Law: Income Tax Act, 1922

Section: 26-A

Income-tax-Firm-Registration-Retirement of one partner and dissolution of firm during accounting year- Procedure Registration for part of accounting year-Legality-Construction of su5sequent deed-Indian Income-tax Act, 1922, S. 26-A. The assessee-firm was originally constituted by a partnership deed dated 18th April 1957. On September 30, 1957, one of the partners retired and a new partnership deed was executed on January 31, 1958, in which it was recited that the partnership constituted under the deed of 18th April 1957, was "dissolved". For the assessment year 1958-59, for which the previous year was from February 1, 1957 to December 31, 1957, the firm applied on September 5, 1957, for registration under section 26-A of the Income-tax Act. The Appellate Assistant Commissioner held that there was only a change in the constitu tion of the firm on January 31, 1958, and allowed registration of the firm for the whole previous year. The Tribunal cancelled the registration of the firm from October 1, 1957 to December 31, 1957, but allowed the registration of the firm for the period from February 1, 1957 to September 30, 1957. On a reference: Held, (1) there had been, on the specific and express terms and clauses in the deed, a dissolution both in fact and in law. (2) The kind of allocation suggested by the order of the Tribunal was illegal and not permissible under the Income-tax Act. To allocate a part to the old firm so long as it continues and the rest to the new firm when it came into existence during the accounting year could not be done by virtue of the express provisions of the deed dated January 31, 1958, which expressly declares that all debts and liabilities have been taken over by the new firm; the old firm's existence as a unit for tax liability had been wiped out by this agreement between the parties. (3) It was not, therefore, permissible to break the periods of accounting and to allow piecemeal registration of the instrument of partnership under section 26-A of the Income-tax Act. The registration under section 26-A of the Income-tax Act is an annual registration. (4) Whether on the day on which one of the partners retired a new firm…