9911796707
TMI Blog1975 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ise Jeevinder Singh 20 Paise Bhag Singh 5 Paise Deva Singh 5 Paise This new partnership continued functioning up to 25th September, 1961. The Income-tax Officer granted registration of this firm for the assessment year 1962-63 for the period April 1, 1961, to September 25, 1961. The financial position of the firm was not sound and it was felt that it had not got sufficient funds to run the business. It then approached D. N. Kapur, who was the manager of the Oriental Bank of Commerce, Patiala, and his wife, Shrimati Vimla Kapur, for helping them in this connection. Both of them arranged a loan of Rs. 50,000 from Dr. Rajinder Nath, brother of Vimla Kapur. In consideration thereof, she was alleged to have been taken as a partner and given a share of 5 paise in the profits of the firm. She contributed a sum of Rs. 5,000 also towards the capital of the firm. On 26th September, 1961, a new deed of partnership was written and the shares of the partners in the same were as follows : Teja Singh 38.25 Mohinder Singh 21.25 Jeevinder Singh 17.00 Bhag Singh 4.25 Deva Singh 4.25 Vimla Kapur 5.00 In the partnership deed, it was mentioned as to how much interest had to be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that Vimla Kapur had contributed only Rs. 5,000, but still she had been given extraordinary powers. This had violated the principle of agency and thus rendered the partnership invalid. It was also held that Vimla Kapur was a benamidar for Rajinder Nath and further that she was unable to answer some pertinent questions relating to the partnership. Both these facts proved that she was not a genuine partner. It may be mentioned that the Appellate Assistant Commissioner had examined Vimla Kapur. Thereafter, the assessee filed a second appeal before the Appellate Tribunal. The Tribunal condoned the delay in filing the application for registration. As regards merits, the assessee's contentions before the Tribunal were that the partnership was registered with the Registrar of Firms and Vimla Kapur was one of the partners therein. As she arranged the finances for the firm, she enjoyed greater powers than the other partners. A certificate from the bank showing that Vimla Kapur was operating the bank account of the firm was produced and on its basis, it was submitted that there was no scope for holding that Vimla Kapur was not a partner in the firm. The firm with five partners had alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this partner, who has the most extensive and unusual powers in the conduct of the business under the partnership deed, about the most elementary facts relating to the partnership and the fact that her powers were not exercised shows that she was not a genuine partner and there was no genuine firm in existence as constituted under the instrument of partnership." The appeal was, thus, dismissed by the Tribunal on 20th February, 1970, and the order of the income-tax authorities refusing registration of the firm was affirmed. Learned counsel for the assessee contended before us that the partnership in question had been in existence for the last so many years. Subsequently, one more partner was also added and the new partnership continued thereafter. This partnership needed money, which was provided by D. N. Kapur, the manager of the bank, on the condition that his wife should be taken as a partner and it was assured that she was taken as such. She contributed a sum of Rs. 5,000 also towards the capital of the firm and was then given a share of only 5 paise in the profits of the partnership. It was provided in the deed that the amount of Rs. 5,000 had to be returned in a particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. While hearing the reference the High Court ought to confine itself to the facts as found by the Appellate Tribunal and to answer the question of law in the context of those facts. The finding of fact will be defective in law, if there is no evidence to support it or if the finding is perverse, but it is not open to the assessee to challenge such a finding of fact unless he has applied for a reference of the specific question." We have, therefore, to accept the above-mentioned findings of fact recorded by the Tribunal while answering the question referred to us for our opinion. If we cannot go behind these two findings, as I have already held, then the assessee-firm was not entitled to registration and the answer to the question has to be in the negative. The reason for coming to this conclusion is simple. It has been held in a number of authorities that when an application is made for the registration of the firm to the income-tax authorities, it is the duty of the Income-tax Officer to find out if the partnership is a genuine and a valid, "one or not, and if he is satisfied that the partnership answers that description, he cannot refuse its registration. Reference in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. If the assessee was not properly advised at the time when the reference application was made to the Tribunal, then if has to suffer for that. It is clear that the position in law cannot be changed, because of the mistaken view of the law taken by the assessee. Assuming that the view I have taken above is not correct in law, let us examine the submission of the learned counsel for the assessee that the two findings of fact given by the Tribunal are vitiated, because they were not based on the proper appreciation of all the facts and circumstances of the case, or in any case the said findings were perverse. After perusing the order of the Tribunal, one thing is clear that it cannot be said that these findings were based on no evidence. The