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TMI Blog1997 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... rship though he was not entitled to a share in losses ? (2) Whether, on the facts and law, the Income-tax Appellate Tribunal was right in holding that Sri Ashok Kumar will not be entitled to the minimum guaranteed profits of Rs. 3,000 per annum in case of loss, and that the Andhra Pradesh High Court's decision in CIT v. B. Pandaiah and Co. [1983] 143 ITR 464, was not applicable to the facts of the case ?" The controversy which led to the reference of the above questions relates to the assessment year 1980-81 for which the previous year ended on March 31, 1980. On April 6, 1979, a partnership was entered into, in which Sri Ashok Kumar was one of the partners. He was to receive a 5 per cent. share in the profits of the firm subject to a min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partnership. That being a question of fact, the judgment of this court in CIT v. B. Pandaiah and Co. [1983] 143 ITR 464 has no application. There, the issue was whether a major congenitally deaf and dumb person could have been admitted to the benefits of the partnership. A Division Bench of this court held that that could not have been done. Answering the reference, Justice Jeevan Reddy (as he then was), speaking for the Bench, observed, "admittedly, a partnership deed admitting an adult member to the benefits of the partnership is invalid". Thus, it is clear that the above judgment has no application to the facts of the present case. It is also brought to our notice that the above judgment of this court was followed by a Division Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted and that it contained all the essential ingredients of a partnership except that the loss was not shared by all the partners ; however, in view of the observations of the Supreme Court in K. D. Kamath's case [1971] 82 ITR 680, it answered the reference in the negative. In K. D. Kamath's case [1971] 82 ITR 680 (SC), the question that fell for consideration of the court was, whether on the basis of the terms of partnership in that case, the appellant-firm was eligible to be granted registration under section 26A of the Indian Income-tax Act, 1922. It was contended before the Supreme Court that the terms and conditions of the partnership provided that the control and management of the company was in the hands of one of the partners who al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits of a business carried on by all or any of them acting for all, is termed a "partnership". In other words, it is a joint venture for earning profits. Section 13(b) of the Partnership Act says, subject to contract between the partners, the partners are entitled to share equally in the profits earned and shall contribute equally to the losses sustained by the firm. A combined reading of these two provisions makes it clear that where the persons agree that some of them should bear the losses and that all of them will share the profits, it is a valid agreement not hit by section 4 or section 13(b) of the Act. Section 30 of the Partnership Act which deals with admission of minors to the benefits of partnership is an enabling provision. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the application of the provisions of section 28 of the Act. We may now refer to sections 184 and 185 of the Income-tax Act which were applicable at the relevant period. Section 184 deals with application for registration of firms and section 185 deals with procedure to be followed on receipt of applications for registration. Section 185, inter alia, provides that on receipt of an application for the registration of the firm, the Assessing Officer should inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership and directs that if he is satisfied that there was or there had been during the previous year in existence a genuine firm with the constitution so specified, he should order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tling the firm to have registration. However, the Calcutta High Court took note of the observation of the Supreme Court in K. D. Kamath's case [1971] 82 ITR 680, at page 691 which reads thus : " The above clauses also establish the right of each of the partners to share the profits and also to bear the losses in the proportion of their shares mentioned in clause (5)." Placing reliance on the above observations of the Supreme Court, the Calcutta High Court held that a partnership in which there is no provision to share the losses, is an invalid partnership. With respect we record our disagreement in understanding the above observations of the Supreme Court, the way the Calcutta High Court did. For the above reasons, we answer the first q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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