1984 (3) TMI 163

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....ded in this instrument with all the rights and liabilities as per s. 30 of the Indian Partnership Act, 1932, to which the father and natural guardian Sri Jogendra Nath Deka has given his full consent." 2. The share of profits referred to above, which was provided to the minor, was as per cl. (v) of the deed. The said clause read as follows; "That the profits and losses of the partnership business shall be divided and borne by the parties in equal proportions after adjustment of all expenses of the partnership business incidental to business only together with any liabilities of Income-tax of the partnership firm. The Income-tax liabilities of the parties shall have to be borne by the parties themselves." 3. The assessee filed registration application in Form No. 11 alongwith the aforesaid deed. In the said application the assessee made, inter alia, the following remark "minor Shri Khanin Deka, admitted to the benefits of partnership sharing 25% in profit only as per s. 30 of the Indian Partnership Act." In column-7 of the said form, it was declared on behalf of the firm that the three partners would share losses @ 33 1/2% each. 4. The ITO expressed to opinion on the bas....

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....d above could only mean that the losses to the partnership business shall be divided and borne by the parties competent to bear such losses. I find myself in agreement with the A/R when he states that the information contained in the application for registration carries sufficient relevance for the purpose of determining the genuineness of the partnership firm and the same should not be ignored." 6. In support of his stand as above, the ld. AAC relied, inter alia, on the following decisions; (1) Krisna & Bors. vs. CIT (1968) 69 ITR 135 (2) Abdul Aziz & Co. vs. CIT (1975) 98 ITR 299 (J&K) (3) CIT Mysore vs. Shah Mohandas Sadhuram (1965) 57 ITR 415 (SC) (4) CIT vs. Shal Jeihaji Phulchand (1965) 37 ITR 338 (SC) (5) CIT vs. Krishna Mining Co. (1980) 15 CTR (AP) 203 : (1980) 122 ITR 362 (AP) 7. The Department is in appeal against the aforesaid order of the ld. AAC and its the plea of the ld. Departmental Representative before us that the aforesaid partnership deed properly read would clearly indicate that the minor was made liable to share losses equally with other major partners. Alternatively if it was presumed that the minor would not be liable to the losses on a....

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.... proportion of capital investment as detailed of each member, all to be paid to his account in the books of account, from where each member can drawn. The losses are agreed to be shared by the members in the like manner. 10. In accordance with the above agreement, the account of the minor was actually debited with his share of losses. In view of this debiting of the account of the minor by the loss allocated to him by the firm in accordance with cl. (8) referred to above, the ITO felt that the partnership in question was invalid as it violated the provisions of sub-s. 2 of s. 30 of the Indian Partnership Act. On these facts their Lordships pointed out that the recital in the preamble of the partnership deed expressly stated that "It is the major members who had decided to constitute the partnership and to admit the minors to the benefits of the said partnership. "The recital of the clauses", according to their Lordship "must be construed in the light of this recital." Their Lordships again stated a little later that "in our opinion, the partnership deed reasonably construed only conferred benefits of partnership on the two minors and did not make them full partners." Accordingly....

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....e question would arise as to how to allocate the remainder loss between the existing partners. The minor admittedly could not be personally saddled with the unadjusted loss in view of the provisions of s. 30 of the Partnership Act which have been made specifically applicable in the present case vide the preamble of the partnership deed quoted above. There is no provision in the partnership deed dealing with this eventuality in so many words. The most favourable interpretation to the assessee, on the workings of cl. (5), would be that such unadjusted loss would also be debitable to the major partners equally over and above their respective losses already debited to their accounts. Thus interpreted, it is possible to say, and we say so, that the deed specifies the shares of the partners in losses also. 14. But the difficulty in the present case is that the assessee has declared in Form No. 11 that the share of the partners in the losses was 33 1/2% each and that the minor had no share in the losses. The above position does not emerge from the partnership deed as interpreted by us above. Clause (5) of the deed makes the minor share losses also equally with the other partners, subje....