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TMI Blog1976 (6) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of the firm, it is stated in paragraph 2 of the partnership deed, " shall be agriculture or of any other nature as may hereinafter be agreed upon by the partners." The said T. V. Mathew owned about 15 acres of land and the capital contribution of the said T. V. Mathew, the first partner, consisted, according to the partnership deed, of all the lands owned by him. The second partner's contribution is said to be Rs. 1,000 and the third partner's, a like amount. The profits of the firm were to be divided equally between the partners and the losses were also to be borne equally. An application was made as envisaged by section 27(1) of the Agricultural Income-tax Act, 1950, for short, the Act, for registration of the firm for the purpose of the assessment for the year 1966-67. This application was not allowed, registration was refused and the assessment for that year as well as the two following years have been made on the said T. V. Mathew as if there was no partnership in existence taking the entire income from the properties as the income of the said T. V. Mathew. The view taken by the Agricultural Income-tax Officer has been upheld by the Appellate Assistant Commissioner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " It was held that the provisions of the deed taken along with the conduct of the parties clearly indicated that it was not the intention of the parties to bring about the relationship of partners but they only intended to continue under the cloak of a partnership. The pre-existing and real relationship of master and servant and the sharing of profits or the provision for payment of remuneration contingent upon the making of profits or varying with the profits did not itself create a partnership. In the case before us also the estate which formed almost the entire capital belonged to the assessee and though no specific mention has been made in the deed the sons have no right to encumber or otherwise deal with the estate and the estate will revert back to the assessee on dissolution of the firm. The execution of the deed has not also brought about any change in the pre-existing mode of earning the income." The Tribunal, therefore, rejected the partnership deed as not genuine and refused registration of the firm. We must at this stage clarify the exact question that has been referred to us. It appears to us that the question arising from the Tribunal's order is clear from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together ". We shall not refer to the Explanations to that section as they are unnecessary for our purpose. Now, turning to the question for determination we would like to make some general observations regarding the circumstances under which a firm can be registered. There must be an application in accordance with section 27 of the Act. The formalities required by the section as well as the rules prescribed must be complied with. There must be an agreement to carry on a business by all or any of the partners acting for all. The agreement must provide for the sharing of profits. Even in cases where no specific provision is made in the partnership deed regarding the manner in which losses should be shared, section 13(b) of the Indian Partnership Act, 1932, has provided that in the absence of a contract the partners are obliged to contribute equally to the losses. When these conditions are satisfied registration must be granted unless for reasons the taxing authorities are able to come to the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually received during the accounting year 1951-52 ', and so far as the books of account were concerned ' they did not show change in the management of the estate in spite of the agreement." The court also came to the conclusion that: " This would indicate that it was not intended that the appellant's brother would have any interest in the estate, and the use of the word I capital' is not, in our opinion, enough on the facts of this case to create an interest in the estate in the appellant's brother." The court further observed : " If it was intended to create a real partnership, one would have thought that some provision would have been made for the sharing of the loss, especially as the share of the profits going to the appellant is immensely large compared with the share going to his brother. In our view, taking all the circumstances of the case, especially the conduct of the parties, together with the important terms of the document, it cannot be said that it was intended to bring about the relation of partnership." We would like to repeat that what has been stated by the Supreme Court is that, in fact, there had been no creation of a relationship of partners be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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