TMI Blog1978 (11) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ajority and they will bear interest at 12% per annum." Clause 12 of the deed provided: "In respect of matters not specifically provided in this agreement, the provisions of the Partnership Act shall prevail." The firm applied for registration under s. 184 of the I.T. Act, 1961. The ITO refused registration following the decision of this court in C.T. Palu Sons v. CIT [1969] 72 ITR 641 (Ker). He took the view that there was an omission to specify the shares in the losses of the firm. On appeal, the AAC held that it was clear that the shares of the partners including the minors were specified by cl. 7 of the deed in proportion to the profits and the losses of the firm. He allowed the appeal and directed that registration be granted to the firm. The said decision was confirmed on further appeal by the Income-tax Appellate Tribunal. At the instance of the revenue, the Tribunal referred the following question of law for the opinion of this court under s. 256(1) of the Act ; "Whether the assessee firm is for assessment year 1973-74 entitled to registration on the basis of the partnership deed annexed, marked annexure 'A', under the Income-tax Act, 1961 ?" Section 184 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p, to have been earned by the individual partners according to their shares, and they are taxed on their individual income including their share of profits. The advantages of this provision are obvious. The rate of tax chargeable will not be on the higher scale provided for incomes on the higher levels but on the lower one at which the income of the individual partner is chargeable. Thus, registration confers on the partners a benefit to which they would not have been entitled but for section 26A, and such a right being a creature of the statute, can be claimed only in accordance with the statute, which confers it and a person who seeks relief under section 26A must bring himself strictly within its terms before he can claim the benefit of it. In other words, the right is regulated solely by the terms of the statute, and it would be repugnant to the character of such a right to add to those terms by reference to other laws. The statute must be construed as exhaustive in regard to the conditions under which it can be claimed." After the above quotation, the Supreme Court proceeded to state that the decision was authority for the proposition that a firm which claimed the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t observed : "The appellant contends that section 26A does not require specification of the shares in losses in the instrument of partnership and it is sufficient if the proportion in which the losses are to be shared is otherwise ascertainable, and that, assuming the section did so require, clause 9 of the instrument satisfies that requirement. The contention that clause 9 specifies the respective shares of the partners in the losses is obviously untenable. This clause says that the partners are 'bound to act according to the provisions of the Indian Partnership Act'; that they are in any case, and it is not clear which provision of the Partnership Act indicated the proportion in which the partners were to bear the losses in this case. Counsel for the appellant refers to section 13(b) of the Partnership Act in this connection. Section 13(b) reads : 'Subject to contract between the partners . ...... (b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm.' We shall refer to section 13(b) in more detail when we consider the other contention of the appellant, but assuming that this provision ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Contract Act lays down that all partners are entitled to share equally in the profits of the partnership business and must contribute equally towards the losses sustained by the partnership. As I read the section, it lays down two presumptions with which the court should start. The two presumptions are clubbed in one sub-section. The first is, if no specific contract is proved, the shares of the partners must be presumed to be equal. In the present case the plaintiff alleged unequal shares which were not denied by the defendants. So the parties being agreed on their pleadings as to the shares possessed by them in the profits, there is no scope for the application of this first presumption. The second presumption is that where the partners are to participate in the profits in certain shares they should also participate in the losses in similar shares. Now, the section says that both should be in equal shares but implies that if unequal shares are admitted by the partners as to profits that applies equally to losses. In the absence of a special agreement, that this should be the presumption with which one should start is merely a matter of common sense and in India one has on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88 ITR 332. That decision had ruled that, in the absence of specification, registration could not be granted. The decision emphasised that the question was not whether the rule of sharing was discernible either from s. 13(b) of the Partnership Act or from any other general principle, but as to whether s. 184 insists that there must be a specification of shares in the instant case. This court was of the view that the expression used in the section must normally count both as regards the profits as well as the losses, and that there was no compelling reason to read down the expression and to give it a limited meaning. The Division Bench rulings in CIT v. Ithappiri George [1973] 88 ITR 332 and United Hardwares v. CIT [1974] 96 ITR 348, which followed the same, are binding on us. On the view accepted in these decisions, there must be a specification of the shares in the losses as well in the instrument of partnership. Even on the safe and liberal view pointed out by the Supreme Court that the officer must be satisfied at the time of granting registration that the shares of the partners as regards profits and losses were ascertainable, the conclusion is irresistible that the instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X
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