Law: Income Tax Act, 1922

Section: 26A

Sections 184 to 186 of the Income-tax Act, 1961 [Corresponding to section 26A of the Indian Income-tax Act, 1922], read with rule 3 of Indian Income-tax Rules, 1922 - Firm - Registration of - Assessment year 1958-59 - Whether there is nothing in rules to show that losses incurred by a firm were to be accounted for in any particular manner and in no other way - Held, yes - Whether where losses incurred by firm was divided in ratio of shares of partners and registration application made by firm was not defective, renewal of registration could not be refused to it - Held, yes FACTS For the assessment year 1959-60, the assessee-firm made an application for renewal of registration for the relevant accounting year the assessee disclosed certain loss and stated that the partners had divided the share of loss. The ITO was of the opinion that there was no proper division of the loss. The firm had not shown the loss in the business for the relevant year in any books of account, but in a loose sheet of paper and that the firm had not credited or debited the resultant effect of the trade in the individual accounts of the partners as required under the law and accordingly he rejected the application for renewal. On appeal, the AAC affirmed the order of the ITO. On second appeal, the Tribunal found that it was not the assessee's case that the partners individually brought in the requisite cash to wipe out their share of loss. The accounts also did not show that the five partners were indebted to the firm to the extent of the losses suffered by them. It was not a mere case of defective accounting, losses having been divided otherwise. In view of the above, the Tribunal upheld the findings of the department that the loss of the firm had not been actually distributed between the partners as required by the Income-tax Rules. The ITO was, therefore, justified in refusing to renew registration of the firm. On reference : HELD The jurisdiction of ITO under section 26A of the 1922 Act was confirmed confined to ascertaining the two facts, viz. (1) Whether the application for registration was in conformity with the rules made under the Act, and (2) Whether the firm shown in the…

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