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TMI Blog1981 (3) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... of road transport. Material clauses of the reconstituted partnership deed are as follows: " (a) The capital shall be Rs. 40,000 or more as would be mutually decided from time to time and the said capital to be contributed by the first and the second party in equal proportions. (b) The partnership firm is the owner of several lorries. The accounts of the said lorries would be kept separately and any income and/or losses from the business done by the said lorries would be divided between the first and the second party in the following proportions: 1. Sri Basheshar Lal (first party) 50% 2. Smt. Gayanwanti Devi (second party) 50% The third party will not be entitled to share any income and/or loss from the aforesaid lorry business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee came in appeal before the AAC who held that the conditions for a valid partnership and registration thereof were satisfied. He further directed the ITO to allow registration to the assessee for the assessment year 1968-69, and renewal of registration for the assessment year 1969-70. Aggrieved by the consolidated order of the AAC the department came up in appeal before the Appellate Tribunal. It was contended on behalf of the department that Form No. 11 was not valid as the assessee had not disclosed the shares of the partners in one business and as such there was no valid partnership under the Partnership Act. It was specifically pointed out that the partnership had two distinct businesses one from own lorries and the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere must be an agreement entered into by all the persons concerned, (2) the agreement must be to share the profits of a business, and (3) the business must be carried on by all or any of the persons concerned, acting for all. Next it was pointed out by the Tribunal that the three persons, viz., Sri Basheshar Lal, Smt. G. Devi and Sri K. K. Nijhewan entered into an agreement of partnership by a deed dated May 20, 1967. Thus, according to the Tribunal, the first condition was satisfied. According to the present partnership deed, the business was to be carried on with the assessee's own lorry and also with hired lorry. With reference to the relevant clauses of the partnership deed, it is pointed out by the Tribunal that there is nothing to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal: "Whether, on the interpretation of the deed of partnership dated May 20, 1967, the Tribunal was correct in law in holding that a valid partnership came into existence and the assessee was entitled to registration?" Mr. B. L. Pal, learned advocate for the revenue, only presses the point that the third partner, Sri. Nijhewan, having been excluded from sharing the income and/or loss from a portion of the business, viz., the business in the own lorries and having been excluded from the management, the deed of partnership dated May 20, 1967, was not a valid one. In the case of K.D. Kamath Co. v. CIT [1971] 82 ITR 680 (SC), the Supreme Court laid down what would be the legal requirements to constitute a valid partnership. Section 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole-time attention to the business. Thus, with reference to the decision of the Supreme Court referred to above, Mr. Pal argues that there was no agreement to share the profits or loss of the entire business and the business account was not to be carried on by all the partners. Mr. N. K. Poddar, learned advocate for the assessee, with reference to para. 7 of the partnership deed, points out that the first and second parties were to be entitled to interest at the rate of 9% on the capital invested in excess of the capital already contributed and such interest was to be considered as the expenses of the business and was to be deducted as such before arriving at the divisible profit and loss amongst the partners. It is also pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out by Mr. Poddar that all the partners to the partnership agreed to such an agreement. Under such agreement the first party was to be the manager of the partnership business and he was to devote his whole time and attention to the business. Under s. 4 of the Partnership Act the business must be carried on by all the partners or any of them acting for all. As observed by their Lordships of the Supreme Court in the case K. D. Kamath and Co. v. CIT [1971] 82 ITR 680 (SC) there is implirit in, the second requirement the principle of agency. Mr. Poddar also makes a reference to s. 8 of the Indian Partnership Act which lays down that a person may become a partner with another person in a particular adventure or undertaking. He also refer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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