1980 (4) TMI 18 - HC - Income Tax

Summary

Issues Involved
1. Correct interpretation of the partnership deed dated March 17, 1961.
2. Refusal of registration to the assessee-firm by the Tribunal.
3. Specification of individual shares of partners in the partnership deed.
4. Application of the Hindu Succession Act, 1956, to determine the shares of partners.
5. Requirements under sections 184 and 185 of the I.T. Act, 1961, and relevant rules.
6. Specification of shares in losses in the partnership deed.

Detailed Analysis

1. Correct Interpretation of the Partnership Deed
The partnership deed dated March 17, 1961, involved Gokaldas Mulchand, Anilkant Gokaldas, Taramati, and Kanchan as full-fledged partners, with the four minor children of Harkisondas admitted to the benefits of the partnership. Clause 4 of the deed specified the division of net profits but did not individually specify the shares of each of the six heirs of Harkisondas. The Tribunal found that the partnership deed did not specify the individual shares of the partners, which was a key requirement for registration under the I.T. Act.

2. Refusal of Registration to the Assessee-Firm
The ITO and AAC refused registration on the grounds that the individual shares of the partners, including the minors admitted to the benefits of the partnership, were not specified in the partnership deed. The Tribunal upheld this decision, noting that the shares of the six heirs of Harkisondas were not determinable from the partnership deed or any other material.

3. Specification of Individual Shares of Partners
Section 184(1)(ii) of the I.T. Act requires that the individual shares of the partners be specified in the instrument of partnership. The court observed that the partnership deed cumulatively showed that the six heirs of Harkisondas had together a six annas share, but did not specify how this share was to be distributed among them. This lack of specification was a significant factor in the refusal of registration.

4. Application of the Hindu Succession Act, 1956
The assessee contended that the shares of the heirs could be determined according to the Hindu Succession Act, 1956, implying that each heir would have an equal share. However, the court held that reference to the Hindu Succession Act was not appropriate for determining the shares of the partners for the purposes of sections 184 and 185 of the I.T. Act. The shares must be ascertainable from the partnership deed itself.

5. Requirements Under Sections 184 and 185 of the I.T. Act, 1961, and Relevant Rules
The court emphasized that for a firm to claim registration under section 185, it must satisfy the requirements of section 184, which include the partnership being evidenced by an instrument and the individual shares of the partners being specified in that instrument. The court referred to several Supreme Court decisions that reinforced the necessity of these requirements.

6. Specification of Shares in Losses in the Partnership Deed
The partnership deed provided that the losses would be borne by the parties of the first, second, and third parts in proportion to their shares, but did not specify how Taramati and Kanchan would share the losses. The court held that the absence of specification of shares in losses was another ground for refusing registration. The court referred to Supreme Court decisions that highlighted the importance of specifying shares in losses for the purposes of registration under section 184.

Conclusion
The court concluded that the partnership deed did not meet the statutory requirements for registration under sections 184 and 185 of the I.T. Act, 1961. The question referred to the court was answered in the affirmative and against the assessee. The assessee was ordered to pay costs to the revenue.