1971 (11) TMI 32 - HC - Income Tax

Assessee-firm - registration under section 185 of the Income-tax Act, 1961 held that there must be a specification of share of profits as well as losses in the partnership deed - Tribunal is not correct in law in holding that the assessee-firm is entitled to registration

Summary

Issues:
Whether the firm is entitled to registration under section 185 of the Income-tax Act, 1961, for the assessment year 1965-66 based on the partnership deed's compliance with the requirements of section 184 regarding the specification of individual shares in losses.

Analysis:
The judgment concerns a reference under section 256(1) of the Income-tax Act, 1961, initiated by the department regarding the entitlement of a firm to registration for the assessment year 1965-66. The main issue revolves around the compliance of the partnership deed with section 184's requirements, specifically regarding the specification of individual shares in losses. The partnership deed in question lacked a provision for the manner in which losses should be borne by the partners, leading to the Income-tax Officer's refusal of registration. However, the Appellate Assistant Commissioner overturned this decision, citing section 4 of the Indian Partnership Act, 1932. The Tribunal, relying on various High Court decisions, ruled in favor of the assessee, emphasizing a conflict of judicial opinions on the necessity of specifying loss shares in partnership deeds for registration purposes.

The High Court analyzed the conflicting opinions and observed that the Supreme Court's decision in N. T. Patel & Co. v. Commissioner of Income-tax underscored the importance of specifying shares in profits and losses for registration under the Income-tax Act. The court highlighted that the wording in section 184 encompasses both profit and loss shares, as clarified by the Supreme Court's interpretation. Referring to relevant sections of the Act, the court emphasized the significance of specifying loss shares for assessing individual partners' liabilities and set-off provisions, indicating the critical nature of such specification for registration purposes.

The court rejected arguments for a limited interpretation of the expression in section 184, emphasizing that the provision inherently covers both profit and loss shares. It dismissed claims of hardship as justifications for a narrow reading of the section, asserting that the legislative intent necessitates the inclusion of both aspects in partnership deeds seeking registration. Ultimately, the court answered the reference in the negative, favoring the department's stance and ruling against the assessee. The judgment will be communicated to the Appellate Tribunal as per statutory requirements, with no cost orders issued in the matter.