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Issues Involved:
1. Applicability of Section 13(b) of the Indian Partnership Act, 1932. 2. Treatment of the firm as registered under Section 183(b) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Applicability of Section 13(b) of the Indian Partnership Act, 1932: The primary question was whether Section 13(b) of the Partnership Act applied to the assessee-firm's profit-sharing arrangement. According to Section 13(b), in the absence of a contract, partners share profits equally and contribute equally to losses. The Revenue contended that the partnership deed dated September 16, 1981, did not specify a profit/loss sharing ratio, necessitating the application of Section 13(b). The Tribunal found that clause 7 of the partnership deed provided a basis for profit/loss distribution, indicating an agreement among partners. Clause 7(a) allowed up to 10% of profits to be distributed annually based on mutual agreement. Clause 7(b) mandated accumulating the remaining profits, with 50% distributed within three years and the rest within six years, again based on mutual agreement. Clause 7(c) specified that losses would first offset accumulated profits, with any remaining losses apportioned among adult partners based on circumstances. The Tribunal concluded that these clauses constituted a contract, negating the need for Section 13(b). However, the High Court noted that the Tribunal did not verify whether a follow-up agreement specifying the profit/loss sharing ratio existed. The High Court emphasized that without such an agreement, Section 13(b) would apply. Consequently, the High Court directed the Tribunal to remand the matter to the Assessing Officer to determine if a post-September 16, 1981, agreement specifying the profit/loss sharing ratio existed. 2. Treatment of the Firm as Registered under Section 183(b) of the Income-tax Act, 1961: The Tribunal addressed whether treating the firm as registered under Section 183(b) would be advantageous for the Revenue. Section 183(b) allows an unregistered firm to be treated as registered if the aggregate tax payable by the partners exceeds the tax payable by the firm as an unregistered entity. The Tribunal found that the Assessing Officer presumed it would be advantageous to treat the firm as registered but did not provide any calculations to support this assumption. The Tribunal deemed it necessary for the Assessing Officer to demonstrate how treating the firm as registered would benefit the Revenue. As the Assessing Officer had not performed this analysis, the Tribunal remanded the issue for a fresh examination. The High Court agreed with the Tribunal's decision to remand the matter, emphasizing the need for the Assessing Officer to show how Section 183(b) would be advantageous to the Revenue. Conclusion: The High Court directed the Tribunal to remand both issues to the Assessing Officer for further examination. The Assessing Officer must determine if a follow-up agreement specifying the profit/loss sharing ratio existed (pertaining to Section 13(b) of the Partnership Act) and demonstrate how treating the firm as registered under Section 183(b) would benefit the Revenue. The common question for the assessment years 1982-83 and 1986-87 was returned unanswered.
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