TMI Blog1981 (9) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit and the loss. The shares of profit and loss belonged to and was borne by Shri Ramnagina Singh @ 40%, Shri Ram Bahadur Singh @ 20% and the rest of the four partners @ 10% each. Subsequently, the leading partner, Shri Ramnagina Singh, died. A fresh deed was executed on January 7, 1967, with retrospective effect from April 1, 1966, wherein Shri Girdhar, son of late Ramnagina Singh, was made a partner and the profit and loss to be borne by him was 40% but the shares of the rest of the partners remained as before. It is the common case of the parties that at all relevant period, Girdhar was a minor but he was admitted as a full-fledged partner in " the firm ". Subsequently, however, a deed was drawn up on December 2, 1969, treating Shri Girdhar as a minor entitled to the benefits of partnership with retrospective effect from April 1, 1966. The instrument was styled as " Deed of Rectification " and it was stated that the partners had introduced Girdhar, son of late Ramnagina Singh, as a full-fledged partner and the same was due to oversight and it was unintentional. It was also stated that Shri Girdhar, being a minor, was legally incompetent to enter into the partnership agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has no jurisdiction to rectify a partnership deed. The registration of a firm under ss. 184 and 185 of the Act confers benefits on the partners. They are not entitled to the benefits but for the provisions of ss. 184 and 185 of the Act. The, conferment of the right u/ss. 184 and 185 is circumscribed by legal obligations contained in these sections. The right to a registration can be claimed in accordance with the statute which confers it and persons seeking relief u/ss. 184 and 185 of the Act must bring themselves strictly within the requisites of the sections. The right is strictly regulated by the terms of the statute. An application for the registration of a firm can be entertained by the ITO if (i) the partnership is evidenced by an instrument, (ii) the individual shares of the partners are specified in that instrument, as provided in s. 184(1) of the Act. Section 184(4) of the Act contains a mandatory provision that the application should be made to the ITO before the end of the relevant previous year. The application must be accompanied by the original instrument evidencing the partnership as enjoined in s. 184(5) of the Act. The ITO has power to condone the delay in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rument of the nature and character like the present one was invalid as violative of s. 30 of the Partnership Act. Although their Lordships observed that there was no need to answer the question as to whether the firm could be registered on the basis of the invalid document, yet their Lordships indicated in clear terms that the I.T. authorities could not register the partnership on the basis of such documents. We are constrained to observe, (1) that the instrument dated January 7, 1967, was invalid, and (2) that it was not open to the I.T. authorities to register a partnership different from that which was formed by the instrument and it was not open to the ITO to register the partnership. Now, the next question is whether the ITO could have registered the firm on the basis of the deed of rectification dated December 2, 1969. There cannot be any doubt that the factual existence of a partnership firm in the accounting year as well as the factual existence of an instrument of partnership specifying the individual shares, of the partners in the said instrument, are essential pre-requisites for the registration. In the absence of the requisites, no registration is permissible as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument whereby no partnership was created, by merely stating that the partnership should be deemed to have come into existence at the earlier date. Such subsequent partnership deed would not create a partnership as from an earlier date, since no deed can alter the past and registration cannot be granted for the period prior to the date of the deed (of rectification). The above view finds support in Ayrshire Pullman Motor Services v. IRC [1929] 14 TC 754 (C Sess), Waddington v. O'Callaghan [1931] 16 TC 187 (KB), Dawjee Dadabhoy and Co. v. CIT [1963] 49 ITR 698 (Cal). But the principles set forth above may not be applicable where the partnership deed in the relevant accounting year is merely defective in the sense that the defects do not go to the validity of the partnership or the statutory conditions of registration. It is true that there are certain changes and departure in ss. 184 and 185 of the Act from the provisions of s 26A of the old Act. The old Act required the partnership to be constituted under an instrument whereas, the new section requires it to be evidenced by an instrument. However, s. 184(1) requires the application for registration to be made before the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the instrument of partnership had specified the shares of the partners not only in the profits but also in the losses, the firm would not be entitled to registration and negatived the contention raised by the assessee that cl. 9 indicated how losses were to be apportioned between the partners. On appeal to the Supreme Court, their Lordships have held that s. 26A of the old Act read with the connected Rules and Forms, requires particulars of the apportionment of the losses, if any. The loss, if any, affects the assessment proceeding. As such, the ITO must know what are the respective shares of the partners in the losses before allowing registration ; he must know how the losses are to be apportioned. Section 26A required the instrument to specify the individual shares of the partners in the profits as well as losses of the business. As such, before allowing the application for registration, the ITO must be in a position to ascertain the shares of the partners in the losses to be specified in the instrument of partnership. It was held that even if s. 13(b) of the Partnership Act be held applicable by implication, since the partners had unequal shares in the profits, there could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he authorities were justified in holding that the assessee was not entitled to registration for the assessment year 1967-68. The second question which flows from the first need not detain us long., The Tribunal was justified in rejecting the contention of the assessee that the ITO could not have rejected the application for registration without affording an opportunity to rectify the defects in the partnership deed and the matter should be remitted to the ITO before whom the assessee filed an application on December 3, 1969, for a rectification, which was pending for disposal. If we just turn to s. 185(2) of the Act, we find that the power and jurisdiction of the ITO is limited to allow an assessee to rectify a defect in the application for registration. If the application for registration is not in order, the ITO is to intimate the defect to the firm and give an opportunity to rectify the defect in the application. However, the rectification is not in respect of the application for registration but it was a defect in the deed. This apart, it appears clear that the rectification of the deed was made beyond the accounting year and the application for rectification was made on Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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