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TMI Blog1974 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... varibai, widow of deceased Laxminarayan, was taken as a partner. On June 29, 1959, an application for renewal of registration of the assessee-firm under section 26A of the Income-tax Act, 1922 (hereinafter referred to as "the Act"), for the assessment year 1959-60 was filed. This application was signed by the eight surviving partners and Godavaribai. The Income-tax Officer refused to register the firm, inter alia, on the ground that the shares of the legal heirs of deceased Laxminarayan inter se were not specifically mentioned. He also rejected the contention urged on behalf of the assessee that in view of the provisions of the deed of partnership, especially clause 12 thereof, the next karta of the family would succeed to the deceased's share in the firm. It was also urged before the Income-tax Officer that registration should be granted to the assessee-firm for the part of the accounting period prior to the death of deceased Laxminarayan. Even such an application was rejected by him. The reason for rejecting this contention of the assessee was that he took the view that upon a proper construction of clause 12 of the deed of partnership the heirs and legal representatives of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 1955, was entitled to registration under section 26A of the Act for the assessment year 1959-60 ?" Mr. Kolah on behalf of the assessee-firm urged three contentions before us. Firstly, his submission is that upon a proper construction of the deed of partnership and especially clause 12 thereof, the heirs and legal representatives of a deceased partner stepped into his shoes qua sharing the profits or bearing the losses thereof. Secondly, he contended that in any event on January 26, 1958, when Laxminarayan died, registration ought to have been granted to the assessee-firm. Lastly, he submitted that the constitution of the assessee-firm and the individual shares of the partners thereof as specified in the instrument of partnership dated April 25, 1955, have remained unaltered and having regard to the provisions of section 26A of the Act read with the Rules it was obligatory upon the Income-tax Officer and the other authorities to grant renewal of registration to the assessee firm. Mr. Joshi, on the other hand, on behalf of the revenue contended that before an application for renewal of registration can be granted there should be no change whatsoever either in the constitution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered under the Act and the Rules prior to the death of Laxminarayan. On June 29, 1959, an application for renewal of registration of the assessee-firm was made under section 26A of the Act for the assessment year 1959-60 and this application has been signed by the eight surviving partners and Godavaribai, widow of the deceased Laxminarayan. The first question that we have to consider is whether upon a proper construction of the deed of partnership including clause 12 thereof, the heirs and legal representatives of the deceased Laxminarayan stepped into his shoes so as to share the profits and bear the losses thereof. Partnership is the relation between partners who have agreed to share the profits of a business carried on by all or any of them acting for all. Chapter V of the Partnership Act deals with the incoming and outgoing partners. Section 37 thereof provides for the right of the outgoing partner in certain cases to share in profits. It, inter alia, lays down, where any member of a firm has died and the surviving partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the legal representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the deceased up to the end of the accounting period in which the death took place. The argument of Mr. Kolah was that upon a proper reading of clauses 8 and 12 of the partnership deed, not only the partners are entitled to share the profits and bear the losses during the lifetime of all the partners, but even after the death of a partner they are entitled to share the profits as well as to bear the losses in the same proportion. According to him, the share in the profits or the losses which ought to be received or borne by the deceased partner will be the share in profits or losses of the heirs and legal representatives of a deceased partner. His argument was that it is unnecessary to have express provision about sharing of the losses. Reliance was placed by him on the provisions of section 13(b) of the Partnership Act which provides that, subject to contract between the partners, the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm. In our opinion, upon a proper construction of clause 12 of the deed of partnership there is a contract to the contrary within the meaning of section 13 so far as sharing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for this particular year. Thus, it is not possible to take the view that upon a proper construction of the deed of partnership the heirs and legal representatives of the deceased Laxminarayan stepped into his shoes so far as their right to share the profits earned and their liability to bear the losses suffered by the firm is concerned. Even the alternative contention urged by Mr. Kolah that renewal of registration ought to have been granted to the assessee-firm for the period up to January 26, 1959, cannot be acceded to. The scheme of clause 12 is that accounts are to be made only at the end of the accounting year in which