1985 (3) TMI 100 - AT - Income Tax

Partnership Deed Implies Equal Profit Sharing: ITAT Reverses Decision

The ITAT reversed the AAC's decision and allowed the assessee's appeal, determining that the partnership deed, supported by the Indian Partnership Act, ... Partnership Deed Issues:Claim of registration denied based on profit sharing ratio in partnership deed.Analysis:The main issue in this appeal was the denial of registration by the ITO and AAC due to the absence of a specified profit sharing ratio in the partnership deed. The assessee argued that clauses 6, 16, and 24 of the deed indicated equal profit sharing. The ITAT analyzed the partnership deed and relevant case law. It was noted that clause 24 referred to the Indian Partnership Act, implying equal shares. The ITAT referenced the case of Parekh Wadilal Jivanbhai, emphasizing that the specification of shares can be implied and does not require explicit fractional details. The ITAT also considered the case of Krishna Mining Co., which highlighted the importance of interpreting the word 'specify' reasonably. The case of Alankar Jewellers emphasized the need for the ITO to point out defects in the registration application, which was not done in this case. The ITAT concluded that the partnership deed, supported by the Indian Partnership Act, indicated equal profit sharing, leading to the reversal of the AAC's decision.The ITAT rejected the departmental representative's reliance on certain cases, stating that the application of the Indian Partnership Act was adopted by the assessee through the partnership deed. The ITAT distinguished the case of Nandlal Sohanlal, emphasizing that the Act was not being replaced but rather supplemented by the Indian Partnership Act. The ITAT also addressed the case of Dastur Dadi & Co., highlighting the subsequent reversal by the Supreme Court in Parekh Wadilal Jivanbhai's case. The ITAT further discussed the Madras High Court decision in A.S.S.R. Guruswami Chettiar's case, emphasizing the importance of evidence within the partnership deed itself. The ITAT concluded that the issue was adequately covered by the Supreme Court decision in Parekh Wadilal Jivanbhai's case, leading to the reversal of the AAC's decision.In conclusion, the ITAT reversed the decision of the AAC and allowed the assessee's appeal, highlighting that the partnership deed, combined with the provisions of the Indian Partnership Act, clearly indicated equal profit sharing between the partners.