Judgment :- N. V. BALASUBRAMANIAN, J. The common question of law arising out of the orders of assessment of income of the assessee for the asst. yrs. 1978-79 to 1980-81, referred to us for our consideration reads as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant firm was not entitled to registration and continuance of registration for the asst. yrs. 1978-79 to 1980-81 ?" The assessee is a firm constituted by a deed of partnership dt. 26th July, 1977, consisting of E. Vishalakshmiammal, K. Thulasiram and K. Gnanapandian. Clause 6 of the deed of partnership provides for the profit-sharing ratio amongst the partners and according to that, all the three partners are entitled to share the profits equally at the rate of 1/3rd each. The ITO found from the books of accounts of the firm that the profit of the firm was shared among the partners at variance with cl. 6 of the partnership deed. He found from the accounts, the profit of the firm was shared at the rate of 50 : 25 : 25 as against 1/3rd share as found in the deed of partnership. The ITO held that the firm was not a genuine firm and invoked the provisions of s. 186(1) of the IT Act, 1961 (hereinafter to be referred to as "the Act"), and cancelled the registration granted to the firm. The CIT(A) upheld the order of ITO. The Tribunal on further appeal by the assessee, dismissed the appeal preferred by the assessee on the view that there was no genuine firm in existence as registered and the assessee had not made any attempt to rectify the error already occurred. The Tribunal held that on a plain reading of s. 186 of the Act, there was no genuine firm in existence and the firm was not constituted in accordance with the partnership deed dt. 26th July, 1977. The assessee has challenged the order of the Tribunal.Mr. R. Janakiraman, learned counsel for the assessee, submitted that under the provisions of s. 184 of the Act, the ITO is required to consider only two matters; (i) whether the firm is a genuine one, and (ii) whether the firm was constituted in accordance with the terms of the partnership deed. The assessee has challenged the order of the Tribunal.Mr. R. Janakiraman, learned counsel for the assessee, submitted that under the provisions of s. 184 of the Act, the ITO is required to consider only two matters; (i) whether the firm is a genuine one, and (ii) whether the firm was constituted in accordance with the terms of the partnership deed. According to the learned counsel for the assessee, the ITO has granted registration after satisfying himself that the firm was a genuine one and the firm was constituted under the terms of the partnership deed. He submitted that the expression, "genuineness of the firm" in s. 186 of the Act should be given the same meaning as found in s. 184 of the Act, and it is not open to the ITO to travel beyond the scope of s. 184 of the Act and cancel the registration because the profits of the firm were distributed in the accounts of the firm not in accordance with the terms of the partnership deed. Learned counsel referred to s. 271(4) of the Act and submitted that if the firm had distributed the profits among the partners not in accordance with the terms of the partnership deed, the only course available to the ITO would be to levy penalty under s. 271 of the Act and it is not open to him to cancel the registration. Learned counsel for the assessee also submitted that the ITO should have given an opportunity to the assessee to rectify the defects in the form of application for registration and, therefore, the cancellation of registration of the firm was not valid in law. Learned counsel for the assessee also submitted that the ITO should have given an opportunity to the assessee to rectify the defects in the form of application for registration and, therefore, the cancellation of registration of the firm was not valid in law. Learned counsel for the Revenue, on the other hand, submitted that the expression, "genuineness of the firm" would comprehend not only the two aspects advanced by the learned counsel for the assessee, but would include all other matters which relate to the distribution of profits among the partners and when the firm has not distributed the profits in accordance with the terms of the partnership deed, the firm is not entitled to the benefit of registration and is not entitled to continuation of registration.Sec. 184 of the Act deals with the registration of a firm and it provides that for registration of a firm, the partnership is to be evidenced by an instrument and the individual shares of the partners are to be specified in the instrument. Sub-s. (1) of s. 184 of the Act deals with the application for registration and s. 184(6) of the Act provides that the application should be in the prescribed form and shall contain the prescribed particulars. Rule 22(2)(i) of the IT Rules, 1962 provides that the application shall be made in the prescribed form and the prescribed form is Form No. 11. Under cl. (4) of Form No. 11, the partners should specify that the profits of the firm relevant for the previous year were/will be divided or credited as shown in the schedule and there is also a requirement that the information given in the schedule should be verified to be correct, and in the schedule to the Form No. 11, the partners are required to state the mode of sharing the balance of the profit or loss and specify the percentage of a share of the profit or loss of the sharer. Sec. 185 of the Act prescribes the procedure to be followed on receipt of application for registration and under s. 185 of the Act, the ITO is required to inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership