LEPAKSHI HANDLOOM CENTRE v. INCOME TAX OFFICER
[Citation -1984-LL-0530-2]

Citation 1984-LL-0530-2
Appellant Name LEPAKSHI HANDLOOM CENTRE
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 30/05/1984
Assessment Year 1981-82
Judgment View Judgment
Keyword Tags contribution of capital • internal arrangement • partnership act • prescribed time
Bot Summary: There was a clause in the partnership deed that the accounts of the firm would be closed on any auspicious day before the end of March in each year. Apparently, the assessee did not find such an auspicious day in March, 1981 and settled on the 4th April, 981 as an auspicious day and closed the accounts on such date. In the case of Hassanaly Sons, the firm of seven partners was said to have come into existence with contribution of capital by the new partners out of gifts made by their fathers. The ITO found that the gifts were made subsequent to the commencement of the firm. In the case of K.D. Kamath Co. vs. CIT, Mysore 82 ITR 680, the Supreme Court had pointed out that the legal representatives under s. 4 of the Partnership Act to constitute a partnership were there must be an agreement to share profits for losses of the business and the business must be carried on by all the partners or any of them acting for all. The date on which the accounts were to be closed as mentioned in the partnership deed was purely a matter of internal arrangement as observed by the Supreme Court in Kamath s case in relation to the duties of various partners. So far as the outside world is concerned, there was in fact a valid firm in existence in the present case and merely because an internal arrangement regarding the date of closure of accounts was not adhered to according to the letter of the deed, it would not vitiate the genuineness of the otherwise validly constituted firm.


This appeal by assessee relates to asst. yr. 1981-82. assessee was firm of four partners, M. subrahmanyam, K.L. Sarojini, M. Lakshmikantam and B. Venkatswarlu. Their shares in profit and loss were 40, 30, 15 and 20 in total of 105, respectively. firm was constituted under instrument of partnership dt. 17th April, 1980 w.e.f. 10th April, 1980. There was clause in partnership deed that accounts of firm would be closed on any auspicious day before end of March in each year. apparently, assessee did not find such auspicious day in March, 1981 and settled on 4th April, 981 as auspicious day and closed accounts on such date. In due course, application for registration was made, necessary formalities having been observed within statutorily prescribed time limits. ITO, however, was of view that assessee was not entitled to registration since accounts were not closed as per covenant in partnership deed on 31st March, but only on 4th April. He, therefore, declined to grant registration. assessee appealed, but without success to AAC. Before us, ld. counsel for assessee relied on order of Tribunal in I.T.A. No. 1470/Hyd/1982 dt. 19th Aug., 1983 to which one of us i.e., Judicial Member, was party, and he submitted that there was no illegality consequent to closure of accounts being postponed by four days, that is beyond 31st March. He stated that if at all there was any deviation from partnership deed, it was so minor that it could not be construed as violation. He pleaded for grant of registration. ld. Departmental Representative opposed plea and relied on decision in case of Samiur Rahman & Bros. vs. CIT (1968) 67 ITR 386 (Pat) as also decision in CIT vs. Hassanally & Sons (1971) 81 ITR 282 (Pat). We have considered rival submissions. In case of Samiur Rahman & Bros. there were material discrepancies viz., that according to deed of partnership there were four partners who were stated to be brothers, whereas according to application for bank credit partners were three brothers and father. This clearly showed that very constitution of firm as held out to public differed from that stated in deed. Patna High Court itself observed that some discrepancy of trivial nature may be ignored, but authorities to decide. In case of Hassanaly & Sons, firm of seven partners was said to have come into existence with contribution of capital by new partners out of gifts made by their fathers. ITO found that gifts were made subsequent to commencement of firm. There were also some other discrepancies which were referred to. On facts, Court held that registration was rightly refused. In order of Tribunal on which assessee has relied, several judicial pronouncements have been adverted to, to show that where there is only minor deviation, there was no scope for declining to grant registration. We are, therefore, not recounting in present order all judicial pronouncements which had already been adverted to. In case of K.D. Kamath & Co. vs. CIT, Mysore (1972) 82 ITR 680 (SC), Supreme Court had pointed out that legal representatives under s. 4 of Partnership Act to constitute partnership were (a) there must be agreement to share profits for losses of business and (b) business must be carried on by all partners or any of them acting for all. In present case, both these requirements stand fully satisfied. date on which accounts were to be closed as mentioned in partnership deed was purely matter of internal arrangement as observed by Supreme Court in Kamath s case in relation to duties of various partners. So far as outside world is concerned, there was in fact valid firm in existence in present case and merely because internal arrangement regarding date of closure of accounts was not adhered to according to letter of deed, it would not vitiate genuineness of otherwise validly constituted firm. In these circumstances, we hold that there is no justification for declining to grant registration. Registration is allowed as also appeal. Before parting with appeal, we may state that there was delay of one day, but this having occurred in past, we have condoned delay. *** LEPAKSHI HANDLOOM CENTRE v. INCOME TAX OFFICER
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