Law: Income Tax Act, 1922

Section: 26A

Law: Income Tax Act, 1922

Section: 26A

Section 184 of the Income-tax Act, 1961 [Corresponding to section 26A of the Indian Income-tax Act, 1922] - Firm - Position prior to 1-4-1993 - Assessment year 1956-57 - One 'J' and 'A' by an agreement became entitled to receive commission on sales from a company - On death of 'J', benefit of agreement was transferred in favour of applicants - Subsequently, applicants entered into a partnerships to share commission receipt and also employed staff in order to verify correctness of sales of company - For assessment year 1956-57, applicants made an application, for registration of firm under section 26A of 1922 Act on behalf of said partnership - Whether since primary requirement that there must be an actual carrying on of a business before a partnership could be said to have resulted was absent, applicants would not be entitled to benefit of registration under section 26A of 1922 Act - Held, yes FACTS One 'J' and A by an agreement dated 26-1-1950 had acquired a right of receiving. Commission of one per cent on sales from a company. On death of 'J' the benefits of the agreement were transferred in favour of the applicants, by a deed of assignment dated 10-12-1951, executed by A and the legal heirs of 'J'. On 9-8-1954, the assignees, entered into a partnership to share the commission receipts and the instrument of partnership was executed on the said date. They also employed staff in order to verify the correctness of the sales of the company. Such expenses at the time of assessment were allowed as deductions by the department. For the assessment year an application was made on behalf of the said partnership for registration of the firm under section 26A of the 1922 Act. The ITO found that no business was carried on by the applicant and 1922 therefore it did not constitute a partnership which could be registered under section 26A. Accordingly, in terms of such a decision the ITO treated the applicants as an "association of persons" and made the assessment in that status. In appeal against the assessment made, the AAC affirmed the order of the ITO. When the matter came up before the Appellate Tribunal, it held that the agreement for the alleged partnership in this…

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