Tribunal had gone through the partnership deed and also examined the statement made by Vimla Kapur before the Appellate Assistant Commissioner and then recorded the said two findings. The present is, therefore, not a case where it could be said that there was no evidence in support of the findings of fact arrived at by the Tribunal. Now, the question is whether the Tribunal had misdirected itself in law in arriving at these findings or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties as between themselves." We have, therefore, to go behind the partnership deed and find out whether the partnership in question was a genuine one and whether Vimla Kapur had in reality been taken as a partner in the business of the firm. It is true that before the present alleged partnership came into being, Messrs. Eastern Commercial Corporation consisted of four partners, namely, Teja Singh, his son, Mohinder Singh, Bhag Singh and his brother, Deva Singh. This firm was registered under the Income-tax Act and was assessed as such up to the assessment year 1961-62. Later, another partner Jeevinder Singh was included in the said partnership and the new partnership continued functioning up to 25th September, 1961. It is further true that the old partnership needed funds to the tune of Rs. 55,000 to complete the contract which it had entered into with the Punjab State Electricity Board and for that purpose it approached D. N. Kapur, the manager of the Oriental Bank of Commerce at Patiala, for assistance in that respect. He and his wife, Vimla Kapur, agreed to help the partnership in arranging a loan of Rs. 50,000 from Dr. Rajinder Nath of Delhi, who was the brother of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract with the Board, or (b) repayment of recovery from parties 1 to 5 (partners of the original partnership), whichever was earlier, of the debt due to Dr. Rajinder Nath and Rs. 5,000 contributed by Vimla Kapur along with their guaranteed profits. From this, it would be seen that the partnership would end either when the debts along with the guaranteed profits were repaid or recovered from parties 1 to 5 or when the contract with the Punjab State Electricity Board was either terminated or cancelled. It is, therefore, clear that it was not even a " particular partnership " which would have continued till the contract with the board subsisted, because if parties 1 to 5 managed to return the money borrowed from the two creditors along with the guaranteed profits or else the two creditors themselves recovered their debts from the said parties, the partnership would have come to an end, even though the contract with the Board had still subsisted. If seems that Vimla Kapur had got her name introduced in the partnership deed with the sole object of safeguarding her own interest and that of her brother, Rajinder Nath, so that the loan that both of them had given to the old partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to another clause (it might be mentioned that in the paper-book, the clauses have not been correctly numbered), the manner in which the guaranteed profit had to be paid to Dr. Rajinder Nath had been stated. It was said that he would not be liable for any loss of the partnership and his guaranteed profit would not be affected by the absence of any profit earned by the partnership. Even though he was not a partner, his share in the profit had been fixed at 10 paise in a rupee, in addition to the guaranteed profit that he would get. Then again, it was agreed that Dr. Rajinder Nath and Vimla Kapur would recoup, recover and be paid back their loans, contributions and investments along with the guaranteed least profit and further profits from out of all payments received or to be received by the new and the old partnership, in addition to the repayment, recovery and realisation from the movable and immovable assets of the partnership and parties 1 to 5, including those, which were not covered by the mortgages, irrespective of the fact whether there was any profit earned by the partnership. It was also stated in this deed that Dr. Rajinder Nath was to be paid Rs. 59,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , controlled, reduced or allowed within the said limit by Vimla Kapur in her discretion as she might consider fit. All objections to her exercise of discretion in that matter were waived by parties 1 to 5. The balance-sheet of the accounts of the new partnership and the previous partnership would be prepared every three months and furnished to Dr. Rajinder Nath. The deed of partnership was signed and executed at Delhi. It was agreed that the money due to Dr. Rajinder Nath and Vimla Kapur was to be paid at Delhi and, the Delhi courts would have jurisdiction in the matter. All disputes arising from or in relation to the new partnership between the parties and Dr. Rajinder Nath or any one of them would be referred to the sole arbitration of Dev Narain Kapur, husband of Vimla Kapur, and in the event of his death, to his son, Satish Kapur. The said relationship was known to parties 1 to 5 and, they would not raise any objection on that account. The said arbitrator was also given the power to give his award even on an enquiry or enquiries that he might make behind the back of the parties. The various clauses of the deed would show that this document was more of an agreement regarding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that she was not a genuine partner. A perusal of that statement also lends support to the finding given by the Tribunal that she was not really a partner in the partnership in question, which was not genuine. It is significant to mention that the giving of a share of 10 paise in a rupee in the profits of the firm to Dr. Rajinder