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TMI Blog1975 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... 1922, for the assessment year 1961-62 ? " The assessee is a firm. The instrument of partnership was executed on January 5, 1959, but the application for registration under section 26A remained undisposed of until the assessment for the year 1961-62 was taken up. The instrument shows that three persons, Mandyala Narayana, Mandyala Venkatramaiah, Mandyala Srinivasulu and a minor, Mandyala Jaganmohan who was admitted to the benefits of the partnership, held the following shares: Narayana 31 per cent., Venkatramaiah 23 per cent., Srinivasalu 23 per cent. and minor, Jaganmohan, 23 per cent. Clause 2 of the instrument which sets out the shares of the partners adds that the "profits of the above partnership business shall be divided and enjoyed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of it " Rao Bahadur Ravulu Subba Rao v. Commissioner of Income-tax. The question in this case is whether in the absence of a specific statement in the instrument as to the proportion in which the partners were to share the losses, the requirement of section 26A can be said to have been satisfied. Section 26A reads : " 26A. (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (2) The application shall be made by such person or persons, and at such times and shall contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l shares of the partners in the profits as well as the losses of the business. Section 23(5) of the Act provides different procedures in the assessment of a registered firm and a firm that is unregistered. Without going into details, in the case of a registered firm the share of each partner in the firm's profits is added to his other income and he is assessed on his total income which includes his share of the profits and the tax payable by him is determined accordingly. There is a proviso which lays down that "if such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of section 24". Thus the loss, if any, affects the assessment proceeding and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has any relevance to the facts of this case, which it has not, bringing in by implication section 13(b) from a general statement that the partners are to act in accordance with the Partnership Act does not amount to specification of the partners' shares in the losses, and the instrument of partnership, it must, therefore, be held, fails to comply with section 26A of the Act, were this a requirement of that section. The other contention of the appellant is that it is not essential for registration under section 26A of the Act that the shares of the partners i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trument of partnership. Counsel for the appellant argues that clause 9 of the instrument refers to section 13(b) of the Partnership Act by implication and, accordingly, in the absence of any contrary indication, it must be held that the partners are liable to share the losses equally. The argument is not based on a correct appreciation of the scope of section 13(b) and the facts of the case. Section 13(b), it seems plain to us, makes the partners liable to contribute equally to the losses only when they are entitled to share equally in the profits. In this case the shares of the partners are not equal. In the absence of any indication to the contrary, where the partners have agreed to share the profits in certain proportions, the presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 only to rely on section 114 of the Evidence Act for such a principle." The law stated here in the context of section 253(2) of the Contract Act, 1872, applies equally to section 13(b) of the Partnership Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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