The main legal principle established is that the losses should be distributed among the partners in the same proportion as the profits, as per the interpretation of section 26A and the Indian Partnership Act.

1. This reference under section 66(1) of the Indian Income Tax Act, 1922, to be hereinafter referred to as the "Act" was made at the instance of the assessee. The question of law referred for the opinion of this court is :

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under section 26A of the Income Tax Act for the assessment year 1961-62 ?"

2. The assesses firm was constituted under a deed of partnership dated November 14, 1955. It consists of three partners, namely, R. S. Satyanarayanappa, R. S. Chandrasekharappa and R. S. Venugopal. It is provided in the partnership deed that the profits earned by the firm shall be distributed in the following manner :

(1) Reserve fund, one anna in a rupee.

(2) Satyanarayanappa, six annas in a rupee.

(3) Chandrasekharappa, six annas in a rupee.

(4) Venugopal, three annas in a rupee.

3. The deed is silent as to the manner of distribution of losses among the partners. The firm was granted registration under section 26A of the Act for the assessment year 1960-61. But, when it applied for renewal of its registration for the assessment year 1961-62, the same was refused by the Income Tax Officer on the ground that the partnership deed is silent as to the manner of distribution of losses among the partners. The order of the Income Tax Officer was reversed by the Appellate Assistant Commissioner. But the Income Tax Appellate Tribunal set aside the order or the Appellate Assistant Commissioner and restored that of the Income Tax Officer. We have now to see whether the Income Tax Officer was right in refusing to register the firm under section 26A on the sole ground that the instrument of partnership is silent as to the manner of distributing the losses among the partners.

4. The view taken by the Tribunal receives support from the decision of the Gujarat High Court in Thacker & Co. v. Commissioner of Income Tax. But, on the other hand, the conclusion reached by the Appellate Assistant Commissioner receives some support from the observations of the Bombay High Court in In re Parekh Wadilal Jiwanbhai. It is true that that decision does not directly bear on the question of law under consideration.

5. As there is no decision of the Supreme Court as well as that of this court covering the point under consideration, it is necessary for us to decide the question of law referred to us on the basis of the language of section 26A read with the relevant rules.

Section 26A of the Act reads :

"(1) Application may be made to the Income Tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to Income Tax or super-tax.

(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and it shall be dealt with by the Income Tax Officer in such manner as many be prescribed."

6. Rules 2 to 6 of the Rules framed under the Act relate to applications to be made under section 26A. It is not the case of the revenue that the assessee had not complied with those Rules. Admittedly the application made by him fulfills the conditions laid down in sector 26A as well as in rules 2 to 6. Therefore, all that we have to see is whether the instrument of partition referred to in section 26A specifies the individual shares of the partners.

7. What exactly the legislature meant by saying "under an instrument of partnership specifying the individual shares of the partners" ? Section 26A does not say that the instrument of Partnership should specify the individual shares of the partners in the partnership profits and losses. On the other hand, it merely says that that instrument should specify "the individual shares of the partners". Does that expression mean that