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Issues Involved:
1. Whether the Tribunal was justified in holding that the assessee-firm was not entitled to registration for the assessment year 1972-73 and continuation of registration for the assessment year 1973-74 due to non-specification of shares in losses in the partnership deed dated October 30, 1971. 2. Whether the Tribunal was justified in holding that shares in losses were not specified in the partnership deed dated October 30, 1971. Detailed Analysis of the Judgment: Issue 1: Entitlement to Registration and Continuation of Registration The assessee applied for registration as a firm for the assessment year 1972-73 and for continuation of registration for the assessment year 1973-74 based on a partnership deed dated October 30, 1971. The Income-tax Officer initially granted and continued the registration. However, the Commissioner, upon review, found the orders erroneous and prejudicial to the interests of the Revenue because the partnership deed did not specify the shares of the partners in the losses of the firm. Consequently, the Commissioner canceled the registration, directing the firm to be assessed as an unregistered firm. The Tribunal upheld this cancellation, citing the Supreme Court decision in Mandyala Govindu & Co. v. CIT [1976] 102 ITR 1, which emphasized the necessity of specifying the shares in losses for the registration of a firm. The High Court confirmed that the non-specification of shares in losses in the partnership deed justified the refusal of registration under section 185 of the Income-tax Act, 1961. Issue 2: Specification of Shares in Losses The partnership deed dated October 30, 1971, mentioned the shares of the partners in the profits but was silent on the sharing of losses. The deed indicated the shares in profits as 25 paise each for Nevandram, Dhanomal, and Kishanchand, 15 paise for Choithram, and 10 paise for the minor, Sunderdas. The Supreme Court in Mandyala Govindu & Co.'s case held that the specification of shares in losses is essential, especially when a minor is admitted to the benefits of the partnership. The High Court reiterated that the absence of any provision for sharing losses among the adult partners in the partnership deed rendered the firm ineligible for registration. The court emphasized that the instrument of partnership must explicitly or implicitly specify the proportion in which adult partners are to share the losses. The mere mention of shares in profits is insufficient to infer the sharing of losses. Conclusion: The High Court concluded that the Tribunal was justified in holding that the assessee-firm was not entitled to registration for the assessment year 1972-73 and continuation of registration for the assessment year 1973-74 due to the non-specification of shares in losses in the partnership deed. The Tribunal's decision was in line with the Supreme Court's ruling in Mandyala Govindu & Co.'s case, which necessitated clear indication of the sharing of losses in the partnership deed, especially when a minor is involved. Consequently, the reference was answered against the assessee and in favor of the Revenue, with no order as to costs.
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