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TMI Blog1986 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... is court in Raj Construction Co. v. Addl. CIT [1986] 157 ITR 734, does not appear to be in consonance with the Supreme Court decision in Mandyala Govindu Co. v. CIT [1976] 102 ITR 1. For this reason, the Division Bench referred the matter for decision by a larger Bench. This is how the reference has come up before us for decision of the above questions of law. The material facts are these: The relevant assessment years are 1972-73 and 1973-74. For the assessment year 1972-73, the assessee applied for registration as a firm on the basis of a partnership deed dated October 30, 1971. It also applied for continuation of registration of the firm for the next assessment year 1973-74 on the same basis. The Income-tax Officer passed an order under section 185(1)(a) of the Act on December 12, 1973, granting the assessee-firm registration for the assessment year 1972-73. For the assessment year 1973-74, the Income-tax Officer continued the registration by order dated March 18, 1975, treating the firm as genuine. The Commissioner, on a perusal of the record on the basis of which the Income-tax Officer had granted and continued registration to the assessee-firm for these years, came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm under section 185. Admittedly, the partnership of the assessee-firm is evidenced in the present case by the partnership deed dated October 30, 1971, on the basis of which the assessee-firm claimed registration under section 185. The partnership deed shows that it is comprised of four adult partners, namely, Nevandram, Dhanomal, Kishanchand and Choithram and a minor, Sunderdas, has been admitted only to the benefits of the partnership. Choithram an a minor, Sunderdas, are the sons of Dhanomal, while Nevandram is the brother of Dhanomal. The shares are indicated in the deed as 25 paise each of Nevandram, Dhanomal and Kishanchand; 15 paise for Choithram and remaining 10 paise for minor, Sunderdas. These are shares obviously in the profits of the firm, even though the word " profit " is not expressly mentioned. This is obvious from the fact that the minor has been expressly admitted only to the benefits of the partnership and even otherwise the minor could not be made liable for the losses. There is nothing else in the partnership deed relating to the shares of the partners and there is no mention of the losses and the manner in which they were to be shared by the adult partners. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss in the minor's share would still remain undistributed. Will the partners between them bear this loss equally, or to the extent of their own individual shares ? To this, the instrument of Partnership does not even suggest an answer. There is, therefore, no means of ascertaining in this case how the losses are to be apportioned." [Emphasis supplied] The Supreme Court clearly held that where a minor has been admitted to the benefits of the partnership, it must be clearly indicated in the instrument of partnership evidencing the contract as to the manner in which the losses, if any, have to be shared by the adult partners or, in other words, the proportion in which the amount of loss falling to the minor's share has to be distributed. Unless the instrument of partner ship indicates this fact either expressly or by necessary implication, there is nothing to show the proportion in which the losses are to be shared, since the shares in the profits are no indication for the obvious reason that the minor's share is only in the profits. The significance is for the obvious reason that for determining the genuineness of the firm, it is necessary to know the proportion in which losses, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh High Court decision is distinguishable in the present case. This is for the reason already indicated by us that the aforesaid Supreme Court decision fully covers the point for our decision. That apart, it is significant that in Krishna Mining Co.'s case [1980] 122 ITR 362 (AP) [FB], the summary of the principles emerging from the decisions summarised at pages 375 and 376 of the report is the same as indicated by us. It is sufficient for our purpose to quote only the principles at Serial Nos. 3, 8, 9 and 11 which support the conclusion reached by us. These are as under : " 3. Such deed of partnership must specify, either expressly or by implication, the individual shares of the partners. 8. Where no provision at all for sharing of the profits or losses is made in the deed of partnership, such a partnership firm is not entitled for registration. 9. Where there is provision for sharing the profits only but not losses, such firm also is not entitled for registration. 11. Where a minor or minors are admitted to the benefits of partnership only, the sharing of the losses must be provided amongst the major partners." The next case relied on by learned counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract of partnership is contained in an instrument which is the basis of the assessee's claim for registration. This being so, the terms of the contract of partnership have to be derived therefrom. In this respect, there is no distinction between the provisions in the two Acts. Learned counsel for the assessee also referred to the contents of the application for registration filed by the assessee in accordance with the Rules. According to learned counsel, the contents thereof are also material for ascertaining the provision for sharing of losses by the adult partners. It is not necessary for us in the present case to decide whether any document other than the instrument of partnership can be seen for this purpose where the contract of partnership is evidenced by an instrument, since a reading of this application of the assessee also does not improve the situation. There is no specification made even in this application of the proportion in which losses of the firm were to be shared only by the adult partners. Consequently, this reference is answered against the assessee and in favour of the Revenue as under : 1. The Tribunal was justified in holding that the assessee-firm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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