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TMI Blog1997 (10) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... was admitted to the benefits of the partnership. In sub-paragraph 3 of the partnership deed, it is clearly stated that the adult members would be the partners. The capital of the partnership firm was stated to be Rs. 5,004 contributed equally by all the four. Clause 12 of the said partnership deed was the subject-matter of consideration in the matter of grant of registration under the provisions of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The said clause 12 reads as under : "The net profits or losses shall be arrived at after charging all the expenditure connected with the business including interest payable to the partners on advance made by them and the remuneration payable to them against the income of the business. The profits and losses so ascertained shall be divided between the partners equally." The Income-tax Officer, construing clause 12 of the deed, held that the said Visalakshi was a minor and was admitted only to the benefits of the partnership and there is no provision in the said clause 12 as to how the losses of the firm should be divided between the partners. According to him, the share of the loss cannot be apportioned to a minor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee-firm should be borne by the adult partners and the minor who was admitted to the benefits of the partnership was not liable to share the loss. The Appellate Tribunal also held that the manner of division of losses among the major sharers was specific in the instrument of partnership, and, therefore, the objection raised by the Income-tax Officer against the validity of the deed has no force and it is devoid of reasons and substance. In so far as the defect pointed by the Appellate Assistant Commissioner and found in Form No. 11A is concerned, the Tribunal held that the defect is only a curable defect which would not be fatal to the grant of registration to the assessee-firm. The Appellate Tribunal, in this view of the matter, directed the Income-tax Officer to give an opportunity to the assessee-firm to rectify the defect in Form No. 11A filed by the firm. In this view of the matter, the appeal preferred by the assessee was allowed and the Tribunal directed the Income-tax Officer to grant registration to the assessee-firm. The Revenue is challenging the order of the Appellate Tribunal in the present tax case reference. As already seen, the Appellate Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y specifies the manner of division of losses among the three major and adult partners. Therefore, we are of the view that the sharing of the losses by the adult partners is made explicit and clear in the instrument of partnership. The decision of the Supreme Court in Progressive Financers v. CIT [1997] 224 ITR 595, would support the case of the assessee in the instant case. The Supreme Court in the above case distinguished its earlier decision in Mandyala Govindu and Co. v. CIT [1976] 102 ITR 1, and held, that the Assessing Officer should not reject the application for registration of a firm merely because in the deed of partnership the shares of the partners are not expressly specified. The Supreme Court further held that the Assessing Officer should construe the instrument of partnership as a whole and ascertain the shares of the partners in the profits and losses. The Supreme Court also held that if the shares of the partners are not expressly specified in the partnership deed but if that could be ascertained by the Income-tax Officer from the application and the required information was supplied therein then the requirements of section 26A of the 1922 Act could be said to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------------------------------------------------------------------------------------------------------- Date of *Salary, com- @ Share in Name of admittance *Interest on mission or the balance the part- Address to partner- capital or other remu- of profits (or Remarks ner ship loans (if any) neration loss) : per- from firm centage ---------------------------------------------------------------------------------------------------------------------------------------------------- (1) (2) (3) (4) (5) (6) (7) ---------------------------------------------------------------------------------------------------------------------------------------------------- (A) ............ (B) ........... ---------------------------------------------------------------------------------------------------------------------------------------------------- Notes : .... If any partner is entitled to share in profits but is not liable to bear a similar proportion of any losses, this fact should be indicated by putting against his share in column 6 the letter 'P'." It is no doubt true that the firm should indicate by including an appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Sri Ramamohan Motor Service v. CIT [1973] 89 ITR 274, has noticed the provisions of section 185(2) of the Act and held that section 185, is not retrospective in operation. In so far as the present case is concerned, the assessment year is 1977-78 and the provisions of section 185(2) would be applicable to the facts of the case. Therefore, when the Income-tax Officer concerned found that the application for registration was not in order, he should have given an opportunity to the firm to rectify the defect found in the application and the Tribunal, by directing the officer to act in accordance with the law, cannot be said to have acted beyond the parameter of the law. In this view of the matter, we are of the view that the Appellate Tribunal was justified in holding that the deed of partnership specified the shares of losses and was also justified in directing the Income-tax Officer to give an opportunity to the assessee-firm to rectify the defect found in Form No. 11A filed by it. Therefore, we are of the view that the question of law referred to us is liable to be answered against the Revenue. In the result, we answer the question referred to us in the affirmative and again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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