The individual shares of the partners in both profits and losses must be specified in the instrument of partnership for the firm to be entitled to registration under section 185 of the Income Tax Act, 1961.

V. RAMASWAMI J.

The assessee is a firm of partnership consisting of five partners, of whom one was a minor admitted to the benefits of the partnership. The capital of the partnership was Rs. 5 lakhs. The contribution of each partner of the capital was as follows Rs

1. M. R. Rajakrishna 1, 25, 000

2. Minor Sunitha Pratap 1, 87, 500

3. W. S. Parthasarathy 62, 500

4. W. S. Sethunarayana Babu 62, 500

5. M. S. Rajeswari 62, 500

It is seen from the above capital contribution that the shares of capital contribution work out as 25%, 37.5%, 12.5%, 12.5% and 12.5%. An application for registration was made on March 31, 1968, in respect of the assessment year 1967-68. The partnership deed itself was executed on 1st July 1967. The partnership deed was signed by the guardian on behalf of the minor along with other partners. The application for registration was signed by the major partners. The partnership deed provided that the net profits ascertained shall be divided between the partners in proportion to their shares in the capital. The deed did not specify the shares of the partners in the losses. The ITO rejected the application among other grounds stating that there is no specification about the sharing of the losses in the instrument of partnership itself and that, therefore, the assessee is not entitled to get the firm registered. But on appeal against this order, the AAC was of the view that though there is no specification of the shares of the losses in the document itself, it should be taken that the parties intended to share the losses in proportion to the share in which they have contributed the capital leaving the minor not liable for the losses, since the minor was admitted to the benefits of the partnership. This view was confirmed by the Tribunal on an appeal preferred by the revenue. At the instance of the revenue, the following question has been referred to this court under s. 256(1) of the I.T. Act, 1961

"Whether, on the facts and in the circumstances of the case, and on a true construction of the terms of the partnership deed, the assessee is entitled to the benefit of registration under section 185 of the Income-tax Act, 1961, for the assessment year 1968-69 ?" *

It is seen that the document provided for sharing of the profits but did not mention anything at all about the sharing of the losses. Since the minor was admitted to the benefits of the partnership, the minor could not be held to be liable for any loss. The entire loss, therefore, would have to be apportioned by the major partners. Section 184 provides that an application for registration of a firm may be made to the ITO if the partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrument. The question whether in the instrument itself there should be a specification of the share of losses also even when there is a specification of the sharing of profits, came up for consideration in a number of decisions. The Kerala High Court in both the decisions, CIT v. Ithappiri & George and United Hardwares v. CIT to which one of us was a party, took the view that, on the clear language provided in the Act, the sharing of the losses also would have to be specifically provided and there is no scope for discerning any principle from the supposed intention of the parties. In the words of the learned judges in CIT v. Ithappiri & George.

"The question is not whether there is any rule of law discernible either from section 13(b) of the Indian Partnership Act, 1932, or from any general principle from which it is possible to discern the proportion in which the losses should be shared but as to whether section 184 insists that this should be stated in the instrument. As we said the expression used in the section must normally cover both aspects of profits and losses. There is no compelling reason to read down the expression and give it a limited meaning. Question of hardship cannot justify the adoption of such a course. The