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TMI Blog1973 (8) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... decision : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the assessee is not entitled to registration under section 185 of the Income-tax Act, 1961? The relevant provisions of the partnership deed (annexure " A ") are clauses 7 and 15. They read as follows: " 7. The profits of the partnership business shall be shared and borne by the partners as under. Any loss sustained by partnership business, such losses are not binding on the 3rd partner. Partner No. 1 P. Kunhayin. 40% Partner No. 2 K. Abdurahiman. 35% Partner No. 3 M. Avaran Koya. 25% .............................. 15. In matters wherein no specific mention is made hereunder, the provisions of the Indian Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 26A of the Indian Income-tax Act, 1922, in Kylasa Sarabhaiah v. Commissioner of Income-tax and observed thus: " The word 'specify' is used in section 26A and rule 2 as meaning mentioning, describing or defining in detail : it does not mean expressly setting out in fractional or other shares. In the deed of partnership, the shares are clearly defined, though they are not worked out in precise fractions. " Applying the principle enunciated in this decision, the Supreme Court construed the provisions in a partnership deed in the decision in Parekh Wadilal Jivanbhai v. Commissioner of Income-tax. The following extract from the judgment would be useful: "On behalf of the assessee the argument was put forward that the High Court was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant circumstances of the case, we are of the opinion 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 for the assessment year in question. " It is thus clear, that the specification of the shares in the instrument of partnership is a necessary requirement for registration. Now turning to another decision of the Supreme Court it is clear that if there is no such provision registration would not be granted. The decision is in N. T. Patel Co. v. Commissioner of Income-tax. The following extract from the judgment therein may be read: "But in none of these clauses it is stated what the shares of the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original deed of the 1st December, 1960, therein provided that the profit and loss of the business would be divided among the three partners in the ratio of 50 : 25 : 25. On the 26th March, 1963, there was another deed called a clarification deed which stated that the minor who was only a beneficiary entitled to 25 per cent. profit was not liable for the loss. This clarification deed did not provide in what manner the 25 per cent. loss which would have been borne by the minor as provided by the partnership deed of 1st December, 1960 (assuming the provision is valid in law which it does not appear to be) would be divided among the other two partners. In the absence of such provision it was ruled that the clarification deed did not satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution towards losses between partners 1 and 2, they must be taken to have agreed to contribute to the losses in the same proportion, viz., 40 : 35. This is not by virtue of section 13. Confronted with this difficulty counsel for the petitioner-assessee contended that section 48 of the Act must be applied. There are two difficulties in accepting this argument. The reference in clause 15 of the partnership deed, qualified as it is by the wording of that clause, cannot attract section 48. Secondly, section 48 will apply only when the question of hearing losses on dissolution of the firm arises and will not apply as such to cases of sharing losses while the firm is continuing to carry on its business. No doubt, the principles of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the one in In re Albion Life Assurance Society or for that matter the principle of section 48 should be applied in dividing the losses. The deed is incomplete as far as the requirements of section 184 are concerned regarding specifying the shares of losses. The provision applies to losses as much as to profits--see Commissioner of Income-tax v. Ithappiri George already referred to-and that must be sufficient to refuse registration. The question referred to us will, therefore, have to be answered in the affirmative, that is, against the assessee and in favour of the department. We do so. We direct the parties to bear their respective costs. A copy of this judgment under the seal of the High Court and the signature of the Registrar wil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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