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1997 Supreme(All) 538
IN THE HIGH COURT OF ALLAHABAD
Om Prakash and P. K. Jain, JJ.
COMMISSIONER OF INCOME-TAX - Appellant
Versus
VIJAI KUMAR RAJESH KUMAR - Respondents
Income-tax Reference 83 Of 1981
Decided On : 05/15/1997
The ratio in which the major partners are to bear the losses falling to the share of the minors is well ascertainable from the partnership deed, and registration cannot be refused on this ground.
Headnote:
INCOME TAX - REGISTRATION OF FIRM - LOSSES FALLING TO THE SHARE OF MINORS - RATIO OF SHARING AMONG MAJOR PARTNERS - WELL ASCERTAINABLE - REGISTRATION CANNOT BE REFUSED - SECTION 185(1)(B) OF THE INCOME-TAX ACT, 1961.
Fact of the Case:
The assessee-firm, consisting of major and minor partners, sought registration under Section 185 of the Income-tax Act, 1961. The Assessing Officer denied registration on the ground that the partnership deed did not clearly specify the ratio in which the major partners would bear the losses falling to the share of the minors.
Finding of the Court:
The Tribunal held that the ratio in which the major partners would share the losses falling to the share of the minors was well ascertainable from the partnership deed, and that registration could not be refused on this ground.
Issues: Whether the ratio in which the major partners are to bear the losses falling to the share of the minors is well ascertainable.
Ratio Decidendi: In the absence of any agreement to the contrary, it will be inferred that the partners will share losses falling to the share of minors in the same ratio in which they agreed to share losses up to 40%.
Final Decision: The question referred to the High Court was answered in the affirmative, in favor of the assessee and against the Revenue.
( 1 ) THE Income-tax Appellate Tribunal (Allahabad Bench, Allahabad), referred the following question relating to the assessment year 1974-75 for the opinion of this court under Section 256 (1) of the Income-tax Act, 1961 (briefly, "the Act") : "whether, on the facts and in the circumstances of the case, the assessee was rightly allowed registration under Section 185 of the Income-tax Act, 1961 ?"
( 2 ) THE Assessing Officer in his order passed under Section 185 (1) (b) of the Act held that the partnership deed is defective and the firm is not entitled to registration.
( 3 ) THE constitution of the assessee-firm is as under : sis h R S/ L Hi sri Sechan Ram S/o Late Hari ri Sechan Ram S/o Late Hari 1. Das AM major partners 20% sri Ghasi Ram S/o Sri Ganga 2. Ram "07% sri Puhawashi Prasad S/o 3. Ghasi Ram13%
( 4 ) BESIDES the major partners following minors were also admitted to the benefits of the partnership : ypp 02% Pradeep Kumar S/o Ram Shog,20% 3 Deepak Kumar S/o Kashi Nath,20%
( 5 ) CLAUSE 5 of the partnership deed is as under :
"that at the close of each year the account of the firm will be prepared after adjusting all the business expenses and in the case of profit the amount of profit shall be credited to the respective accounts of the partners according to their shares as specified in para 3 and in the case of loss the amount of loss shall be borne by the partners according to their shares. "
( 6 ) INTERPRETING Clause 5 of the partnership deed, the Assessing Officer observed as under :
"from the above it is clear that the ratio in which the loss falling to the shares of the minors are to be shared by the major partners has not been clearly specified in the deed. "
( 7 ) ON appeal, the appellate authority held as follows :
"in the instant case, it is found that shares in the profits of the firm have specifically been given and the shares in the losses of the firm have also been given. Shares in the losses are in the same proportion on which the profits are being shared with a stipulation that in the case of the minors he will be responsible only to the extent of his share and would not be personally liable. This stipulation is of immense significance as it is in accordance with Section 30 (3) of the Indian partnership Act, 1932. "
( 8 ) THIS is how the appellate authority accepted the contention of counsel for the assessee-firm and directed the Assessing Officer to treat the firm as a registered one.
( 9 ) THE dispute was further carried in appeal before the Appellate Tribunal which affirming the order of the first appellate authority found as follows :
"in our view there is no scope for interference in the order of the assessee. The case of the supreme Court reported in Mandyala Govindu and Co. v. CIT [1976] 102 ITR 1 is clearly distinguishable as in that case there was no reference to sharing of losses of the firm by the partners in the partnership deed while in the case before us so far as the minors liability for losses is concerned, a specific clause has been inserted indicating therein that he shall be minor liable to the loss to the extent of his share (sic) according to Section 30 of the Indian Partnership act. . . . The only interpretation that was possible is that the minor will be liable for losses as per the provisions of Section 30 (3) of the Indian Partnership Act and he will not be personally liable for the same. Whatever surplus remains after sharing of loss by the minor to the extent of his capital investment, the rest is to be taken as loss to the firm and it is to be shared by the remaining major partners in their profit-sharing ratio. Hence, we uphold the findings given by the appellate authority wherein he has allowed registration to the firm. "
( 10 ) IT is in this backdrop, the Appellate Tribunal referred the aforementioned question for the opinion of this court.
( 11 ) THE question for consideration is whether the ratio in which the major partners are to bear the losses falling to the share
