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TMI Blog1982 (5) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... e partners during the period 1st January, 1977 to 31st March, 1977 in the previous year and therefore registration could not be granted. 3. The firm K. Subraya Anantha Kamath Sons was carrying on the business in the manufacture, sale and export of cashewnut kernels under a deed of partnership dated 20th March, 1967. The firm consisted of two partners Shri Vishwanath Kamath and Upendra Kamath. Under a partition entered into between Shri Vishwanath Kamath and his two sons S/Shri Giridhara Kamath and Gokuldas Kamath, the share of Shri Vishwanath Kamath in the business had been divided between them in the ratio of 2:1:1. On 2nd April, 1972, the firm was reconstituted admitting S/Shri Giridhara Kamath and Gokuldas Kamath as partners. The instrument of partnership dated 2nd April, 1972 provided under clause 6 that the profits and losses of the firm shall be divided among the four partners in the proportion of 30 per cent, 40 per cent 15 per cent and 15 per cent, Shri Upendra Kamath being thereby entitled to 40 per cent. The firm of four partners thus constituted was granted registration for the purpose of the Income-tax Act upto the assessment year 1976-77. 4. On 31st December 1976 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the partners who continued the business under the terms of the partnership deed dated 2nd April, 1972 and therefore the order refusing registration was wrong. The Commissioner (Appeals) felt that for the relevant previous year the registered deed of partnership dated 2nd April, 1972 was effective upto 31st December 1976 and the registration granted on the basis of that document would continue to be effective in so far as it related to the period ending on 31st December 1976. Regarding the final three months, the Commissioner (Appeals) concluded that the agreement dated 1st January, 1977 was to continue the partnership as before and the distribution would also be the same and there had been no difficulty in the distribution of profit as provided in the deed. The Commissioner (Appeals) summarised the position thus: "(a) the ITO's order under section 185 does not cancel the registration of the old firm which continued in existence for nine months during the accounting period, (b) the old deed and the deed of retirement together indicate with sufficient precision and clarity the terms and conditions of the continuing partnership after the retirement of one of the old partners and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no mention as to the apportionment of that 40 per cent among the continuing partners. It was stated that there was no subsequent deed executed between the partners before 1st January, 1977 and in these circumstances the ITO was right in refusing registration. Reliance was placed on the decision of the Supreme Court in the case of Mandyala Govindu Co. v. CIT [1976] 102 ITR 1 (SC) holding that where the partnership is evidenced by a deed which does not specify the individual share of the partners registration must be refused. The case of Prakash Khandsari Mills v. CIT [1981] 130 ITR 380 (All.) was also referred to. In that case where there was a change in the constitution of the firm it was held that since fresh deed of partnership had not been drawn up in the accounting year in question the firm was not entitled to continuance of registration. 9. The assessee's representative supporting the order of the lower appellate authority maintained that the retirement deed provided the profit sharing ratio; that the deed should be reasonably construed for ascertaining the individual share of the three partners; that the relevant circumstance and other evidence should be looked into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial requirement for registration. After the retirement of a partner the firm could not be entitled to registration on the basis of the original partnership deed unless the shares of the continuing partners are specifically provided for by that deed or by a separate document. However, the specification of shares need not be express, it may be implied. 11. We find in the present case that the assessee-firm of four partners was carrying on business under the deed of partnership dated 2nd April, 1972 upto the retirement of Shri Upendra Kamath with effect from 31st December 1976. The firm was registered for the purposes of the Act for the assessment year 1976-77. The change in the constitution of the firm has taken place during the previous year for the assessment year 1977-78. The deed dated 2nd April, 1972 had clearly specified the individual shares of the partners in the profit and loss of the partnership. Since the firm continued upto 31st December 1976 under that deed there was no difficulty in ascertaining the individual shares of the partners upto 31st December 1976. The profits had to be shared in the proportion of 30 per cent, 40 per cent, 15 per cent and 15 per cent. Thus th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The retirement deed has to be read along with the partnership deed dated 2nd April, 1972 for the purpose of considering whether the firm stood dissolved on such retirement or continued with a change in the constitution and to ascertain the specification of the individual shares. The overall intention of the continuing partners which can be culled out from the instrument is that the continuing partners agreed to share the profits of the firm in the ratio of, 2 : 1 : 1 after 1st January, 1977. It is also clear from clause 2 in the context of the relevant circumstances of the case that the firm was not dissolved, there was only a change in the constitution of the firm and it had carried on the business during the period under the same terms and conditions of the deed dated 2nd April, 1972 with the supplementary provision in the deed dated 1st January, 1977 for sharing the profits in the same ratio as before. The word 'specifying' as held by the Supreme Court in the case of Kylasa Sarabhai v. CIT (1965) 56 ITR 219 (SC) is used as meaning 'mentioning, describing or defining in detail'; it does not mean expressly setting out in fractional or other shares. In the relevant deeds in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Form No. 11A was filed by the assessee firm on 31st March, 1977 seeking registration for the assessment year 1977-78. The statement in the order of the Commissioner (Appeals) that the application in Form No. 11A seeks registration for the new deed dated 1st April, 1977 is not factually correct. The order under section 185(1)(b) relates to the assessee firm. The direction of the Commissioner (Appeals) that if the order under section 185(1)(b) relates to the new firm that took over from 1st April, 1977, the ITO should reconsider the claim of the new firm's registration separately, is deleted. Registration under the Income-tax Act is an annual registration and it is not permissible to give piece-meal registration on the instrument of partnership. In view of the change in the constitution in the previous year attracting section 184(8) of the Income-tax Act, the question of filing a declaration under section 184(7) by the firm for part of the year upto 31st December 1976 cannot arise. Therefore the direction of the Commissioner (Appeals) has to be read as one directing registration for the assessment year 1977-78 as a whole. Subject to these observations, we confirm the order of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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