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TMI Blog1974 (1) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ily assets and the claim made under section 171 of the Act has been duly accepted by the revenue. Five weeks after this partition, the father and two of the divided sons constituted themselves into a partnership firm as per instrument of partnership, dated the 25th October, 1964. This firm was registered with the Registrar of Firms and in due course an application for registration as provided under section 184 of the Act was made. The relevant features in the partnership deed were : " Clause 1. Name and Style : The firm shall be styled as Jammula Venkataswamy & Sons (as agreed upon on partition by father and four sons to continue the name as it stood before the partition). Clause 5. Sharing of profits or losses : Profits or losses shall be shared among the three partners in equal proportions: ...... Clause 7 : All the bank transactions should be operated only by the first party (father). The power of borrowal is vested with the first party and no other party can borrow money. Clause 8 : The second and third parties cannot settle claim or dispute pertaining to any business and cannot incur debt binding on the firm without consent of the first party. Clause 9 : The second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and restored the order of the Income-tax Officer. The question as referred to this court shows that refusal of registration by the Tribunal was on the ground that " no genuine partnership was brought into existence ". From the statement of the case, we find that the assessee has objected to incorporation of these words in the question, but the Tribunal has overruled the same. This was what the Appellate Tribunal had stated while disposing of the second appeal : " We have carefully considered the facts and circumstances of the case. It is true that in partnership law, there is nothing to prevent a major or managing partner from retaining for himself more power than those given to others under the partnership agreement and that by itself will not make the partnership invalid. Notwithstanding prohibition or restriction on right of some of the partners, the acts of any of the partners will be binding on the firm so far as the third persons are concerned, unless the dealings by the third persons are with the knowledge about the restrictions in the provisions of such partnership. The other objections raised as to the contravention of the provisions of the partnership deed concerning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht into existence. Learned standing counsel for the revenue has taken the stand that the objections of the Income-tax Officer are tenable in law and merely because the Tribunal has sustained only one objection out of it, he is not precluded from raising the other grounds for sustaining the order of the Income-tax Officer. Even if the contention of the learned standing counsel that he is entitled to raise the other grounds to sustain the order of refusal of registration, we think there is no merit in those grounds as we shall presently show. Mr. Srinivasan for the assessee relies upon the definition of "partnership " as given in section 2(23) of the Act which adopts the definition in section 4 of the Indian Partnership Act, 1932. The latter provides : "'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the 'firm name'. " Thus, in order that persons may be partners, it is essential that : (i) There must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the mere nomenclature given to a document is by itself not sufficient to hold that the document in question is one of partnership. Two essential conditions to be satisfied are : (1) that there should be an agreement to share the profits as well as the losses of the business ; and (2) the business must be carried on by all or any of them acting for all, within the meaning of the definition of " partnership " under section 4 of the Partnership Act. The fact that the exclusive power and control, by agreement of the parties, is vested in one partner or the further circumstance that only one partner can operate the bank accounts or borrow on behalf of the firm are not destructive of the theory of partnership provided the two essential conditions, mentioned earlier, are satisfied." In Kamath's case, the court noticed that he (Kamath) had large powers in the matter of management and control of the business. He was to operate the account and he alone was entitled to control the borrowing. Notwithstanding such features and the absence of equal share in the matter of management and control and the large role given to Kamath in those matters the court held that Kamath, the managing pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and was entitled to registration. In the instant case, we find that there is a clear agreement for sharing of profits or losses in clause 5 and the terms show that the first partner (father) had been given a domineering position in the control and management of the business, obviously because he had greater experience in the business and the two sons, though adults were comparatively young and inexperienced. Clause 9 of the partnership deed made provision for drawings by the two junior partners. It has been found that one of the partners had overdrawn. Clause 9 is an enabling provision and does not intend to put a limit and even if it intended to put a limit regarding drawings, an overdrawal is indeed a matter relating to day-to-day running of the business and does not entrench upon the essentials of a partnership. The restrictions contained in clauses 7 and 8 were the result of the agreement. The two grounds which had been overruled by the Tribunal and were relied upon by learned standing counsel thus have no basis at all. We shall now deal with the objection which had been sustained by the Tribunal, that is, in relation to the bank account. Admittedly, the Hindu undivided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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