death of a partner takes place. If that is so, then it is not permissible to the surviving partners and the heirs and legal representatives of the deceased partner to take accounts for the period upto the date of the death of the deceased partner and separate accounts for the balance of the period of the accounting year. As contemplated by clause 12 for the whole of the accounting year in which the partner died the accounts shall have to be made and not separately for the period up to the date of death of the partner and for the rest of the accounting peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application for registration or renewal of registration if a sufficient cause existed. Rule 3 provides that an application referred to in rule 2 has to be made in the form annexed to that rule and has to be accompanied either by the original instrument of partnership under which the firm is constituted or a certified copy thereof. There is no controversy in the present case that after the partnership was formed under the deed of partnership dated April 25, 1955, the assessee-firm was duly registered. Rule 4 provides for issue of certificate by the Income-tax Officer upon being satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership. The certificate is to be issued in the following form, namely: instrument of partnership "This ----------------------------------------------------------------------- has this day been registered with certified copy of an instrument of partnership me, the Income-tax Officer for......in the State of......under section 26A of the Indian Income-tax Act, 1922, and this certificate of registration shall have effect for the assessment for the year ending on the 31st day of March, 19..." Rule 5 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deceased Laxminarayan. In the tabular statement it is mentioned that each of the nine persons who have signed the application is entitled to 1/9th share in the balance of profits or losses. No objection whatsoever has been taken by any of the taxing authorities, namely, the Income-tax Officer or the Judicial Member or the President of the Tribunal to the registration of the firm on the ground that the quantum of share had been incorrectly stated. The argument of Mr. Joshi on behalf of the revenue is that renewal of registration cannot be granted to the assessee-firm for the assessment year 1959-60, firstly, because there is a change in the constitution of the firm upon the death of Laxminarayan and, secondly, because there is a change in the individual shares of the partners of the assessee-firm after the death of Laxminarayan. It is undoubtedly true that during the lifetime of Laxminarayan the assessee firm consisted of 9 partners. Each one of them was entitled to 1/9th share in the profits and was liable to bear the losses in the same proportion. It is equally true that upon the death of Laxminarayan there is a change in the constitution of the firm so far as the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm or the individual shares of the partners thereof except in the manner specified in that instrument of partnership which was duly registered. The original deed contains ample provision as to what is to happen to the firm upon the death of a partner thereof and that provision is contained in clause 12 above referred to. Notwithstanding the death of a partner in view of the provisions of clause 12 the firm is not to be dissolved but is to continue up to the end of the accounting year in which the death took place. So far as the profits are concerned each of the surviving partners is entitled to the same share as he used to receive but the share of the deceased partner has to be given to his heirs and legal representatives. Both these things as regards the constitution of the firm upon the death of Laxminarayan and the individual shares of the partners thereof are specified in the original instrument of partnership which has been duly registered after the partnership was formed. Thus there is no change or alteration whatsoever either in the constitution of the firm or the individual shares of the partners as specified in the instrument of partnership. The expression "as specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution of the firm and the individual shares of the partners as specified in the instrument of partnership remain unaltered. Ever since the deed of partnership was executed there has been no change in the terms thereof. It is the registered instrument of partnership that has to be given effect to upon a contingency happening. As such alteration either in the constitution of the firm or in the individual partners of the firm is specified in the initial instrument of partnership which is registered, the certificate required to be set out in the application for renewal of registration can be truthfully given by the partners making an application for such renewal. Mr. Joshi urged that the scheme of registration of a firm under the Act and the Income-tax Act, 1961, is different. So far as the Act is concerned registration of the firm has to be made for one year for which it is registered and from year to year such registration has to be renewed in order to get the benefit of the provisions of the Act as a registered firm. That is undoubtedly true but the question whether renewal of registration should be granted or not does not depend upon the fact that application for renewal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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