Partnership registration turns on express specification of each partner's profit and loss shares in the deed

Registration of a partnership firm under the Income-tax Act required an instrument expressly specifying the individual shares of the partners in profits and losses. A deed that showed minors admitted to the benefits of partnership only as a collective unit, without separate individual shares, did not satisfy that requirement, and the omission to set out the partners' loss-sharing shares was also treated as fatal to registration.

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Issues: Whether the assessee-firm was entitled to registration under section 185 of the Income-tax Act, 1961, when the partnership deed showed the minors' share collectively and did not specify their individual shares, and whether omission to specify the partners' shares in losses was fatal to registration.

Analysis: For registration under the 1961 Act, the firm had to be evidenced by an instrument in which the individual shares of the partners were specified. Reading the partnership deeds as a whole, the three minors admitted to the benefits of partnership were shown only as a unit with a collective share in profits, and their individual shares were not separately set out. The Court further found that, at least in one of the deeds, the shares in losses of the major partners were also not properly specified. The statutory requirement was treated as mandatory, and the absence of clear specification in the deed could not be cured by reference to general notions of Hindu law or by internal arrangements not found in the instrument.

Conclusion: The assessee-firms were not entitled to registration, and the omission to specify the individual shares of the partners in losses was fatal to registration.

Final Conclusion: The reference was answered against the assessee, affirming refusal of registration under the Income-tax Act, 1961.

Ratio Decidendi: For grant of registration to a firm, the partnership instrument must expressly specify the individual shares of the partners in profits and losses; a collective share shown for minors admitted to the benefits of partnership is insufficient.

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