A change in the shares of the partners in a firm, including a change in the shares of losses, constitutes a change in the constitution of the firm for the purposes of renewal of registration under Section 184(7) of the Income-tax Act, 1961.

R.M. Sahai, J.

1. THE following question was referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that there was no change in the constitution of the firm within the meaning either of Section 187(2)(a) or section 187(2)(b) of the Income-tax Act, 1961, and the assessee-firm was entitled to the renewal of registration for the assessment years 1963-64 and 1964-65 ?" The assessee was originally constituted under a partnership deed dated 18th September, 1956, consisting of four partners, namely, Sri Madan Lal, Sri Krishna, Sri Satish Chandra and Sri Jagdish Chandra and three minors, namely, Sri Harish Chandra, Sri Girish Chandra and Sri Vijai Kumar, admitted to the benefits of the partnership. Registration was granted to the firm under Section 26A of the Indian Income-tax Act, 1922, for the assessment year 1959-60 and the same was renewed from year to year up to the assessment year 1961-62. The Income-tax Officer while scrutinising the accounts for the assessment year 1962-63 found that the loss was apportioned among the partnership in a manner different from what was contemplated in the deed of partnership. The explanation furnished by the assessee was that Harish Chandra had attained majority during the accounting year relevant to the assessment year 1962-63. The Income-tax Officer, however, was of the view that after Harish Chandra attained majority, a fresh deed of partnership should have been executed and, as this had not been done, the firm was not entitled to the renewal of the registration for the assessment year 1962-63. The Appellate Assistant Commissioner allowed the assessee's appeal as in his opinion there was no change in the constitution of the firm. The appeal filed by the Commissioner was dismissed by the Tribunal. It appears that the order passed by the Tribunal for the assessment year 1962-63 became final. For the assessment years 1963-64 and 1964-65, the Income-tax Officer refused the renewal of the registration precisely on the same ground. The Appellate Assistant Commissioner once again reversed the order passed by the Income-tax Officer against which the department filed an appeal but with no success. Before the Tribunal it was urged on behalf of the department that in the appeal for the assessment year 1962-63 the definition of the expression "change in the constitution of the firm" given in Section 187(2) of the Income-tax Act, 1961, was not brought to the notice of the Tribunal. The argument was further developed by contending that there is a change in the constitution of the firm where all the partners continue with a change in their respective shares or in the shares of some of them. It was urged that since Harish Chandra attained majority there was a change in the shares of losses, it should be taken as a change in the shares of the partners within the meaning of Section 187(2)(b). The Tribunal, on the argument advanced on behalf of the department, posed the question in the following manner:

"A fresh partnership deed was executed only on 28th July, 1964. However, the question that arises for determination is as to whether there was a change in the constitution of the firm within the meaning of Section 187(2) of the Income-tax Act, 1961, so as to require the execution of a fresh partnership deed during the said accounting year."

2. BEFORE the Tribunal reliance was placed on behalf of the department on a Division Bench decision of this court in Ganesh Lal Laxmi Narain v. Commissioner of Income-tax [1968] 68 ITR 696 (All). At the time of the hearing of the reference reliance was placed on this decision before the Division Bench which doubted its correctness and directed that the matter be heard by a larger Bench. It is in these circumstances that the matter has come up for hearing before us.

Mr. Deokinandan, counsel for the department, has, in the absence of the assessee, very fairly placed the decisions both