KHANJAN LAL SEWAK RAM versus COMMISSIONER OF INCOME TAX, U.P.

Citation: [1972] 1 S.C.R. 502 · Decided: 31-08-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

502 
KHA~iAN LAI. SEWAKRAM 
V. 
COM~issioNER O'F' INC0ME '.fAX'.; u.:P .. 
August 3'L 1971 
(K. s.· iitoa'E AND N.. :N. GRovER, 11.]' 
' 
Income .Tax Ac! (IL of !92i)". ~- 26A iznd rl'. 6(3) and 6A of the 
Rules-Application for renewal of regi::;trarion-Book Profit/ distributed 
'but black 1narket. profits not dislribu(ed-lf finn entitled to renevJal of re-
gistration. 
· 
... 
The assessec was a registered firn1. 
The 
partners 
applied 
to 
the 
Income-tax Officer for renewal of regi~_tratiori. 
To that application they 
C 
ap)?enL1ed a certificate· that the profits of the prcviotu1 year were divided' or 
ciedilcO as shbwn.· W.hile the application' \vas pending', the partners fell 
oUf and the Irlcome"-tax Officer founc. that the firm had ea"tned 'considerable_ --
Ql'ick n1a·rket profits which had nqt been credited in the account books and 
h'at1.• not been distributed among the partners· in accordati.ce with the instru-
n\eht of partnership. 
The Depaitmerit, Tri6unal and the Hig.h Court, on 
reference, held" that th-e firm Was not entitled to renewal. 
Di$missing the appeal· to this Courf, 
HELD" : Under s. 26A of the Income-tax Act, 1922, one of the con-
difions fof registration and• renewal is that the applica~rl should contain 
rucb pa:iticulars aS are prescribed in the Rules under the AcL Rule 6(3) 
pf6vioes that the partners should append a ceriificate to the application for 
renewal that the profits (or loss if any) of the previous year or period up 
D 
(o the date of dissolution were divided or credited as shown. So long as 
E 
the divisible 'j)rofits had· in fact been clivided o~ had been credited to the 
abc6tiht's pf the Partners, the' requirements of t~e. provision must be held 
to
1 h~ve bcell' c.Q.tn].!li~d...-With. But the certificate is nOf a mere forn1ality 
because: a registered firm is nor t'axable. but only the partner and, i,f a 
Pbffl.on of the profits earned by the firm was.not actually divided amongst 
the partners or credited' to theiti accounts. to that extent the assessee firm 
}lad evade(} tax. · ln such a case the only course open to the Income-tax 
0ffiber is- not (o register t1:ie firrh. but to tax the paftners of the firm as an 
F 
asrobiaifoW of persons. [506 s: G; 507 C-G] 
• Since,, it\ th~ pr'escrit case, the appliCation _for renewal .of registration 
did not cotnply witlf·the prescribed conditio'hs. under r. 6A. the 1ncon1e-tax 
Officer wa~ iustifieC in iefusing renewal of registration. [.5.07 F-G] 
Agarwal & Co. v. C.I.T., U.P., 77 I.T.~. LO (S.C.), followed. 
C1v1L APPEL.LATE JuRISD!CTION : Civil Appeal No. 1947 of 
G" 
1968. 
"'p]'J~~I from thejudgment and decree dated J&nuary 21, 1964 
of the A'Ilaha!lad H1gh Court in Misc. Income-tax Reference No. 
383 of 1:958. 
t. A. R:'am'aChanlfrali' and A.G. Ratnapatkhi, for the appellant. 
H 
tj. Sen, f. R'amamurtJ::v, R". N. Sachthey ancf B. D. Sharma, 
for fue· r.espondent. 
_ 
• 
.. 
A 
KHAJAN LAL v. C.I.T., U.P. (Hegde, J.) 
503 
The Judgment of the Court was delivered by 
Hegde, J This is an appeal by certificate. 
It arises 
from• 
a decision of the Allahabad High Court. 
The appellant is 
the 
assessee and the concerned assessment year is 1948-49. 
The assessee is a firm constituted under an 
Instrument of 
B partnership dated April 30, 194 7. 
The shares of the partners in 
the profit and loss of the firm as mentioned in that deed are as. 
follows : 
1. L. Khan jan Lal--/ 4 I -
2. L. Lalloo Ram- -/2/ 
C 
3. L. Dwarka Prasad- -/2/-
D 
E 
F 
4. L. Ram Lal- -/2/-
5. L. Sewak Ram- -/4/-
6. Smt. Jagrani Devi- -/2/-
Lallu Ram, Dwarka Prasad and Ram Lal are the children of 
Khanjan Lad. 
Sewak Ram is the son of Jagrani Devi. 
The first 
uoup has -/ 10 /- share in the profit and loss of the firm and the' 
second group has -/ 6/- share. 
The assesesee firm was registered for the assessment year 
1947-48. 
On July 12, 1949, the partners of the firm applied to 
the Income-tax Officer for renewal of the registration for the 
assessment year 1948-49. 
That applicat.ion was signed by all the-
partners. 
To that application they appended a certificate to the 
effect that "profi\s of the previous year were divided or credited 
as shown below ... " On -November 5, 1949, the partnership-
was disssolved under a deed of distribution dated November 9, . 
. 1949 
One of the clauses in that deed provides : 
"But if an amount which was not entered in the 
books at the time of settlement is found then only that 
person will be accountable for it thro

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