1981 (1) TMI 98 - AT - Income Tax

Summary

Issues:
1. Registration of the assessee firm for two different assessment years.
2. Interpretation of partnership deed regarding sharing of profits and losses.
3. Validity of registration based on profit-sharing clause in the partnership deed.

Analysis:
1. The appeals by the revenue were consolidated concerning the registration of M/s. Surjeet Singh & Co. for the assessment years 1975-76 and 1976-77. The issue revolved around the denial of registration by the ITO due to the absence of a clear provision in the partnership deed regarding the sharing of losses among partners in case of a loss. The ITO based the denial on the decision in Mandyala Govindu & Co. vs. CIT. The AAC, however, granted continuation of registration for the second year relying on the Allahabad High Court's decision in Hiralal Jagannath Prasad vs. CIT. The debate centered on the interpretation of the profit-sharing clause in the partnership deed.

2. The crux of the matter was whether the partnership deed adequately addressed the sharing of losses among partners in the event of a loss. The revenue contended that the absence of a specific provision for loss-sharing rendered the registration invalid, citing the Supreme Court's decision in Mandyala Govindu & Co. The counsel for the assessee argued that the partnership deed could be reasonably interpreted to imply that losses, if any, would be shared by the major partners in proportion to their profit-sharing ratio. The counsel relied on various legal precedents and the Indian Partnership Act, 1932, to support this interpretation.

3. The Tribunal analyzed the partnership deed clause and referred to previous judgments, including the Allahabad High Court's decision in Hiralal Jagannath Prasad and the A.P. High Court's decision in CIT vs. V. Krishna Mining Co. The Tribunal also considered a recent Full Bench decision of the Allahabad High Court in Baridnarayan Kasi Prasad. Ultimately, the Tribunal held that the partnership deed, when reasonably construed, indicated that losses, if any, would be shared by the major partners in the ratio of their profit-sharing percentages. Consequently, the AAC's decision to grant registration for both years was upheld, and the revenue's appeals were dismissed.