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TMI Blog1980 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years 1967-68, 1968-69 and 1969-70 ? " The reference relates to the assessment years 1967-68, 1968-69 and 1969-70. The accounting years corresponding to these assessment years are, respectively, 24th October, 1965, to 11th November, 1966, 12th November, 1966, to 31st October, 1967, and 1st November, 1967 to 28th August, 1968. The assessee is a partnership firm which was constituted by a partnership deed executed on 10th November, 1961. The firm consisted of four adult partners. Each of them had 1/7th share in profits and 1/4th share in losses. Three minors, namely, Awadhbihari, Prakashchandra and Subhashchandra were admitted to the benefits of the partnership and they were to receive 1/7th share each in profits. The firm was granted registration for the earlier assessment years. Prakashchandra attained majority on 4th June, 1966, and elected to become a full-fledged partner. Subhashchandra attained majority on 27th May, .1967. No fresh deed of partnership was executed. For the three relevant years, the assessee filed declarations in Form No. 12 along with the returns claiming a continuation of the registration of the firm. The assessee also applied for a fresh reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Gujarat, Allahabad, Andhra Pradesh and Punjab Haryana High Courts have, however, taken a different view: [See CIT v. Dineshchandra Industries [1975] 100 ITR 660 (Guj), ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594 (All), Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313 (AP) and CIT v. Beri Chemical Industries [1980] 121 ITR 87 (P H.)]. The reasoning of the majority High Courts is that when the ITO after finding that the application is barred by time does not go into the question regarding the genuineness of the firm and its constitution, still it can be said that he refuses registration as he is not satisfied on these questions. In other words, the delay beyond the prescribed period in filing the application prevents the ITO in being satisfied on the relevant questions which lead to the refusal of the application and, therefore, case where the application is dismissed on the ground of limitation is also a case falling under s. 185(1)(b). This view, in our opinion, appears to be reasonable and should be accepted. A statutory provision conferring right of appeal should, in case of doubt, be liberally construed. Moreover, in the matter of construction of a statute like the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prakashchandra did not become a partner before the close of the accounting year relevant to the assessment year 1967-68. It was then contended by the learned counsel that even assuming that Prakashchandra elected to become a partner during the accounting year relevant to the assessment year 1967-68, that would not make any change in the constitution of the firm or as to the shares specified in the deed of partnership and that the shares in the profits and losses of the respective partners will have to be worked out in accordance with s. 30(7)(b) read with s. 13(b) of the Partnership Act. An application for a continuation of the registration of a firm is made under s. 184(7) of the I.T. Act. As expressly provided therein such an application is maintainable only when there is no change in the constitution of the firm or in the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted. A change in the constitution of the firm refers to a change in the identity of the partners. 'Shares of the partners as evidenced by the instrument of partnership' refer to their shares in profit and loss as disclosed by the instrument o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be, shall be divided or borne by the parties or adjusted in their respective accounts in the following manner: In profits In loss 1. Rajaram Adatiya 0-2-3 0-4-0 2. Hiralal 0-2-3 0-4-0 3. Hanuman Pd. Adatiya 0-2-3 0-4-0 4. Ramchandra Adatiya 0-2-3 0-4-0 ---------- ---------- 0-9-0 1-0-0 ---------- ---------- and the partners also agree to admit the following minors to the benefits of the partnership and further agree to allot the shares in only profits of the firm in the following manner: 1. Awadhbihari, minor, aged about 9 years, guardian-- Shri Hiralal Adatiya 0-2-3 2. Prakashchandra, minor, aged 14 years, guardian-- Shri Hanuman Prasad Adatiya 0-2-3 3. Subhaschandra, minor, aged about 10 years, guardian- Shri Hanuman Prasad Adatiya 0-2-3 The above minors shall not be responsible for any loss of the firm. " A perusal of cl. 5 quoted above shows that the four adult partners were to share the losses equally, i. e., four annas each, although their share in profits was only 2 annas 3 pies each. The instrument does not provided as to how the losses would be distributed after any one or more of the three minors who were admitted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will each be sharing the losses to the extent of four annas. The second presumption arising under s. 13(b) was from the very nature of the partnership inapplicable here. Now, when Prakashchandra became a major the presumption under s. 30(7)(b) would be that he started sharing the profits to the extent of 2 annas 3 pies which was his share in the benefits of the partnership when he was a minor. If the second presumption under section 13(b) is applied at this stage, Prakashchandra would start sharing the losses to the extent of his share in the profits, i. e., to the extent of 2 annas 3 pies. How then the losses in respect of the other two minors would be distributed cannot be solved by applying the second presumption under s. 13(b). The mode in which the losses were to be distributed after each minor became major is thus neither foreseen by the instrument of partnership nor it can be ascertained by applying s. 30(7)(b) or s. 13(b) of the Partnership Act. In such a situation, it is clear that when each minor became a major there was a change in the shares as evidenced by the instrument of partnership within the meaning of the first proviso to s. 184(7). The facts of the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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