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TMI Blog1997 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... u 62,500 5. M. S. Rajeswari 62,500 For the assessment year 1968-69, it applied for registration to the Income-tax Officer under section 184 of the Income-tax Act, 1961 (for short the "Act"), on March 31, 1968. For the assessment years 1969-70 and 1970-71, it applied for renewal of registration. The Income-tax Officer rejected the application for registration on June 30, 1971. On the same day, he passed an assessment order for the assessment year 1968-69 treating the status of the appellant as an association of persons. Applications for renewal of registration for the assessment years 1969-70 and 1970-71 were rejected on March 13, 1972, and the assessment orders for those years were again passed treating the appellant as an association of persons. The appellant's application for registration was rejected by the Income-tax Officer on the ground that though in the opening paragraph of the partnership deed it was mentioned that Sunitha Pratap, a minor, was admitted to the benefits of partnership, the relevant clauses in the partnership deed indicated that she was taken as a full partner and, therefore, the contract of partnership was void ab initio. The Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng question to the High Court (see [1979] 118 ITR 18 (Mad)) for its decision : "Whether, on the facts and in the circumstances of the case, and on a true construction of the terms of the partnership deed, the assessee is entitled to the benefit of registration under section 185 of the Income-tax Act, 1961, for the assessment year 1968-69 ?" Against the orders passed by the Income-tax Officer refusing renewal or continuation of registration for the assessment years 1969-70 and 1970-71 the appellant had preferred two separate appeals to the Appellate Assistant Commissioner. They were allowed. The appeals filed by the Revenue against the said appellate orders were dismissed by the Tribunal. At the instance of the Revenue, for the said two assessment years the following question was referred to the High Court : "Whether, on the facts and in the circumstances of the case and on a true construction of the terms of the partnership deed the assessee is entitled to the continuation of registration for the assessment year 1969-70 and 1970-71 ?" The High Court referred to the decision of the Gujarat High Court in Thacker and Co. v. CIT [1966] 61 ITR 540 and the two dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred a benefit on the partners which the partners were not entitled to but for that section and, therefore, that right could have been claimed only in accordance with the statute and those who claimed it had to bring their case strictly within the terms of that section. This view was reiterated subsequently by a 5-judge Bench of this court in the case of Kylasa Sarabhaiah v. CIT [1965] 56 ITR 219. At the same time, this court disapproved the mechanical application of that provision and held that "in ascertaining whether the application is in conformity with the Rules, the deed of partnership must be reasonably construed". It was also held that the word "specify" as used in that section and the relevant rule meant "mentioning, describing or defining in detail" and it did not mean "expressly setting out in fractional or other shares". In view of this decision the correct legal position is that the Assessing Officer cannot reject an application for registration merely because in the deed of partnership the shares of the partners are not expressly specified. The Assessing Officer will have to construe the instrument of partnership as a whole and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses must be shared in the same proportion as the profits if there is no agreement as to how the losses are to be apportioned". On facts, it was held in that case that even after applying those two principles, it was not possible to ascertain how the losses pertaining to the minor's share were to be apportioned amongst the adult partners. In an earlier decision in the case of Parekh Wadilal Jivanbhai v. CIT [1967] 63 ITR 485, this court construed the partnership deed by reading it as a whole and "in the context of the relevant circumstances of the case" and held that there was specification of the individual shares of the partners in the profits within the meaning of section 26A of the Act and the assessee-firm was entitled to registration. The relevant circumstances which were taken into account were (1) under clause 3 of the partnership deed the capital allotted to each partner was equal, (2) under clause 10 the net profit or loss was to be divided amongst all partners, (3) in the application the three partners were shown to share the profits equally, and (4) in the books of account the profits were apportioned equally among the three partners. Thus, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du and Co. [1976] 102 ITR 1 (SC). Moreover, the application made by the appellant in the prescribed form clearly disclosed as to how the losses of the firm were to be distributed among the major partners. The way they had worked out their share in the loss, if any, in the schedule attached to the application was quite consistent with the provisions made in the instrument of partnership and the legal principles applicable in that behalf. Accordingly, Rajakrishna who was required to contribute 25 per cent. as share capital had to bear 40 per cent. of the loss and the other three major partners who had individually contributed 12.5 per cent. of the capital had to bear the loss in the ratio of 20 per cent. each. The Income-tax Officer had not considered these relevant circumstances as he was of the view that the contract of partnership itself was void. The Appellate Assistant Commissioner and the Tribunal did not refer to the application and, construing the partnership deed alone, held that it was possible to ascertain how the losses of the firm were to be distributed among the major partners. If the partnership deed is construed reasonably, as indicated above, then it has to be held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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