TaxTMI 
TaxTMI 
1997 (2) TMI 12
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....1970-71, it applied for renewal of registration. The Income-tax Officer rejected the application for registration on June 30, 1971. On the same day, he passed an assessment order for the assessment year 1968-69 treating the status of the appellant as an association of persons. Applications for renewal of registration for the assessment years 1969-70 and 1970-71 were rejected on March 13, 1972, and the assessment orders for those years were again passed treating the appellant as an association of persons. The appellant's application for registration was rejected by the Income-tax Officer on the ground that though in the opening paragraph of the partnership deed it was mentioned that Sunitha Pratap, a minor, was admitted to the benefits of partnership, the relevant clauses in the partnership deed indicated that she was taken as a full partner and, therefore, the contract of partnership was void ab initio. The Income-tax Officer arrived at this conclusion as he noticed that the partnership deed was signed by Mrs. Sridevi Pratap, the guardian of minor, Sunitha Pratap ; that Sunitha had contributed the maximum capital ; that it was not stated in the partnership deed how, i. e., the....
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.... under section 185 of the Income-tax Act, 1961, for the assessment year 1968-69 ?" Against the orders passed by the Income-tax Officer refusing renewal or continuation of registration for the assessment years 1969-70 and 1970-71 the appellant had preferred two separate appeals to the Appellate Assistant Commissioner. They were allowed. The appeals filed by the Revenue against the said appellate orders were dismissed by the Tribunal. At the instance of the Revenue, for the said two assessment years the following question was referred to the High Court : "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 continuation of registration for the assessment year 1969-70 and 1970-71 ?" The High Court referred to the decision of the Gujarat High Court in Thacker and Co. v. CIT [1966] 61 ITR 540 and the two decisions of the Kerala High Court in CIT v. Ithappiri and George [1973] 88 ITR 332 and United Hardwares v. CIT [1974] 96 ITR 348 wherein it has been held that in view of the clear language of section 184 it is necessary that sharing of the losses also has to be specifically provided....
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.... was reiterated subsequently by a 5-judge Bench of this court in the case of Kylasa Sarabhaiah v. CIT [1965] 56 ITR 219. At the same time, this court disapproved the mechanical application of that provision and held that "in ascertaining whether the application is in conformity with the Rules, the deed of partnership must be reasonably construed". It was also held that the word "specify" as used in that section and the relevant rule meant "mentioning, describing or defining in detail" and it did not mean "expressly setting out in fractional or other shares". In view of this decision the correct legal position is that the Assessing Officer cannot reject an application for registration merely because in the deed of partnership the shares of the partners are not expressly specified. The Assessing Officer will have to construe the instrument of partnership as a whole and if reasonably the shares of the partners in profits and losses can be ascertained, then to accept it as genuine for the purpose of registration. We will now refer to the decision of this court in Mandyala Govindu and Co. [1976] 102 ITR 1, which has been relied upon by the High Court and on the basis of which it decide....
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..... In an earlier decision in the case of Parekh Wadilal Jivanbhai v. CIT [1967] 63 ITR 485, this court construed the partnership deed by reading it as a whole and "in the context of the relevant circumstances of the case" and held that there was specification of the individual shares of the partners in the profits within the meaning of section 26A of the Act and the assessee-firm was entitled to registration. The relevant circumstances which were taken into account were (1) under clause 3 of the partnership deed the capital allotted to each partner was equal, (2) under clause 10 the net profit or loss was to be divided amongst all partners, (3) in the application the three partners were shown to share the profits equally, and (4) in the books of account the profits were apportioned equally among the three partners. Thus, it was laid down by this court in that case that the instrument of partnership has to be construed reasonably by reading it as a whole and taking into consideration the relevant circumstances disclosed by the instrument of partnership and the account books for the relevant year and the statements made in that behalf in the application. In this case, it appears tha....