TMI Blog1997 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... Pratap 1,87,500 3. W. S. Parthasarathy 62,500 4. W. S. Sethunarayana Babu 62,500 5. M. S. Rajeswari 62,500 For the assessment year 1968-69, it applied for registration to the Income-tax Officer under section 184 of the Income-tax Act, 1961 (for short the Act ), on March 31, 1968. For the assessment years 1969-70 and 1970-71, it applied for renewal of registration. The Income-tax Officer rejected the application for registration on June 30, 1971. On the same day, he passed an assessment order for the assessment year 1968-69 treating the status of the appellant as an association of persons. Applications for renewal of registration for the assessment years 1969-70 and 1970-71 were rejected on March 13, 1972, and the assessment orders for those years were again passed treating the appellant as an association of persons. The appellant's application for registration was rejected by the Income-tax Officer on the ground that though in the opening paragraph of the partnership deed it was mentioned that Sunitha Pratap, a minor, was admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being construed in that manner, the firm was entitled to registration. It, therefore, dismissed the appeal. The Revenue sought a reference to the High Court and the Tribunal thought it fit to refer the following question to the High Court (see [1979] 118 ITR 18 (Mad)) for its decision : Whether, on the facts and in the circumstances of the case, and on a true construction of the terms of the partnership deed, the assessee is entitled to the benefit of registration under section 185 of the Income-tax Act, 1961, for the assessment year 1968-69 ? Against the orders passed by the Income-tax Officer refusing renewal or continuation of registration for the assessment years 1969-70 and 1970-71 the appellant had preferred two separate appeals to the Appellate Assistant Commissioner. They were allowed. The appeals filed by the Revenue against the said appellate orders were dismissed by the Tribunal. At the instance of the Revenue, for the said two assessment years the following question was referred to the High Court : Whether, on the facts and in the circumstances of the case and on a true construction of the terms of the partnership deed the assessee is entitled to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 and Patel (N. T.) and Co. v. CIT [1961] 42 ITR 224 (SC), interpreting section 26A of the earlier 1922 Act, held that registration under that section conferred a benefit on the partners which the partners were not entitled to but for that section and, therefore, that right could have been claimed only in accordance with the statute and those who claimed it had to bring their case strictly within the terms of that section. This view was reiterated subsequently by a 5-judge Bench of this court in the case of Kylasa Sarabhaiah v. CIT [1965] 56 ITR 219. At the same time, this court disapproved the mechanical application of that provision and held that in ascertaining whether the application is in conformity with the Rules, the deed of partnership must be reasonably construed . It was also held that the word specify as used in that section and the relevant rule meant mentioning, describing or defining in detail and it did not mean expressly setting out in fractional or other shares . In view of this decision the correct legal position is that the Assessing Officer cannot reject an application for registration merely because in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned and must contribute equally to the losses sustained by the firm and also the rule that where the shares in the profits are unequal, the losses must be shared in the same proportion as the profits if there is no agreement as to how the losses are to be apportioned . On facts, it was held in that case that even after applying those two principles, it was not possible to ascertain how the losses pertaining to the minor's share were to be apportioned amongst the adult partners. In an earlier decision in the case of Parekh Wadilal Jivanbhai v. CIT [1967] 63 ITR 485, this court construed the partnership deed by reading it as a whole and in the context of the relevant circumstances of the case and held that there was specification of the individual shares of the partners in the profits within the meaning of section 26A of the Act and the assessee-firm was entitled to registration. The relevant circumstances which were taken into account were (1) under clause 3 of the partnership deed the capital allotted to each partner was equal, (2) under clause 10 the net profit or loss was to be divided amongst all partners, (3) in the application the three partners were shown to sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil Nil 12.5% of profit 20% of loss 5. W. S. Rajeswari, 80, Harris Road, Madras-2. 1-7-67 Nil Nil 12.5% of profit 20% of loss.'' As minor Sunitha was admitted to the benefits of partnership it is obvious that she had not to share any loss. The losses were to be distributed among the major partners only. Since they were to share the profits in the proportion in which they had contributed the capital it was implied that they were to share the losses in the same ratio. This was the reasonable manner in which the instrument of partnership was required to be construed, applying the second principle referred to above while dealing with the case of Mandyala Govindu and Co. [1976] 102 ITR 1 (SC). Moreover, the application made by the appellant in the prescribed form clearly disclosed as to how the losses of the firm were to be distributed among the major partners. The way they had worked out their share in the loss, if any, in the schedule attached to the application was quite consistent with the provisions made in the instrum ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