and if he is satisfied that there is or was during the previous year in existence, a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the particular assessment year. Sec. 186 of the Act empowers the ITO to cancel registration of the firm, if he is satisfied that there was during the previous year no genuine firm in existence as registered, after giving a reasonable opportunity to the assessee and after getting approval of the IAC.The essential conditions for the grant of registration of a firm under the provisions of s. 26A of the Indian IT Act, 1922 were considered by the Supreme Court in R. C. Mitter & Sons vs. CIT and the Supreme Court held that the following conditions should be satisfied for the grant of registration to the firm : "1. That the firm should be constituted under an instrument of partnership, specifying the individual shares of the partners; 2. That an application on behalf of, and signed by, all the partners, containing all the particulars as set out in the Rules, has been made; 3. That the application has been made before the assessment of the income of the firm, made under s. 23 of the Act (omitting the words not necessary for our present purpose) for that particular year; 4. That the profits (or loss, if any) of the business relating to the previous year, that is to say, the relevant account year, should have been divided or credited, as the case may be, in accordance with the terms of the instrument; and lastly, 5. That the partnership must have been genuine, and must actually have existed in conformity with the terms and conditions of the instrument." The position of law stated in the above decision of the Supreme Court was reiterated by the Supreme Court in another case in Ratanchand Darbarilal vs. CIT. That the partnership must have been genuine, and must actually have existed in conformity with the terms and conditions of the instrument." The position of law stated in the above decision of the Supreme Court was reiterated by the Supreme Court in another case in Ratanchand Darbarilal vs. CIT. The apex Court has laid down that one of the conditions to be satisfied for the grant of registration is that the profits or loss, if any, of the business relating to the accounting year should have been divided or credited, as the case may be, in accordance with the terms of the instrument of partnership and only on fulfilment of all conditions, there is an obligation cast upon the ITO to grant the benefit of registration and allow the firm to have the benefit of registration.The Supreme Court in Sri Ramamohan Motor Service vs. CIT has taken the view that before the firm can claim the benefit of registration, the firm must strictly comply with all the requirements of the section concerned and the substantial compliance with the rules would not be sufficient for the grant of registration. It is in the light of the decisions of the Supreme Court, the question whether the assessee is entitled to the registration of the firm has to be considered. The Allahabad High Court in Setha Ram Dhanvir Singh vs. CIT, on a more or less similar factual situation held that if the ITO finds that factually the division of profit or loss was at variance with the shares specified in the instrument of partnership, it would be open to the ITO to cancel the registration of the firm. The reasoning of the Court was that the expression, "genuineness of the firm" in s. 186 of the Act would indicate that the firm applying for registration must be really in existence and the partners are collectively carrying on the business and the conditions like the specified constitution of the firm, the identity of the partners and their shares in the profit or loss of the firm's business should be satisfied. The Allahabad High Court held that if it was found that the partners after indicating one mode of division of profit or loss in the deed of partnership, have divided the profit or loss by adopting some other share-ratio voluntarily and knowingly, the firm cannot be regarded as a genuine firm with the specified constitution. We are in agreement with the view expressed by the Allahabad High Court. We have seen that it is the requirement of law that the identity of the partners must be disclosed and their share in the profit or loss must be specified in the instrument of partnership and the partners are all required to divide the profits in accordance with the shares specified in the instrument of partnership and the division of profits by the partners must be in accordance with the terms contained in the instrument of partnership and it is on the fulfilment of all the conditions, it can be said that the firm registered is a genuine firm as constituted and can be registered under the provisions of the Act. In our view, the expression, "genuineness of the firm", in the context of ss. 184 to 186 of the Act is not limited or confined to the mode of business carried on by the firm, but it would encompass within itself other essential requirements for the grant of registration of the firm and one of the essential requirements for the grant of registration is the division of profits by the partners in accordance with the shares specified in the instrument of the partnership.Coming to the facts of the case, the assessee at the time of filing the application for registration in the prescribed statutory form has given an undertaking that profits of the firm would be distributed in accordance with the schedule to Form-11, but ultimately, it was found that profits were distributed not in accordance with the instrument of partnership. Therefore, it must be held that there is a breach of statutory undertaking by all the partners