the registration could not be refused.
10. Though it is true that in so many words the Tribunal has not held that the firm was a genuine one but in spirit and in substance the order of the Tribunal means only one thing that the firm was a genuine one. The entire operative order of the Tribunal has been quoted above. In my opinion by reading the order as a whole (as quoted above) there cannot be any other conclusion that the Tribunal was in fact seized of the question and in spirit and substance did hold that the firm was a genuine one.
11. As already stated above though it is true that in view of s. 185 of the Act the genuineness of the firm also has to be looked into before the registration is allowed, in the present case the Tribunal in spirit and in substance has held that the firm was a genuine one.
12. Having already held that the Tribunal has in effect and in substance record that the firm was a genuine one, the question referred for the opinion of this court is answered in the affirmative. There will be no order as to costs.
S. K. Jha, J. – I entirely agree with my ld. brother that the question referred to this court be answered in the affirmative. Nonetheless, having due regard to the tenacity of the ld. senior standing counsel for the revenue in arguing this case, I think it is worthwhile to add a few words. The Tribunal has taken all the matters germane to the question at hand and has rightly held that the assessing authority as well as the Appellate Commissioner had erred in law in taking into consideration matters extraneous for the purpose of registration under the Act.