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TMI Blog1964 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ndra Rao ... Four annas (3) M. Satyanarayan Rao ... Four annas (4) M. Subba Rao ... Two annas (5) Sm. S. Sitadevi ... Two annas The first three partners are the sons of M. Subba Rao and S. Sitadevi is their mother. The assessee filed an application for registration of the firm under section 26A of the Income-tax Act on the basis of the aforesaid deed of partnership for the assessment year 1958-59 and the same was allowed by the Income-tax Officer, Ward "C", Cuttack, on March 14, 1959. For the assessment year 1959-60, with which we are now concerned in this reference, an application for renewal of the registration was made on May 16, 1959. For the relevant accounting year the firm disclosed a net loss of ₹ 81,933 and stated that the partners had actually divided the share of loss in accordance with the statement made in a loose typed sheet mentioning the share of loss of each partner. The Income-tax Officer was of the opinion that there was no proper division of the loss. The firm had not shown the loss in the business for the relevant year in any books of account, but in a loose sheet of paper and that the firm had not credited or debited the resultant effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect that "notwithstanding the filing of a certificate in the prescribed form there had been no division of the losses of ₹ 81,933 between the partners whether factually or by appropriate accounting entries and as such the requirement of the law was not fulfilled". The Tribunal further held that their finding would normally be a question of fact. But in view of the decision of the Patna High Court in Sahabuddin Mohammad Raza v. Commissioner of Income-tax [1962] 46 I.T.R. 203 and as the question involved interpretation of rule 6 of the Income-tax Rules, on an application made by the firm, they referred the question of law as stated before. The main question for consideration in this case is whether the renewal of the registration under section 26A of the Act has been rightly rejected by the Tribunal. It is now necessary to examine the relevant provision of the Act and the rules made thereunder. Section 26A(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"), states as follows: "26A. (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under rule 6 for a renewal for the year 1959-60, his application was rejected. It is not the case of the Tribunal that there was no firm in existence as shown in the instrument of partnership. In fact, the partnership was accepted in the previous year and registration allowed, but the renewal of registration was refused by the Tribunal mainly on the ground that the loss of the firm had not been actually distributed between the partners as required by the Income-tax Rules. Before we proceed to examine the legal question, it is necessary to examine if there is any provision in the instrument of partnership regarding the made of division of the losses between the partners. Clause (8) of the deed provides that at the end of each year a statement of profits and losses will be made up and any partner is at liberty to withdraw the whole or part of his share of profits. According to clause (9) if any partner does not withdraw his share of profits or puts in any money of his own, he will be entitled to interest at the rate of six per cent. per annum thereon. We are not concerned in this case with any other clause of the deed. As already seen, clause (8) of the partnership instrument req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Income-tax Officer was, therefore, confined to ascertaining the two facts, viz., (1) Whether the application for registration was in conformity with the rules made under the Act, and (2) Whether the firm shown in the documents presented for registration was a bogus one or had no legal existence. Further, the discretion conferred upon him under section 26A was a judicial one and he could not refuse to register a firm on a mere speculation, but has to base his conclusion on relevant evidence. In the case before us, there is no dispute that the partnership, on the face of it, is a genuine one and the application for registration was in conformity with the rules. The decision of the Patna High Court in Sahabuddin Mohammad Raza v. Commissioner of Income-tax [1962] 46 I.T.R. 203 is a case where the Income-tax Appellate Tribunal refused registration on the ground that no separate capital accounts stood in the names of the partners and there was no allocation of definite shares between the partners. Their Lordships held that the fact that there was no separate capital account of the partners or that no share capital was contributed by some of the partners originally is not a grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26A was wrongly refused. We have already seen that the genuineness of the partnership is not in dispute and the firm was registered in the previous year and the present reference arises out of the rejection of the application for renewal of the registration. There is no legal defect so far as the form of the application is concerned. The Tribunal was conscious of that position when they said that "Notwithstanding the filing of the certificate in the above form there had been no division of the losses of ₹ 81,933 between the partners whether factually or by appropriate accounting entries". According to them, there should have been a personal account of each of the partners and their respective losses carried to that account. There is, however, no dispute that the losses have been divided in the ratio of shares of the individual partners and shown in the account-sheet. A certificate declaring the division of the losses amongst the partners has been filed by the assessee while making the application for registration. The typed statement also shows the distribution of the loss between the partners. That being so, it cannot be said that there was no evidence of divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erly distributed between the partners. But if we look to the condition No. 4 as stated above, all that is necessary to show is that the profit or loss should have been debited or credited, as the case may be, in accordance with the terms of the instrument. We have already seen that in the partnership deed nothing has been said as to how the loss is to be accounted for. In the absence of any such term in the instrument of partnership, the assessee prepared an accountsheet showing distribution of the loss amongst the different partners in accordance with their respective shares. There is nothing in the Rules to show that the losses were to be accounted for in any particular manner and in no other way. In that view of the matter, I do not think it can be said that there was no compliance by the assessee about the fulfilment of this condition also. That being the position, it must be held that the application for registration was in order and the registration should have been renewed for the assessment year 1959-60. We therefore answer the question in the affirmative and hold that the registration of the firm should have been renewed for the assessment year 1959-60 under section 26A, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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