Nath, who was, admittedly, not a partner, makes the partnership deed defective in law. Further, the giving of a guaranteed profit to the alleged partner, Vimla Kapur, even though the partnership did not make any profits, also showed that the partnership deed contravened the principle of partnership. The Appellate Assistant Commissioner was, in my opinion, right in holding that, in the present case, the instrument of partnership was legally defective, because, firstly, it gave a guaranteed profit to a partner, even if the firm did not earn any profit and, secondly, a person, who was not a partner, was allocated a share in the profits. These provisions, according to the Appellate Assistant Commissioner, went against the very definition of partnership, which meant the relationship between persons who had agreed to share the profits of a business carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that connection. According to him, there was ample material to show that there was no genuine firm in existence in accordance with the instrument of partnership. Under these circumstances, it cannot, therefore, be said that the findings of fact given by the Tribunal that Vimla Kapur was not a partner and the partnership in question was not genuine, were perverse or that no reasonable person could have recorded them in the facts and circumstances of this case. It cannot also be said that in arriving at these findings, the Tribunal had in any way misdirected itself in law. On the other hand, these findings we're well based. In view of what I have said above, I would answer the question referred to us in the negative. In the circumstances of this case, however, there would be no order as to costs. B. S. DHILLON J (24-10-1972).--With due respect to my learned brother Pandit J., I have not been able to persuade myself to agree with the view taken by him in this case. The brief facts, which culminated into a reference made to this court by the Income-tax Tribunal, Chandigarh, have already been mentioned in the judgment of my learned brother, Pandit J., and I need not repeat the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reference before us. If the Tribunal failed to frame a question, in a particular manner, the assessee is not to be penalised for that. Nobody can be allowed to suffer for the mistake of a court or Tribunal. After the Income-tax Tribunal came to the conclusion that the firm was not genuine and was not entitled to get itself registered under section 185 of the Income-tax Act, an application was made by the assessee requiring the Tribunal to refer to the High Court the question of law arising out of the Tribunal's order in Income-tax Assessment No. 7635 of 1968-69. This is clear from the opening paragraph of the reference order as recorded by the Tribunal. It was on this reference-application that the Tribunal formed the opinion that a question of law does arise out of the said order and, therefore, a statement of the case for reference to this court was drawn up by the Tribunal. If the Tribunal had framed a question in the manner which could have clearly shown that it was being challenged by the assessee that the finding of fact, that the firm was not genuine, recorded by the Tribunal was vitiated, no objection could possibly have been raised on behalf of the revenue. But the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act ...... Sometimes the questions are framed in such general terms that, construed literally they might take in questions which were never in issue. In such cases, the true scope of the reference will have to be ascertained and limited by what appears on the statement of the case." This dictum was followed by the Supreme Court in Bhanji Bagawandas v. Commissioner of Income-tax [1968] 67 ITR 18, and the objection raised on behalf of the appellant that since the respondent had not taken the plea regarding the effect of the provisions of the Income-tax (Amendment) Act (1 of 1959) before the Tribunal or before the High Court, and, therefore, the respondents could not be allowed to raise the plea before the Supreme Court. Following the observations made in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), their Lordships of the Supreme Court held that the question framed was in wide terms and this question could be raised by the respondent before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence. As regards the scope of the powers of this court in an income-tax reference on the question whether the firm is genuine or not, it was laid down by their Lordships of the Supreme Court in the case of Krishna Flour Mills v. Commissioner of Income-tax [1962] 44 ITR 501 as under : " Whether a firm is genuine or not is normally a question of fact. But, whether in the facts and circumstances found by the Tribunal there was material to come to the conclusion that the partnership firm constituted by a certain deed of partnership was not genuine is a question of law." In that case a person entered into a partnership deed with his wife and brother-in-law. The evidence showed that the wife and the brother-in-law had contributed their own share in the capital. It was not suggested that there were no good reasons for taking the wife and brother-in-law as partners and the books of accounts were not shown to be false. There was also nothing in the conduct of the parties inter se to indicate that the partnership was not genuine. The Tribunal, however, assuming that a partnership consisting of wife and brother-in-law must be necessarily suspect, held that the firm was not genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egister the firm unless the assessee has contravened section 23(4) of the Indian Income-tax Act, 1922. " Keeping in view the