TMI Blog1979 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ach in the profits of the firm. The minors were not to share the losses which were to be borne by the three partners as under : Govind Ram and Bhagat Ram 37 1/2% each and Mela Ram 25% The assessee-firm followed the financial year as its year of accounting. It was granted registration for the assessment year 1963-64 and the benefit of continuance of registration for and up to the assessment year 1968-69. Subsequently, the Commissioner, by an order under s. 263 of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), dated October 22, 1972, cancelled the registration for the assessment year 1968-69. Thereafter, for the years under consideration, that is, 1965-66 to 1967-68, the ITO took action under s. 186(1) of the Act, because it had come to his notice that both the minors had attained majority in the previous year ended March 31, 1964, and thereafter no fresh partnership deed had been drawn up. The ITO was of the opinion that for the, assessment year 1965-66 instead of claiming continuance of registration the assessee-firm should have applied for fresh registration and in the absence of such an application it could not be said that the assessee-firm had been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO cancelling the registration of the assessee for the three years under consideration was restored. Now, at the instance of the assessee, the question of law set out above has been referred to this court. So far as the facts are concerned, there is no dispute about the same. The two minors became majors in the previous year ended March 31, 1964, and we were informed during the hearing of this reference that they became majors on different dates. The question which falls for our consideration is as to whether acting under s. 186(1) of the Act the ITO could cancel the registration which had been granted for the years under consideration ? Now, s. 186(1) provides as under : " If, where a firm has been registered, or its registration has effect under sub-section (7) of section 184 for an assessment year, the Income-tax Officer is of opinion that there was during the previous year no genuine firm in existence as registered, he may after giving the firm a reasonable opportunity of being heard and with the previous approval of the Inspecting Assistant Commissioner, cancel the registration of the firm for that assessment year." The proviso is not relevant for the present purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to the constitution of the firm and the shares of the partners as evidenced by the instrument of partnership. The phrase " constitution of the firm " or the " shares of the partners " has not been defined in the Act and the phrase " constitution of the firm " has been taken to refer to the identity of the partners of the firm. The identity of the partners as well as their shares ought to be such as evidenced by the instrument of partnership. It has been laid down : " If for any subsequent year there is a change either in the constitution of the firm or the shares of the partners and such change is not evidenced by the instrument, the original registration shall not have effect. But if it is found that the constitution of the firm or the shares of the partners continues to be evidenced by the instrument, then it will be a case where the conclusion will be that there has been no change. " According to the decision in Badri Narain Kashi Prasad [1978] 115 ITR 858 (All), when a minor becomes major and opts to become a partner within the meaning of the Partnership Act, no change occurs in the constitution of the firm under the Act. For ascertaining the constitution of the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e net profits will be divided as under : 1 . Sri Govind Ram 18 3/4 p. in the rupee 2. Mela Ram 12 1/2 p. " 3. Bhagat Ram 18 3/4 p. " 4. Shyam Sunder minor 25 p. " 5. Radhey Shyam minor 25 p. " In the event of a net loss the adult partners were to share the loss as under : Govind Ram 37 1/2 p. in the rupee Mela Ram 5 p. " Bhagat Ram 37 1/2 p." The deed did not provide the proportion in which these three adult partners were to share the loss after the minors attained majority. There is yet another difficulty and it is that each of the two minors did not become a major on one and the same date. There occurred some interval between the dates the two minors attained majority. In other words, for the period when one of them attained majority and the other was a minor, there was no provision as to how the losses were to be shared. Thus we find ourselves unable to ascertain the shares of the adult partners in the losses in the event of the two minors, or either of them, attaining majority. It will be useful to refer to a decision of the Supreme Court in this connection and that was rendered in Mandyala Govindu Co. v. CIT [1976] 402 ITR 4. It was held in that case th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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