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1981 Supreme(Cal) 110
High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
RAMA TRANSPORT CO. - Respondent
Income-Tax Reference 443 Of 1977
Decided On : 03/31/1981
AJIT SEN GUPTA, B.L.PAL, N.K.PODDAR
A partnership is a valid partnership if the three essential conditions, namely, an agreement to share the profits and losses of the business, the business must be carried on by all or any of the partners, and the partners must have agreed to the terms of the partnership, are satisfied.
Headnote:
PARTNERSHIP - VALIDITY - AGREEMENT TO SHARE PROFITS AND LOSSES - BUSINESS CARRIED ON BY ALL OR ANY OF THE PARTNERS - DEED OF PARTNERSHIP - INTERPRETATION - VALID PARTNERSHIP CONSTITUTED - ENTITLEMENT TO REGISTRATION.
Fact of the Case:
The assessee-firm was reconstituted by a deed of partnership dated May 20, 1967, introducing a new partner, Sri K. K. Nijhewan. The ITO rejected the assessee's claim for registration for the assessment year 1968-69 and refused the continuation of registration for the assessment year 1969-70. The AAC held that the conditions for a valid partnership and registration thereof were satisfied and 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. The Tribunal upheld the AAC's order.
Finding of the Court:
The Tribunal held that a valid partnership was constituted by the partnership agreement dated May 20, 1967, among all the three partners and that the assessee-firm was entitled to registration for the assessment year 1968-69.
Issues: 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?
Ratio Decidendi: The court held that the partnership deed dated May 20, 1967, was a valid partnership agreement and that the assessee-firm was entitled to registration. The court noted that the three essential conditions for a valid partnership, namely, an agreement to share the profits and losses of the business, the business must be carried on by all or any of the partners, and the partners must have agreed to the terms of the partnership, were satisfied. The court also noted that the fact that one of the partners was excluded from sharing the profits or loss of a branch of the business by virtue of the agreement by and between all the parties did not invalidate the partnership.
Final Decision: The court answered the question in the affirmative and in favor of the assessee.
( 1 ) THE present reference under Section 256 (1) of the I. T. Act, 1961, relates to the assessment years 1968-69 and 1969-70. The assessee-firm was reconstituted by a deed of partnership dated May 20, 1967, w. e. f. April 1, 1967, by introducing a new partner, Sri K. K. Nijhewan. Prior to the reconstitution, there were two partners, Sri Basheshar Lal and Smt. Gayanwanti Devi, having equal shares and the firm had been allowed registration. The business of the firm was 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. (c) The net profit of other transport business shall be divided amongst the partners and the net losses of the partnership shall be borne by them in the following proportions: 1. Sri Basheshar Lal 45% 2. Smt. Gayanwanti Devi 35% 3. Sri K. K. Nijhewan 20% (d) The first party, Basheshar Lal, shall be the manager of the partnership business and shall devote his whole-time attention to the business. He may be paid a monthly salary as the parties may agree from time to time. Such salary shall be considered an expense of the business and shall bs deducted as such, before arriving at the divisible profit or loss amongst the partners. (e) The third party shall be in charge of the Durgapur and Asansol branches of this partnership and he shall send the copy of the day to day accounts to head office of this partnership for proper incorporation in the accounts of the firm in the head office.
( 2 ) THE ITO made the assessments of the assessee-firm under Section 143 of the I. T. Act, with which we have got no concern in the present reference. He, however, passed a separate order for registration for the assessment year 1968-69. He considered the terms of the partnership deed and examined the partners, Sri K. K. Nijhewan and Smt. Gavanwanti Devi, and came to the conclusion that the firm was not a genuine one. The ITO, therefore, rejected the assessee's claim for registration for the assessment year 1968-69. He also refused the continuation of registration for the assessment year 1969-70.
( 3 ) 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.
( 4 ) 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 from hired lorries, that the shares of the partners in profits were different in the two businesses and Sri Nijhewan was not given any share in the profits of the business from the own lorries and Sri Nijhewan did not contribute any capital to the partnership. It was further pointed out that there was no mutuality among the partners in regard to the business from own lorries and that apportionment of shares in different ratios in the two businesses necessitated the keeping of separate accounts of t
