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TMI Blog1984 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... . On appeal by the assessee, the AAC noted that all the partners of the assessee were shown as partners in the bank. They were also authorised to operate the account of the partnership. He also took into account that the partnership was registered with the Registrar of Firms and the Registrar of Assurances and came to the conclusion that the partnership was genuine and directed the ITO to grant registration. On a further appeal by the Revenue, the Income-tax Appellate Tribunal on a consideration of the deed of partnership in its entirety held that there was a genuine partnership and dismissed the appeal of the Revenue. At the instance of the Revenue, the Tribunal under s. 256(1) of the I.T. Act has referred the following question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the event of any loss including loss of capital in any year, the same would be borne fully by Bhagwati Devi. (f) Kamani would be entitled to draw Rs. 300 per month from the partnership for his expenses which would be debited to his account and adjusted against his share of profit. (g) The bank account of the partnership would be operated by Bhagwati Devi alone or by her duly constituted attorney. (h) If Kamani committed breach of any of the terms of the deed or misconducted himself in respect of the affairs of the partnership, he would be liable to be expelled by Bhagwati Devi at her discretion. (i) In the event the working of the partnership was not found profitable or satisfactory to Bhagwati Devi or if she did not wish to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the profits and losses would be shared in specified proportions. The erstwhile proprietor was designated as the principal and the financing partner, the goodwill of the firm was wholly retained by him and he also retained the absolute right of control and management of the business and the operation of the bank accounts of the firm. The other partners contributed labour and pledged to work under the instructions and directions of the principal partner which was to be treated as final and binding. The working partners were not authorised to raise loans or pledge the interest of the firm without the written authority of the principal partner. The principal partner could remove any of the working partners in the best interests of the firm i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. " Section 13 : " Subject to contract between the partners ... (b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm. " Learned advocate also cited a passage from Lindley on the Law of Partnership, 13th edition, as follows : " It often happens that persons agree that all profits shall be shared rateably, and nevertheless, that all losses shall be borne by some or one of them exclusively. Such an agreement is not necessarily invalid as a nudum pactum; for it is nothing more than an agreement, providing, amongst o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld agree to share the losses. In any event, this only applies as between themselves, for whatever their agreement may be, they would both be liable to outside parties. " (b) Mirza Mal Bhagwan Das v. Rameshar, AIR 1929 All 536. This decision of a Division Bench of the Allahabad High Court is cited for the following observations made in the context of s. 239 of the Indian Contract Act defining a partnership (p. 540): " An agreement to share the loss is not a necessary ingredient of partnership under the Indian Contract Act. " (c) B.C.G.A. (Punjab) Ltd. v. CIT [1937] 5 ITR 279 (Lah) [FB]. This decision of a Full Bench of the Lahore High Court was in a reference under s. 66(2) of the Indian I.T. Act, 1922. It was observed by the Bench af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght that some provision would been made for the sharing of the loss, especially as the share of the profit going to the appellant is immensely large compared with the share going to his brother." Construing the provisions of the deed of partnership before us, it appears to us that the control exercised by Bhagwati Devi over her partner, Kamani, is of little relevance. In K. D. Kamath Co. [1971] 82 ITR 680 (SC), the control exercised by the principal partner over the other partners was similar, if any, more than in the instant case. The deed in K. D. Kamath Co. [1971] 82 ITR 680 (SC) excluded the working partners from the operation of the bank account and the partners were liable to be expelled from the firm or from contribution of c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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