and the breach of statutory undertaking will have the effect of denial of the benefit of grant of registration to the firm. The submission of the learned counsel for the assessee was that the assessee should have been given an opportunity by the ITO to rectify the defects noticed by him. The submission of the learned counsel for the assessee was that the assessee should have been given an opportunity by the ITO to rectify the defects noticed by him. The statement with reference to the division of profits is based upon the division of profits found in the accounts of the firm and when the assessee consciously admitted that there was a division of profits not in accordance with the instrument of partnership, it is not necessary for the ITO to grant a fresh opportunity to the assessee to rectify the defects as the defects contemplated in s. 185(2) of the Act would not cover conscious defect committed by the assessee in the division of profits among the partners not in accordance with the terms of the partnership deed. We are of the view that the question of granting an opportunity would arise had there been some defect in the form filed for the purpose of registration. We hold that where according to the accounts, the profits of the firm have already been divided, the granting of an opportunity to rectify the defect in the form would be an empty formality and would serve no purpose as the profits have already been divided among the partners in a particular manner as exhibited in the accounts and the accounts cannot be rewritten contradicting the actual division of profits among the partners, particularly in a case where it was found that the error committed was not accidental, but deliberate in the division of profits.N. S. S. Sokkalingam Chettiar & Co. vs. CIT, is a case dealing with registration of firm and in that case, on facts it was found that there was no division of profits in accordance with the terms of the partnership deed, and some of the partners were paid salary in addition to their shares to which they were entitled under the terms of the partnership deed. This Court held that the net profit was arrived at after deducting the salary given to the employees and the fact that some of the partners undertook to do certain extra duties of the firm and were paid for it would make no difference and the decision is clearly distinguishable and is not applicable to the facts of this case. This Court held that the net profit was arrived at after deducting the salary given to the employees and the fact that some of the partners undertook to do certain extra duties of the firm and were paid for it would make no difference and the decision is clearly distinguishable and is not applicable to the facts of this case. Learned counsel for the assessee also relied upon the decision of the Rajasthan High Court in the case of CIT vs. Narbada Shankar Bhikkabhai. In that case, it was found that the profits were divided in accordance with terms of the partnership deed and only the difference was that instead of 100 per cent, 63 per cent of profits were divided among the partners, except one of them who had retired and who had 37 per cent. Therefore, the decision of the Rajasthan High Court is not applicable to the facts of the case. Learned counsel for the assessee also brought before us the decision of the Supreme Court in the case of Agarwal & Co. vs. CIT wherein conditions for registration prescribed in s. 26A of the Indian IT Act, 1922 were considered. The Supreme Court in the above case reiterated the following conditions : "(1) on behalf of the firm, an application should be made to the ITO by such person and at such items and containing such particulars, being in such form and verified in such manner as are prescribed by the rules;(2) the firm should be constituted under an instrument of partnership; (3) the instrument must specify the individual shares of the partners; and (4) the partnership must be valid and genuine and must actually exist in the terms specified in the instrument." Learned counsel for the assessee, therefore, contended that the condition that the profit or loss of the business of the firm should have been divided or credited in accordance with the terms of the partnership deed is not an essential condition as held by the Supreme Court in considering the question whether the firm is a genuine one or not. He also relied upon the decision of the Supreme Court in the case of CIT vs. Sivakasi Match Exporting Co. He also relied upon the decision of the Supreme Court in the case of CIT vs. Sivakasi Match Exporting Co. and submitted that the jurisdiction of the ITO to grant registration is confined to two aspects : (i) whether the application for registration was in conformity with the rules made under the Act, and (ii) whether the firm shown in the document presented for registration was bogus one or had no legal existence. The decisions of the Supreme Court in Sivakasi Match Exporting Co. case (supra) and in Agarwal & Co. case (supra) are not applicable to the facts of the case. In both the cases, the Supreme Court was not dealing with the question whether the firm would be regarded as a genuine firm though the profits of the firm were not distributed in accordance with the terms of the partnership deed and in the statutory declaration, a different profit-sharing ratio was indicated. The Supreme Court in Ratanchand Darbarilal vs. CIT (supra) after noticing the decision in Sivakasi Match Exporting Co. case, cited supra, held that one of the essential conditions for the registration of firm is that the profit or loss of the business should be divided or credited in accordance with