TMI Blog1966 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ive from 18th July, 1948. According to the deed of partnership, which was in Hindi, and an English translation whereof was annexed as annexure " A " to the statement of the case, the firm consisted of six major partners. The opening paragraph of the deed mentions that the partnership deed is between the aforesaid six parties. The first party is Hiralal. It is his son, Ram Prasad, who was admitted to the benefits of the partnership. The minor is not mentioned as one of the parties to the partnership deed. It is only in clause 3 of the deed that Ram Prasad is mentioned. That clause reads : " 3. That in the partnership business the share of the first party shall be 1/7th and in the same way the share of each of the other partners shall be 1/7th and each party shall be entitled to get the profits and be liable to bear the losses according to his share and the parties have admitted Ram Prasad, minor son of Hiralal Sahu, the first party, to the benefit of partnership according to section 30 of the Indian Partnership Act and he also will get 1/7th share in the profits of the firm." (Underlining ours) Clauses 7 and 9 of the deed run : " 7. That on the date when the parties commenced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7th of the losses only. If the partners had not made specific agreement regarding the sharing of losses, the alternative plea of the assessee could have been that the total losses of the firm will be shared by the major partners of the firm in the same proportion in which they were sharing the profits. But since there is a positive agreement that each major partner is liable to 1/7th of the loss only, the share of loss to the extent of remaining 1/7th remains unspecified. At any stage and, in the eventuality of there being loss in the firm in any year, any partner can disown the loss over and above the extent which is covered by 1/7th falling to his share according to the specific agreement in clause 3 of the said instrument of partnership." The registration was accordingly refused. The Appellate Assistant Commissioner confirmed the order of refusal. The Tribunal did likewise, holding that the registration was intended to confer benefits upon the partners and the conditions for obtaining such benefits required to be strictly complied with, and as there was no provision specifying as to who would bear the 1/7th share of the loss, the partnership deed cannot be said to comply with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : " Note.-This application must be signed personally by all the partners (not being minors) in the firm as constituted at the date on which the application is made, or where the application is made after dissolution of the firm, by all persons (not being minors) who were partners in the firm immediately before dissolution and by the legal representative of any such person who is deceased." Thereunder is Schedule A and then Schedule B. In column I of Schedule A the names of all the partners are to be given and in column 6 the " share in the balance of profits (or loss) (annas and pies in the rupee) ". Then follows Schedule B which only applies if the application is made after the end of the relevant previous year. This is followed by two footnotes and it is note No. 2 which is material. This reads : " (2) If any partner is entitled to share in profits but is not liable to bear a similar proportion of any losses this fact should be indicated by putting against his share in column 6, the letter 'P' ". Then follows rule 4, the material portion of which reads : " 4. (1) If, on receipt of the application referred to in rule 3, the Income-tax Officer is satisfied that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the losses that any partner may incur. That is a matter which vitally concerns the partners of the firm. If the loss is not proved or determined, the loss will not be carried forward and the partner will lose the benefit of set off against his other income being carried forward and set off against the income in the following year. It is in this background that the provisions of section 26A of the Act have to be considered. The object of section 26A of the Act was only to prevent the firms which are bogus or colourable from obtaining the benefits thereunder and also to facilitate the department in finding out exactly what the share of profit of each partner was, without having to hold another enquiry before apportioning those profits, and add them to the total income of the partner under section 23(6) and assess him on such share of profit at the rate applicable to his total income. Therefore, the first requirement under section 26A was that there should be an instrument of partnership. In other words, there should not be an oral partnership and, secondly, that the partnership deed itself should specify " the individual shares of the partners ". The Rules and, in particular, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omes to the admission of the minor to the benefits of partnership it is provided : " He also will get one-seventh share in the profits of the firm." Before these words appear there is a specific reference to the provisions of section 30 of the Indian Partnership Act. In these circumstances there can be no warrant for assuming, as the authorities below have done, that the share of the losses of the six partners was one-seventh. Even assuming for the sake of argument that the share of losses was 1/7th, that would not justify the rejection of the application under section 26A of the Act for the reason that, if the shares in losses are not specified, the revenue does not stand to lose in any manner. It must be remembered that section 26A is essentially a provision for the protection of revenues of the State and to ensure that bogus firms do not obtain registration. The burden of proving any loss is on the firm or its partners. If the loss is not established or the proportion in which the loss has to be carried forward is not specified, then it is the partners who may lose the benefit to that extent by their inability to have the share of loss set off against their other income or to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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