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TMI Blog1989 (2) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... il, 1977. As per this partnership deed, there are two major partners and six minors admitted to the benefits of the partnership. Clause 6 of the partnership deed gives the share of each partner and minor in the profit and losses. In case of profits, the two major partners would be entitled to 20% and each minor would be given 10% as their share. In case of loss, one partner Syed Mohd. Iqbal will have to bear 80% of the loss and the other partner Syed Hussain Shakeel 20%. Clause 7 of the partnership deed reads as follows :-- "Minors as and when they attain majority, shall become full-fledged partners automatically sharing profits of losses as per shares specified to each. No fresh deed of Partnership shall be executed but the same Deed sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has come on appeal. Sri Parthasarathy submitted that the existing partnership deed has already taken care of the eventuality of the minors attaining majority. He submitted that clause 7 of the Partnership Deed clearly states how the profit and loss of the partners would be redistributed on attainment of majority by the members. There is, according to him, no need for drawing up a fresh partnership deed. In this connection, he relied on a decision of the Tribunal in the case of Jaya Steel Palace v. ITO [1982] 13 TTJ 265 (Hyd.) and the decision of the Full Bench of the Andhra Pradesh High Court in the case of CIT v. Hyderabad Stone Depot [1977] 109 ITR 686. 6. The above arguments were with reference to the asst. year 1980-81. However, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocated to the partners who had attained majority, there will be difficulty in deciding how the losses have to be adjusted against 80% and 20% shown in the name of the two partners. Thus, there is no clarity on this point of allocation of losses. It is now well settled, he submitted, that the Partnership Deed itself should show how the losses have to be allocated. With reference to the Full Bench decision cited by the assessee, he submitted that was a case where the proportion of losses could be easily ascertained. It is not so in the assessee's case. He then referred to the decision of the Allahabad High Court in the case of Bhagat Shyam Co. v. CIT [1980] 123 ITR 164 wherein the facts were identical with the facts in the assessee's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of 10%. So, neither Syed Iqubal nor Syed Shakeel will bear the losses of 80% and 20% respectively. It will be much less. How much less and how it will be allocated is not at all clear. Therefore, the Partnership Deed does not throw any light on how the losses have to be adjusted. It is not for a third party to say how these losses would be adjusted among the two major partners. A partnership deed is a contract and it is for the contracting parties to spell out how this should be understood. As the Supreme Court has pointed out in the case of CIT v. Dwarkadas Khetan Co, [1961] 41 ITR 528 treating the share allocation on a proportionate basis would amount to rewriting of contract by a third party. "An Income-tax Officer is empowered, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the major partners in the losses in that unit. As long as the partnership deed specifies the shares of the partners in profit and loss, whatever may be the method by which that is specified, it cannot be argued that the deed does not specify the shares of the partners in profit and loss as required by section 26A of the Act. As long as the shares can be worked out according to the specification made in the deed, the registration cannot be refused on the ground that the deed omits to specify the share in profit or loss." It will be seen from the above that it was possible to work out precisely the loss each major partner was to bear by taking the total to be 93 paise (excluding 7 paise of the minor) and working out the proportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attaining majority. The problem we are faced with in this case is not so much as drawing up a new partnership deed, but the specification of the losses in the existing partnership deed after the minor had attained majority. On this point, the circular is of no use. 11. Apart from these, there is also a patent defect. The assessee had not applied for registration in Form No. 11A. This form has to be used whenever there is a change in the constitution of the firm. Admittedly a minor becoming a major indicates a change in the constitution of the firm. Then the ought to have filed an application in Form No. 11A. If this has not been done it is also a ground leading to a cancellation of registration. 12. The above reasons would support the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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