the terms of the partnership deed.The assessee, in the instant case, had not divided the profits of the firm in accordance with the terms of the partnership deed. Further, the Supreme Court in Sivakasi Match Exporting Co. case held that the ITO should not reject the application for registration, if the assessee furnishes necessary particulars prescribed for registration. The decision of the Supreme Court makes it clear that furnishing of particulars in accordance with the rules is an essential requirement and in the instant case, there is a variation in the mode of the sharing the profits between the form filed for grant of registration and the deed of partnership and hence, the firm is not liable to be regarded as a genuine firm. The assessee filed the requisite form on the basis of the accounts maintained by the partnership firm and when the entire form is liable to be rejected, it cannot be said that there was an application pending before the ITO for his consideration for the grant of registration. The assessee filed the requisite form on the basis of the accounts maintained by the partnership firm and when the entire form is liable to be rejected, it cannot be said that there was an application pending before the ITO for his consideration for the grant of registration. Learned counsel for the Revenue invited our attention to the decision of Punjab & Haryana High Court in the case of CIT vs. Ram Saran Inder Singh wherein the Court held that the assessee is not entitled to registration and continuation thereof as the corrigendum with regard to the distribution of profits was issued subsequently. The Punjab & Haryana High Court further held that there was no valid partnership deed in existence for the firm till that date. The Punjab & Haryana High Court proceeded on the basis that where there is a change in the constitution of the firm and the new constitution was evidenced by the partnership deed and the distribution of profits was not in accordance with the new partnership deed, the firm is not entitled to registration. The decision of the Punjab & Haryana High Court, in our view, supports the case of the Revenue to the extent that profits of the firm should be distributed in accordance with the terms of the partnership deed and if it was not distributed in accordance with the terms of the partnership deed, then, the conclusion that follows will be that the firm was not constituted in accordance with the terms of the partnership deed.Learned counsel for the assessee also referred to the provisions of s. 271(4) of the Act and submitted that if the profits of the registered firm have not been distributed in accordance with the shares of partners as shown in the instrument of partnership, the partners would be liable to pay penalty, and he submitted that the ITO should have proceeded under the provisions of s. 271(4) of the Act and should not have cancelled the registration of the firm on the ground that it is not a genuine firm. In other words, according to the learned counsel for the assessee, the only remedy available for the ITO would be to levy penalty under s. 271(4) of the Act and he has no power to cancel the registration under s. 186 of the Act. In other words, according to the learned counsel for the assessee, the only remedy available for the ITO would be to levy penalty under s. 271(4) of the Act and he has no power to cancel the registration under s. 186 of the Act. We are unable to accept the contention of the learned counsel for the assessee. Sec. 271(4) of the Act provides for levy of penalty on the partners in case where the profits of the firm were not distributed in accordance with the terms of the partnership deed, but, on the other hand, s. 186 is intended to operate against the firm in such contingency, the registration of the firm is liable to be cancelled under s. 186 of the Act on the ground that the firm is not a genuine one. It is no doubt true that the ITO has the power to levy penalty on the partners under s. 271(4) of the Act. In our view, in the absence of any provision showing any contrary intention, there is an option left with the ITO to invoke any one of the provisions or both the provisions. Further, the availability of the power to levy penalty against the partners under s. 271(4) of the Act does not, in our view, preclude the ITO from exercising his powers under s. 186 of the Act, if the statutory requirements found in s. 186 are satisfied. In our view, the two powers conferred upon the ITO by the Act are distinct and different and the availability of one does not preclude the officer from exercising another statutory power vested in him.We find that the explanation offered by the assessee that the division of shares as shown in the accounts was an error and was not intentional was not accepted by any of the authorities. The assessee-firm has not made any attempt to rectify the error that crept in its accounts and it was found that the error was not accidental. In our view, since the profits of the firm were divided not in accordance with the terms of the instrument of partnership, the Tribunal was justified in holding that there was no genuine firm in existence and the order of the Tribunal holding that the firm was not constituted in accordance with the partnership deed dt. 26th July, 1977, and hence, not a genuine firm is sustainable in law. 26th July, 1977, and hence, not a genuine firm is sustainable in law. Accordingly, we answer the common question of law referred to us in the affirmative in all the Tax Cases, against the assessee and in favour of the Revenue. The Revenue will be entitled to costs of the reference of a sum of Rs. 2, 000 one set.