Law:

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Section 186(1) of the income-tax act, 1961-Firm-Cancellation of registration-Minors attaining majority, but no fresh partnership deed executed specifying their share of losses-Whether ITO justified in cancelling firm's registration on the ground that no genuine firm existed-Held, on facts, yes Facts The assessee-firm was granted registration for the assessment year 1963-64 and continuance of registration up to and including the assessment year 1968-69. Subsequently, the CIT cancelled the registration for the assessment year 1968-69 by taking action under section 263. The ITO too initiated action under section 186(1) and cancelled the registration for the assessment years 1965-66 to 1967-68. The cancellation was ordered on the ground that the two minors, who had been admitted to the benefits of partnership each holding twenty-five per cent share, attained majority on different dates in the previous year ended 31-3-1964 and that no fresh partnership deed was drawn up thereafter. The ITO held that, since the firm failed to seek fresh registration for the assessment year 1965-66, it was not entitled to continuance of the registration. In appeal, the AAC restored the registration on the ground that mere omission or defect in the application or in the deed of partnership did not warrant cancellation of registration. On further appeal, the Tribunal held that the firm constituted under the original partnership deed did not exist since two minors on attaining majority had become regular partners. As such, the cancellation of the registration was upheld. On reference : Held Before exercising the power conferred under section 186(1), the ITO should be satisfied as to the genuineness of the firm. The conditions to be satisfied are : (a ) the firm should really be in existence and carrying on business ; (b) the identity of the partners as well as their shares ought to be and must continue as specified in the instrument of partnership for proper determination of its genuineness. In the present case, the partnership deed provided that the minors, on attaining majority, would continue to be partners with the share of profits and losses as held earlier. However, the partnership…

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