AI Drafter 
TaxTMI 
TaxTMI 
1984 (8) TMI 37
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....irected the ITO to grant registration. On a further appeal by the Revenue, the Income-tax Appellate Tribunal on a consideration of the deed of partnership in its entirety held that there was a genuine partnership and dismissed the appeal of the Revenue. At the instance of the Revenue, the Tribunal under s. 256(1) of the I.T. Act has referred the following question of law as arising out of its order for our determination: " Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the terms of the partnership deed dated January 25, 1968, the Tribunal was right in holding that registration could not be refused under s. 185 of the I.T. Act, 1961, on the ground that the terms of the partnership detracted from there being a: genuine partnership between the executants of the deed ? " To appreciate the dispute involved, it is necessary to consider the terms of the deed of partnership: (a) The partners named in the said deed are Bhagwati Devi Agarwal and Kaku Jayantilal Kamani. The deed provides that the business of the partnership in medicines, drugs and allied products would be carried on by the firm as commission agents, importers, exp....
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....ry and submitted that the deed fulfilled all the tests of a genuine partnership. In support of their respective contentions, learned advocates cited several decisions, one of which was Kamath & Co. v. CIT [1971] 82 ITR 680 (SC). Here, the dispute before the Supreme Court was in respect of registration of a firm under s. 26A of the Indian I.T. Act, 1922. The sole proprietor in that case converted his business into a partnership by admitting five of his employees as working partners along with him. The deed provided that the profits and losses would be shared in specified proportions. The erstwhile proprietor was designated as the principal and the financing partner, the goodwill of the firm was wholly retained by him and he also retained the absolute right of control and management of the business and the operation of the bank accounts of the firm. The other partners contributed labour and pledged to work under the instructions and directions of the principal partner which was to be treated as final and binding. The working partners were not authorised to raise loans or pledge the interest of the firm without the written authority of the principal partner. The principal partner c....
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....gainst losses; and the very fact that these latter become, or agree to become, partners is quite sufficient consideration to give validity to contract that they shall be indemnified. Such agreements appear, moreover, to be reasonable, where the partners indemnified leave the whole management of the concern to their co-partners. A salaried partner too is often given such an indemnity either expressly or impliedly by provisions which make the partners entitled to the residual profits exclusively liable for losses. " Learned advocate for the assessee contended that in Kamath & Co. case [1971] 82 ITR 680 (SC), the question whether sharing of loss was an essential ingredient of a partnership was not directly or specifically before the Supreme Court and the said decision should not be read as having finally laid down that sharing of loss is an essential condition, in view of the clear law which preceded the said decision. The other decisions cited at the hearing may now be considered: (a) Raghunandan Nanu Kothare v. Hormasji Bezonji Bamji, AIR 1927 Bom 187. This decision of a Division Bench of the Bombay High Court was cited for the following observations (p. 189): " .. .........
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....ws (p. 807): " If it was intended to create a real partnership, one would have thought that some provision would been made for the sharing of the loss, especially as the share of the profit going to the appellant is immensely large compared with the share going to his brother." Construing the provisions of the deed of partnership before us, it appears to us that the control exercised by Bhagwati Devi over her partner, Kamani, is of little relevance. In K. D. Kamath & Co. [1971] 82 ITR 680 (SC), the control exercised by the principal partner over the other partners was similar, if any, more than in the instant case. The deed in K. D. Kamath & Co. [1971] 82 ITR 680 (SC) excluded the working partners from the operation of the bank account and the partners were liable to be expelled from the firm or from contribution of capital at the instance of the principal partner. In spite of the aforesaid, the Supreme Court came to the conclusion that a valid partnership had been constituted in that case inasmuch as all the essential conditions were present. The contention of the learned advocate for the Revenue that a valid partnership was not constituted for the reason advanced by h....