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TMI Blog1977 (3) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... i N. Soundappan. 3. Shri K.N. Rajannan. 4. Shri V. Gopalakrishnan 5. Shri T. Ramanathan. The firm was reconstituted under the deed of partnership dt. 21st Feb., 1969 by taking in two more partners. The following five persons are the partners of the reconstituted firm: 1. Shri N. Jagadasan. 2. Shri N. Shanmugham. 3. Shri K.V.S. Natarajan Chettiar. 4. Shri K.N. Kanagasabapathy. 5. Shri S. Kandaswamy. Of the five retired partners four were appointed as working partners with effect form 21st Feb., 1969 and separate deeds in respect of such arrangement were entered into between the reconstituted firm and each one of the retired partners on 7th May, 1969. As per the said arrangement, the retired partners left deposits with the firm and excluding Shri. T. Ramanathan, the other three partners were remunerated at the rate of Rs. 800 per month or 10 per cent net profit and before charging working partners remuneration etc. Shri T. Ramanathan was remunerated at Rs. 400 p.m. or 5 per cent of the net profits as above. For the above reconstituted firm, application for registration in Form No. 11A was filed and the ITO by his order dt. 27th Nov., 1971 recognised the change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO to press any order and that in the absence of any specific order under s. 184(7) the CIT cannot invoke the provisions of s. 263, since the Commissioner can only revise an order passed by the ITO. In any event, he pointed out that there was no error in the ITO granting continuation of registration for the assessed firm for the years under appeal and, therefore the CIT can have no jurisdiction to revise the ITO s orders. He stressed that the four out of the five retired partners had entered into service agreements with the firm where under they were remunerated for the services rendered by them and that merely because such agreements were styled as "Working partnership agreements," they cannot be construed as forming part of the partnership agreement. In this connection, he also referred us to the orders of the Tribunal Madras B Bench dt. 27th Jan., 1977 in the case of the retired partners who entered into such agreements in ITA. Nos. 1608,1609,1606, 1607 and 1610 (Mad) of 1975-76, in support of his arguments. He further added that under s. 186(1) of the IT Act, 1961, the registration granted to a firm can be cancelled only if the ITO is of the opinion that there was during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisted under the old Act, namely 1922 Act. 6. We have carefully considered the rival submissions and also perused the records brought to our notice the undisputed facts of the case are as follows:- By the Deed of Partnership dt. 5th May, 1965, the following persons entered into a contract of partnership: 1. Shri S. Nataraja Chettiar. 2. Shri S. Kandaswamy, brother of 1 above 3. Shri N. Soundappan, son of 1 above. 4. Shri K.V.S. Nataraja Chettiar. 5. Shri K.N. Kanagasabapathy, son of 4 above. 6. Shri K.N. Rajannan, son of 4 above. 7. Shri V. Gopalakrishnan. 8. Shri T. Ramanathan. The 3rd ITO, Circle-I, Salem-7, while making the assessment for the asst. yr. 1970-71, in the case of the assessee firm, passed the following order on 27th Nov., 71:- "There was a change in the Constitution of the firm with effect from 20th Feb., 1969 Shri S. Nataraja Chettiar, K.N. Rajannan, N. Soundappan, V. Gopalakrishnan and T. Ramanathan retired from the partnership and M/s. Jagadeesan and M. Shanmugha Sundaram were admitted as new partners. The partnership was also drawn up on 1st Feb., 1969 giving effect to the change in the constitution of the new firm as under: 1. S. Kand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as follows: "7 The Retiring partners have duly examined the accounts of the firm and hereby give their full consent that the amounts due to them in respect of Capital, current and all other accounts as up to 20th Feb., 1969 are duly and properly ascertained and credited to their account and they hereby give there satisfaction in respect of the same. The retiring partners are not liable to pay all or any of the liabilities of the firm and they agree to indemnify the Retiring Partners in respect of the liabilities of the Firm during the tenure of their partnership." The above clause in particular makes it abundantly clear that subsequent to 20th Feb., 1969, the retiring partners are not liable for any of the liabilities of the firm and that the reconstituted firm alone would be liable to pay any of the liabilities of the firm. Among the other clauses in the said deed of retirement, provision has been made for the appointment of four out of the five retired partners in the firm s services for which they are to be remunerated on the basis of minimum salary or percentage on net profit before charging working partners remuneration. Relying upon these clauses, relating to the appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid a monthly salary of Rs. 400 or 5 per cent of the net profits before charging working partners remuneration. It is further provided in cl. 8 of the said deed of partnership dt. 21st Feb., 1969 that if the share of the remuneration ascertained on the percentage of profits was more than the maximum remuneration. It was further stated that if the net results in any year was loss, the above four persons would be entitled to the minimum remuneration. To the above deed of partnership only the said 5 partners are signatories. In other words, the contract of partnership has been entered into only by the persons who have put their signatures to the deed dt. 21st Feb., 1969. It is only these 5 persons that had agreed to share the profits of the business. Under the said agreement of partnership under cl. 9, the 5 partners have agreed to appoint Shri. S. Natarajan Chettiar as the Managing partner. Shri S. Natarajan Chettiar, one of the partners, is authorised to carry on the business on behalf of the firm. Thus, the deed of partnership dt. 21st Feb., 1969 of the 5 partners, satisfied the requirements of valid partnership. The said firm is admittedly found to be genuine, not only by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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