1978 (11) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee firm is entitled to registration for the assessment year 1973-74 based on the partnership deed under the Income-tax Act, 1961.
2. Whether the partnership deed sufficiently specifies the individual shares of the partners in the profits and losses for the purpose of registration under Section 184 of the I.T. Act, 1961.

Detailed Analysis:

1. Entitlement to Registration:
The primary issue revolves around the entitlement of the assessee firm to registration under the Income-tax Act, 1961, for the assessment year 1973-74. The firm, originally constituted by two partners, admitted two minors into the partnership, leading to a new deed executed on April 1, 1972. The firm applied for registration under Section 184 of the I.T. Act, 1961. The Income Tax Officer (ITO) refused registration, citing a precedent that there was an omission to specify the shares in the losses of the firm. However, the Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) ruled in favor of the assessee, interpreting Clause 7 of the deed as specifying the shares of the partners, including minors, in the profits and losses.

2. Specification of Individual Shares:
Section 184(1) of the I.T. Act mandates that the partnership must be evidenced by an instrument and that the individual shares of the partners must be specified in that instrument. The court examined whether these conditions were met. The court referenced several precedents, including the Supreme Court's ruling in Sri Ramamohan Motor Service v. CIT, which emphasized strict compliance with the statutory requirements for registration. The court noted that the absence of a clear specification of shares in the losses, especially concerning the minors, was a critical point. The Supreme Court's decision in Mandyala Govindu & Co. v. CIT reiterated that the ITO must ascertain the shares in the losses, and unequal shares in profits do not imply equal shares in losses.

The court also referenced the Kerala High Court's decision in United Hardwares v. CIT, which underscored that the specification of shares in both profits and losses is necessary for registration. The court concluded that the partnership deed did not meet the requirements of Section 184, as it failed to specify the shares of the minors in the losses, either expressly or impliedly.

Conclusion:
The court ruled that the assessee firm did not satisfy the statutory requirements for registration under Section 184 of the I.T. Act, 1961. The instrument of partnership failed to specify the shares of the minors in the losses, and thus, the registration of the firm was rightly refused. The question referred was answered in the negative, in favor of the revenue and against the assessee. There was no order as to costs.