above statement of law, the present case has to be examined and it has to be found whether the finding, that the firm was not genuine, is vitiated or not. It may be pointed out that the Income-tax Officer refused to register the firm on a number of grounds, which have already been referred to in the judgment written by my learned brother, Pandit J., and the finding was based on the interpretation of the partnership deed itself. When the matter went up before the Appellate Assistant Commissioner, he recorded the statement of Shrimati Vimla Kapur and did not agree with some of the findings recorded by the Income-tax Officer. He came to the conclusion that the registration of the firm can only be allowed if the instrument of partnership is legally valid and there is a genuine firm in existence as constituted in accordance with the said instrument. He recorded the finding that the instrument of partnership is legally defective as it gives the share of profit to a partner even though the firm does not earn a profit and gives a share of profit to a person who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciation of the statement of Smt. Vimla Kapur. In my opinion, this way of examining, whether Smt. Vimla Kapur was in fact a partner of the firm or not, was perverse keeping in view the facts and circumstances of the case. No doubt, the statement of Smt. Vimla Kapur was a relevant material to be taken into consideration while forming the opinion whether she was a genuine partner of the firm or not, but the other relevant evidence and proved facts on record had to be taken into consideration along with her statement and it was then alone that a finding can be arrived at as to whether she was a genuine partner or not. If the approach of the Tribunal is correct, and the finding, whether a particular partner is a genuine partner or not, is to be based solely on the statement of that partner whose genuineness in the partnership is disputed, this will be clearly laying down a wrong law. In a given case, a partner may be a partner in the firm for some period and he might leave the partnership after some time and there might be a quarrel between the partners, and if his statement alone is taken to be the basis for determining whether he was a genuine partner in the original partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, and, therefore, the partnership deed was legally defective, has not appealed to me. A partnership can be entered into for any period or for any particular contract. Preamble of the partnership deed, in my opinion, does not violate any provision of law and it is permissible for the partner to enter into a partnership for any period of time and for any nature of work specified or unspecified. Again, the contention that Smt. Vimal Kapur entered into partnership with the sole object of safeguarding her own interest and that of her brother, Dr. Rajinder Nath, is again of no consequence. No provision of law has been shown to us by the learned counsel for the revenue which prohibits a partnership deed containing terms giving protection to the rights of partners and non-partners who are creditors of the partnership. The question whether Smt. Vimla Kapur entered into the partnership with the object of safeguarding her interest and that of her brother or not, is not relevant because what motivated her to become the partner is of no consequence. The relevant question is did she in fact enter into the partnership or not ? For the purpose of section 185 of the Income-tax Act, the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is up to the partners to take loan from a non-partner and in order to attract any person forgiving loan to the partnership, the partners may agree to any condition as proposed by the creditors so long as the said condition does not violate any provision of law. It is open to the partnership to agree to the term that the creditor in addition to the guaranteed amount of interest will also get some percentage of profit if the partnership earns the profits. The contention of the learned counsel for the revenue that clause 9 of the partnership deed is vague inasmuch as hundred per cent. sharer, in the profit have not been specified, is without any merit. As I read clause 9 of the instrument, ignoring the printing mistake, I find that cent. per cent. profits have been distributed and there is no vagueness in the deed. It may be pointed out here that there appears to be a printing mistake in the paper-book as far as the number of clauses are concerned, and it is because of this error in printing that the objection, which is tried to be raised on behalf of the revenue, to this portion of the deed, is being pressed into service. In fact, clauses 7, 8 and 9 printed subsequent to the main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd all objections whatever are hereby waived. (8) It is hereby mutually agreed that Dr. Rajinder Nath aforesaid and Smt. Vimla Kapur, party No. 6, shall recoup, recover and be paid back their loans, contributions and investments, along with the guaranteed least profit and further profits, from out of all payments received or to be received by the new partnerships and old in addition to the repayment, recovery and realisation from the movable and immovable assets of parties 1 to 5 and the said partnerships, including those not covered by the mortgages, and irrespective of the absence of profit and irrespective of any new partnership or the previous partnerships. (9) That the sum of rupees,fifty thousand agreed to be received and paid by Dr. Rajinder Nath aforesaid to parties 1 to 6 and the new partnership is hereby agreed to be paid back to him inclusive of the said guaranteed profit and principal, i.e., the sum of rupees