1966 (10) TMI 6 - HC - Income Tax

ITO rejected application for renewal of registration relying upon cl. (4) of the partnership deed which provided for the share of the minor in the same proportion as the share of profits and losses of other partners and as such the deed was held to be contrary to law - assessee s appeal dismissed

Summary

Issues:
1. Entitlement to registration under section 26A for an assessee-firm.
2. Interpretation of partnership deed clauses regarding the admission of a minor to the benefits of partnership.
3. Conflict of views among different High Courts on the treatment of minors in partnership deeds.
4. Application of Supreme Court decisions in resolving conflicts and interpreting partnership deeds.
5. Rejection of renewal of registration based on specific clauses in the partnership deed.

Detailed Analysis:
The judgment pertains to a case stated under section 66(2) of the Income-tax Act, 1922, regarding the entitlement of an assessee-firm to registration under section 26A. The firm consisted of four adults and one minor, with the relevant year of assessment being 1956-57. The partnership deed admitted the minor to the benefits of partnership with a one-fifth share in the business. The Income-tax Officer refused registration for the relevant year based on a clause in the deed specifying the minor's share in profits and losses, contrary to law, as per a Punjab High Court decision. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the decision, citing conflicting views among High Courts and Supreme Court decisions. The Supreme Court emphasized interpreting partnership deeds reasonably, considering all clauses comprehensively, and specifically addressing the treatment of losses borne by minors in partnership agreements.

The assessee contended that the partnership deed should be read as a whole, suggesting a typographical error in a clause specifying equal profit and loss shares. However, the court emphasized that the specific mention of a one-fifth share in the deed was deliberate and not an error. The Tribunal's interpretation, relying on the Supreme Court decision in Commissioner of Income-tax v. Dwarkadas Khetan & Co., was deemed reasonable and correct in rejecting the renewal of registration. The Supreme Court's stance against rewriting contracts for registration purposes and its emphasis on adhering to the actual terms of partnership deeds were highlighted in the judgment.

Ultimately, the court answered the question of entitlement to registration in the negative, ruling against the assessee. The judgment underscored the importance of interpreting partnership deeds in accordance with their explicit terms and the principles laid down by the Supreme Court. The conflicting views among different High Courts were addressed, with the judgment aligning with the interpretation emphasizing the explicit terms of the partnership deed regarding profit and loss sharing among partners, including minors admitted to the benefits of partnership.