2016 (8) TMI 741 - HC - Income Tax

Partnership firm - profit sharing ratio - Applicability of section 13(b) of the Indian Partnership Act on a firm - Held that - The provisions of section 13(b) of the Partnership Act and clause 7 of the partnership deed dated 16.9.1981, this Court held that section 13(b) of the Act would apply only when there is no contract to the contrary and that a look at clause 7 of the Partnership deed would show that there is a contract to the contrary. Proceeding further, this Court has referred to the judgment in Saraf Trading Corporation 1998 (8) TMI 41 - KERALA High Court and thereafter held that hence, according to us, section 13(b) of the Partnership Act will not apply . Thus, there is a categoric finding in the judgment in Nalini V.Saraf (2003 (7) TMI 22 - KERALA High Court ) that section 13(b) of the Partnership Act will not apply to the firm. The aforesaid facts would show that the Tribunal was justified in its conclusion that section 13(b) of the Partnership Act would not apply. Consequently, the Tribunal s order dismissing the appeals of the Revenue cannot be interfered with as illegal. - Decided in favour of assessee.

Summary

Issues:
Appeal against the order passed by the Income Tax Appellate Tribunal regarding the applicability of section 13(b) of the Indian Partnership Act.

Analysis:
The appeals were filed by the Revenue challenging the Tribunal's order concerning the assessment years 1982-83, 1986-87, 1987-88, and 1988-89, questioning the applicability of section 13(b) of the Indian Partnership Act to M/s.Saraf Trading Corporation. The Revenue contended that the Tribunal erred in its finding based on previous judgments. The main argument was that the Tribunal misinterpreted the judgments and that the applicability of section 13(b) was not conclusively decided in those cases. However, a detailed analysis of the judgments revealed that the Court had previously held that section 13(b) would not apply to the firm due to a specific contract clause in the partnership deed, contrary to the Revenue's claim. The Court emphasized that section 13(b) only applies in the absence of a contract to the contrary, which was not the case here. Additionally, the Apex Court had dismissed an appeal against the judgment, further supporting the position that section 13(b) did not apply.

The Court found that the Tribunal's conclusion on the non-applicability of section 13(b) was justified based on the specific contract clause in the partnership deed. As a result, the Tribunal's decision to dismiss the Revenue's appeals was upheld, and the questions raised were answered in favor of the assessee. The judgments provided a clear interpretation of the relevant legal provisions and established that section 13(b) of the Partnership Act did not apply in this case due to the presence of a contract specifying share ratios in profits/losses. The detailed analysis of the judgments and the specific findings therein supported the Tribunal's decision and provided a solid legal basis for dismissing the Revenue's appeals.