fifty-nine thousand five hundred only (Rs. 59,500 only) on the expiry of twelve (12) months from the date of this new partnership, i.e., on 25th day of September, 1961, but a reduction of guaranteed profit of rupees twenty-five hundred only (Rs. 2,500 only) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nath. Sub-clause (8) of clause 9 provides for the payment of the loans, contributions and investments along with guaranteed least profits and further profits to Dr. Rajinder Nath and Smt. Vimla Kapur. Sub-clause (9) provides the time limit for the repayment of the guaranteed profits and principal amount. Then follows the main clause 10. By reading these provisions of clause 9, which are in the form of sub-clauses, as I read them, it is apparent that the cent per cent. profits have been clearly earmarked. Out of a rupee, 85 paise share out of the profits goes to the first five partners as specified in sub-clauses (1) to (5) of clause 9 and 5 paise share out of a rupee vests in Smt. Vimla Kapur and 10 paise share out of a rupee is given to Dr. Rajinder Nath. Therefore, it is not correct to contend that the cent. per cent. shares in the profits have not been allocated. The contention that only 90 paise share out of one rupee profit has been enumerated in the deed is without any merit. In fact, when clause 9 is taken into consideration along with its nine sub-clauses, the whole picture regarding the distribution of profits becomes clear and cent. per cent. profit in different proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 4 of the Indian Partnership Act are not violated by this clause. This section only provides that the partnership is a relation between persons who have agreed to share the profits of a business carried on by all or any of them for all. In the present case, all the partners decided to share the profits of the business in accordance with the terms of the partnership deed. Merely because, the financial powers of the partnership have been subjected to the supervision and control of Smt. Vimla Kapur, because of the fact that she was instrumental in arranging loan of Rs. 50,000 from her brother, Dr. Rajinder Nath, would not, in any way, violate the provisions of section 4 of the Partnership Act. Nor is it shown that any other provision of the Partnership Act is violated on this account. The business in question can be carried on by all or any of them acting for all. The power given to Smt. Vimla Kapur at the most can be termed as a working arrangement for controlling the finances of the partnership which was considered necessary for bringing into being the partnership. This course cannot be objected to as it does not violate any provision of law or principle of partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that besides arranging a loan of Rs. 50,000, Smt. Vimla Kapur contributed Rs. 5,000 as capital towards the partnership. It is not the case of the revenue that Smt. Vimla Kapur or Dr. Rajinder Nath are in any way related to the other five partners or they are their friends. Circumstances in which the firm admitted Smt. Vimla Kapur as its partner are not in dispute. The five partners of the firm were under a severe financial strain and in this situation they agreed to give some easy terms to Smt. Vimla Kapur as it was only on these conditions that she was prepared to get the loan of Rs. 50,000 arranged and to pay Rs. 5,000 as share capital in the partnership capital. These circumstances clearly go to point out that there was nothing hanky-panky in bringing the new partnership into existence, but it was the dire need of the partners to reconstitute the firm as they did by bringing in Smt. Vimla Kapur as a partner. The statement of Smt. Vimla Kapur has to be taken into consideration while keeping in view the above-mentioned facts and the various terms of the partnership instrument. No doubt, some of the answers given by her to the questions put to her when she was examined before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... she could not give certain answers correctly. Moreover, Smt. Vimla Kapur was examined before the Appellate Assistant Commissioner, after about seven years and no one is expected to remember the minor details after such a long time, especially when the partnership had already come to an end. Even a person may have defective memory and may not be able to reproduce the exact facts after such a lapse of time. Therefore, her statement alone cannot be made the basis of the finding that the firm is not genuine. I further find that annexure " D " in the paper book show's that the accounts of the firm in question were opened in the Oriental Bank of Commerce Ltd., Patiala, of which Mr. D. N. Kapur was the manager. A certificate dated December 24, 1969, shows that M/s. Eastern Commercial Corporation, Patiala, had a current account in this bank and the number of the said account was 223, which account stands closed and that the said account was being operated by Mrs. Vimla Kapur as partner. This document would clearly show that the partnership deed, after having been entered into, was implemented and Smt. Vimla Kapur operated upon the accounts of the partnership firm. It is not denied tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TULI J. (18-3-1975).