1971 (2) TMI 38 - HC - Income Tax

Whether on the facts and in the circumstances of the case the assessee-firm was entitled to registration for the assessment year 1963-64 under section 185 of the Income-tax Act 1961

Summary

Issues Involved:
1. Entitlement of the assessee-firm to registration under section 185 of the Income-tax Act, 1961, for the assessment year 1963-64.
2. Specification of individual shares of minors admitted to the benefits of the partnership.
3. Specification of shares of partners in losses in the instrument of partnership.

Issue-wise Detailed Analysis:

1. Entitlement of the Assessee-Firm to Registration:
The primary issue was whether the assessee-firm was entitled to registration for the assessment year 1963-64 under section 185 of the Income-tax Act, 1961. The Income-tax Officer initially granted the registration, but the Commissioner of Income-tax later canceled it, deeming it prejudicial to the revenue. The Appellate Tribunal upheld the cancellation on the ground of non-specification of individual shares of the minors in the partnership profits. The court examined the procedure for registration under sections 184 and 185 of the Income-tax Act, 1961, and determined that the firm must meet the mandatory requirement of specifying individual shares of partners in the partnership deed to qualify for registration.

2. Specification of Individual Shares of Minors:
The court scrutinized whether the individual shares of the three minor sons of the deceased partner, who were admitted to the benefits of the partnership, were specified in the partnership deeds. It was found that the minors were collectively allotted a share of 23 nP. in R.C. No. 65/68 and a collective share in R.C. No. 82/68, without specifying their individual shares. The court referenced multiple judgments, including Commissioner of Income-tax v. N. V. Abdulla Sahib, Khimji Walji & Co. v. Commissioner of Income-tax, and Commissioner Income-tax v. Shivlal Dayaram Panchal, which uniformly held that non-specification of individual shares of minors admitted to the benefits of the partnership is a sufficient ground for refusal of registration. The court rejected the argument that the minors' collective share implied equal individual shares, as there was no evidence of such an arrangement in the partnership deeds.

3. Specification of Shares of Partners in Losses:
The court also examined whether the shares of the partners in losses were specified in the instrument of partnership. In R.C. No. 65/68, the major partners' shares in profits were specified, but the minors were not liable for losses. The court interpreted clause 7 of the partnership deed and found that the shares in losses were not specified, leading to an inconsistency in the interpretation of the shares in losses. The court referenced the Gujarat High Court's decision in Thacker & Co. v. Commissioner of Income-tax and the binding decision of the Andhra Pradesh High Court in Commissioner of Income-tax v. Mandyala Govindu & Co., which held that non-specification of shares in losses is fatal to the grant of registration. Consequently, the court concluded that the non-specification of shares in losses in the partnership deed disqualified the firm from obtaining registration.

Conclusion:
The court answered the question referred to it in the negative, concluding that the assessee-firms were not entitled to registration for the assessment year 1963-64 due to the non-specification of individual shares of the minors and the shares of partners in losses in the instruments of partnership. The assessee was ordered to pay the costs of the references to the Commissioner of Income-tax, with an advocate's fee of Rs. 250 in each case.