9911796707
TMI Blog1996 (8) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... rs under section 186(1) of the Income-tax Act, 1961, passed by the Income-tax Officer for the assessment years 1968-69 to 1976-77 ? " We have heard Sri Shekhar Srivastava, learned standing counsel for the Commissioner of Income-tax, and Sri S. P. L. Srivastava, learned counsel for the assessee-respondent. The matter relates to the assessment years 1968-69, 1969-70, 1970-71, 1971-72, 1972-73, 1973-74, 1974-75, 1975-76 and 1976-77. The assessee is a partnership-firm that was constituted through a partnership deed dated March 15, 1967. There were three adult partners and one Laxmi Kant, a minor, was admitted to the benefits of the partnership. Clause (2) of the partnership deed that prescribed the manner in which the profits and losses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer placed reliance on a judgment of the Supreme Court in Mandyala Govindu and Co. v. CIT [1976] 102 ITR 1. The assessee preferred appeals to the Appellate Assistant Commissioner without any success. On further appeal, the Tribunal, however, held that the plain meaning of clause (2) was that the shares of the adult partners in the losses would be the same as in the case of profits, i.e., in the ratio of 20 : 25 : 30. The same was the ratio for distribution of losses amongst them. The Tribunal observed that it was incorrect to state that the shares of the partners in the losses had not been specifically mentioned. The Tribunal, therefore, allowed the assessee's appeal and quashed the order cancelling the registration under section 186(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership deed elaborately mentioned how the profits were to be distributed between the major partners and the minor admitted to the benefits of the partnership and there was also a mention that the losses shall be borne by the " parties hereto " meaning the major partners. The Full Bench of the Andhra Pradesh High Court held that the specification of the individual shares of the partners may be express or implied or worked out and that the intention and object of the partners of the firm in regard to specification of the individual shares of the partners can be gathered either from the very recitals of the deed of partnership as a whole or from the true facts and circumstances indicated in the application for registration, books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise per rupee, is not correct. The loss has to be fully distributed amongst the three partners and suppose there is loss of one rupee, i.e., 100 paise, in the first distribution 75 paise will be distributed and then the remaining 25 paise is again distributed in the same ratio, i.e., 20/100, 25/100 and 30/100, another sum of 18 3/4 paise will get distributed leaving a balance of 6 1/4 paise. If we go on distributing this remainder till the full rupee is exhausted, the result will be that out of one rupee of loss, the three partners would get 26 2/3, 33 1/3, and 40 paise in a rupee of loss. Thus, giving clause (2) a realistic and effective meaning the losses have to be distributed in the ratio of 20 : 25 : 30 or 26 2/3/100, 33 1/3 /100 and, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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