--This refererce has been placed before me for decision because of the difference of opinion between P. C. Pandit J. and B. S. Dhillon J. The facts have been set out in detail in the judgment of both the learned judges and I need not re-state them. The first question for decision in the reference is whether the findings of fact recorded by the Income-tax Tribunal, that Smt.Vimla Kapur was not a partner in the firm and the partnership was not genuine, can be said to be vitiated so as to entitle this court to reappraise the evidence pertaining to those findings. It is submitted on behalf of the revenue that in case the assessee wanted to challenge the findings of fact recorded by the Tribunal, a specific question on that point should have been got referred. P. C. Pandit J. has agreed with this submission and has held that no specific question challenging the findings of fact has been got referred and, therefore, those findings of fact are binding on this court. B. S. Dhillon J. has taken a contrary view and, in my opinion, rightly. The application for reference submitted by the assessee has not been made a part of the statement of the case, but the last paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e their contract with the Punjab State Electricity Board. Both of them were to be paid guaranteed profits irrespective of the fact whether the firm earned a profit or incurred a loss. The only difference was that Smt. Vimla Kapur was given the control over the finances of the firm by providing that she alone would be authorised to sign cheques on behalf of the firm and all payments were to be made with her consent ; even the other five partners were to withdraw the amount for their private use from the firm with her consent. Dr. Rajinder Nath was not to take part in carrying on the business of the firm, but he was entitled to guaranteed profits the amount of which was to depend on the period for which the amount lent by him remained outstanding and was not repaid to him and in addition thereto he was to be paid 10 per cent. of the profits of the firm irrespective of the fact that he was repaid the entire amount advanced by him even before the contract with the Punjab State Electricity Board came to an end. Smt. Vimla Kapur was also allowed guaranteed profits on a sliding scale in addition to 5 per cent. share in the profits of the firm. The interest of Dr. Rajinder Nath in the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st to him has been made. The use of the phrase "guaranteed profits" clearly shows that it was not by way of interest, but was on account of Dr. Rajinder Nath's having agreed to become a creditor-cum-partner in the venture, just like Smt. Vimla Kapur, who was to watch his interest as well. If Dr. Rajinder Nath had been treated only as a creditor, there would have been no provision of guaranteed profits and a percentage of the profit in addition thereto. In the case of a creditor, any amount paid by way of return on the money borrowed from him is treated as expenditure after deducting which along with the other expenses, the net profits distributable amongst the partners are determined. According to the terms of the deed of partnership, the net profits had to be distributed among seven persons including Dr. Rajinder Nath, and not that the amount paid to him was first to be deducted from the profits and the net profits determined thereafter had to be distributed amongst the six partners of the firm. He can be easily termed as having been a sleeping partner of the firm. It is not necessary that all the partners must take part in carrying on the business. He was to be kept in constant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership deed were repaid to them or till the termination of the contract of the firm with the Punjab State Electricity Board, whereafter the accounts were to be taken and profits distributed. It is argued by the learned counsel for the assessee that Dr. Rajinder Nath could not sue for the dissolution of the firm and rendition of accounts on the basis of the partnership deed in which he was not described as a partner. The right to dissolve the firm and claim accounts is an inherent right of a partner of a firm and if a person cannot exercise that right, he cannot be termed as a partner. After due consideration, I do not find any merit in this submission. It is true that in the deed of partnership, Dr. Rajinder Nath is not mentioned as a partner, but this fact would not have stood in his way to prove himself as a partner if at any time he so intended. Under section 69(3) of the Partnership Act, the registration of a firm is not necessary to entitle a partner thereof to enforce his right to sue for the dissolution of the firm or for accounts of a dissolved firm or any right or power to realise the property of a dissolved firm. Under section 42 of the said Act, a firm is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the firm. On this ground, therefore, Dr. Rajinder Nath cannot be held to be not a partner of the firm. It has been strongly urged by the learned counsel for the revenue that the share of each partner in the firm has not been specified in the deed of partnership. Whereas the profits of the firm have been distributed 100 per cent. amongst the six partners and Dr. Rajinder Nath, the provision for the share of losses is only to the extent of 85 per cent. and that too amongst five partners. Under section 182 of the Income-tax Act, the partners can claim set-off for the losses suffered by them and in the case of the partners of the assessee-firm set-off on account of the losses can be claimed to the extent of 85 per cent. and not 100 per cent. I do not think that on that ground the partnership can be termed as not genuine. If the share of the losses of the partners is less than 100 per cent. the revenue will not suffer because losses to the extent of the share of each partner may be allowed as set-off in his assessment against the other income in accordance with section 182(2) of the Income-tax Act, 196 1. It has been pointed out by Dhillon J., in his judgment that even the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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