9911796707
TMI Blog1998 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... r was admitted to the benefits of partnership. The assessee did not apply for registration under the Act in respect of any assessment year right from the assessment year 1982-83 and it continued to be an unregistered firm all these years. The Inspecting Assistant Commissioner (Assessment) completed the assessment for the assessment year 1982-83 treating the assessee as a registered firm applying the provisions of section 183(b) of the Act. While completing the assessment for the assessment year 1982-83, the income was allocated between two separate periods, that is, from November 8, 1980 to September 15, 1981 (first period) and from September 16, 1981 to October 27, 1981 (second period), considering the fact that change in constitution became effective from September 16, 1981. The profit for the first period was allocated among the partners on the basis of the profit sharing ratio, as laid down in the original partnership deed dated November 27, 1963. The Assessing Officer found that there was no specific sharing ratio as per the partnership deed dated September 16, 1981, whereunder the assessee-firm was reconstituted and so, he apportioned the profits of the second period equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re did the Assessing Officer indicate any working to show that "it would be profitable to treat the firm as a registered firm under section 183(b) of the Income-tax Act. The assessee had also furnished certain working before us to buttress the point that the tax paid by the unregistered firm will be much more than the tax payable if registration is granted to the assessee-firm. Having regard to these facts, we deem it fit to set aside the orders of the Commissioner of Income-tax (Appeals) and restore the issue to the file of the Assessing Officer with a direction to examine the issue afresh in the light of our discussion." The partnership deed dated September 16, 1981, remained operative in the year 1986-87 as well and hence the Tribunal explicitly pointed out that the facts relating to the assessment years 1982-83 and 1986-87 "are identical". The first question canvassed before us is, whether, on the facts and in the circumstances of the case, the provisions of section 13(b) of the Partnership Act are applicable. The question referred to us under section 256(2) does not allude to section 13(b) of the Partnership Act. But the fact remains that the Revenue certainly disputed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of accumulation and the balance 50 per cent. of the accumulated profits before the expiry of six years from the date of accumulation. The partners do not have any specified or equal share in the accumulated profits and the partners shall decide the amount to be credited or debited, as the case may be, to any one or to each partner at any time, giving weightage to the circumstances of the case. An outgoing partner shall have no share in the accumulated profits and on death, the estate of a deceased partner will get such share any, as the continuing partners shall decide. (c) In the event of loss, it shall first be set-off against past accumulated profits, if any, and the balance if any, shall be carried forward and set-off against future profits or shall be apportioned amongst the partners and not the minor beneficiary in such proportion and such manner having regard to the circumstances in which the loss arose. .." Adverting to clause 7, the Tribunal, in its order dated June 24, 1993, relating to the assessment year 1982-83, found as follows : "Up to 10 per cent. of the profits each year, distribution can take place among the partners including the minor on such basis a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract among the partners, then, surely, the legal principle is that all partners will share the profits equally and they will also contribute to the losses equally. The Tribunal was of the view that since there was a contract for sharing the profits and contributing to the losses of the firm, the provisions of section 13(b) of the Partnership Act had no application to the facts of the case. It is not in dispute that the deed dated September 16, 1981, itself does not specify share ratio in profits/losses. But the view taken by the Tribunal is that the said deed hinted at an arrangement as to how profits/losses of the assessee-firm would be shared by the partners. In short, clause 7 of the deed dated September 16, 1981, stipulates that profits up to 10 per cent. will be distributed in the assessment year 1982-83 and that the rest of the profits will be accumulated and that out of the accumulated profits 50 per cent. will be distributed among the partners before the expiry of three years and the remaining 50 per cent. of the accumulated profits will be distributed among them before the expiry of six years from the date of accumulation. So far as profit-sharing ratio is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share ratio in profits/losses was made after September 16, 1981, to distribute profits/losses for the assessment year 1982-83, then section 13(b) will apply. Neither the Assessing Officer nor the Appellate Tribunal probed into the vital aspect whether the partners, in fact, made any agreement after September 16, 1981, to specify share ratio in profit/losses. The senior standing counsel argued before us that the partnership deed dated September 16, 1981, which allows accumulation of 90 per cent. profits to be shared in future within six years from the date of accumulation, is wholly vague and no notice could be taken thereof. The deed dated September 16, 1981 is the foundation of the assessee-firm, existence of which is not denied by the Revenue. Therefore, the deed dated September 16, 1981, cannot be ignored. What is argued for the Revenue is that the deed dated September 16, 1981, is wholly vague, inasmuch as that purports to say that share ratio of profits/losses could be specified in future from time to time before distributing profits and contributing losses. It is submitted that the Assessing Officer has to compute the entire income of the assessee-firm at the time of makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an unregistered firm and the tax which would be payable by the partners individually in respect of their other income, if any. It was, therefore, necessary for the Assessing Officer to demonstrate as to how taking recourse to section 183(b) would be advantageous to the Revenue. In the assessment order, the Assessing Officer has not done any exercise in this behalf and, therefore, there was no option for the Tribunal but to remand the case to the Assessing Officer in this regard. In view of the above observations, it is not possible to record categorical findings, on both the questions. So far as section 183(b) of the Act is concerned, the Appellate Tribunal has already remanded the matter to the Assessing Officer with necessary directions and rightly so. In view of the above discussion, we direct the Tribunal to remand the question pertaining to the application of section 13(b) of the Partnership Act as well to the Assessing Officer to record a clear finding, in the light of the observations made by us in the body of the judgment. All observations made herein will equally apply to the reference pertaining to the assessment year 1986-87. In the result, the common question r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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