TaxTMI 
TaxTMI 
1979 (11) TMI 12
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....ersons and profit sharing ratio in the middle of the accounting year ? 3. If the answer to the second question is in the affirmative could registration under section 185 of the Income-tax Act, 1961, be granted to the firm, even though the terms of the instrument of partnership operative for part of the year were completely ignored ?" The facts relevant for the questions, as stated in the statement of case, are that the assessee is a firm comprising of four partners. The relevant accounting year for the assessment year 1971-72 is the diwali year 2026-27. This firm had been in existence previously also, and had had the benefit of registration under s. 184 of the I.T. Act. At that time, the constitution of the firm was as under: (1) Shri Bhagwan Das, (2) Shri Arjun Prasad, (3) Shri Mahendra Prasad and (4) Shri Gopal Prasad. The last mentioned partner was a minor, who had been admitted to the benefit of the partnership. The profit sharing ratio between the said four partners in case of profit was 30%, 40%, 15% and 15%, respectively. In case of loss, however, the loss had to be distributed in equal proportion between the major partners. This partnership continued....
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....year, it did not mean that that profit did not arise at any earlier point of time during the accounting year. He, therefore, submitted that the Tribunal had erred in holding that no profit could be distributed during the interim period of the accounting year. He further submitted that it was one of the essential requirements for the grant of registration to a firm, that the profit arising to it must be divided between the partners in accordance with the terms of the partnership deed specifying their share in the profit or loss of the firm. Such division, it was submitted, had not been made. The Tribunal had, therefore, erred in accepting the claim of the firm, for its registration under s. 185 of the Act. Mr. Jain, appearing for the assessee, has contended that it all depends upon the agreement between the partners as to the point of time when profit or loss arising to a firm has to be divided between them. In the instant case, by reference to the terms of the partnership deed, a part of which is quoted in the order of the Income-tax Appellate Tribunal, he submitted that both under the previous deed dated September 8, 1969, and the present deed dated June 30, 1970, the profit wa....
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....ar; will it, therefore, mean that a profit arose only on that date and at no earlier point of time ? According to learned counsel for the assessee, it arose only on the last day of the accounting year and on no earlier date. In this connection, he has cited a decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42. This was a case in which under an agreement of partnership the manager of an HUF, who was one of the partners, was to receive a share in the profits of the firm. The accounts of the firm were to be adjusted at the end of every calendar year. Now it so happened that before the expiry of the previous year relevant to the assessment year 1955-56, a partition took place in the family and a share of the profits of the firm fell to the lot of the manager. The ITO, however, wanted to apportion the profit received by the manager between the undivided family and the manager in his individual capacity. In this context, their Lordships held that the right to receive the profit of the firm for the previous year 1955 arose on the settlement of the account of the firm and not before, and, on that date, the manager alone was the owner of the share of t....
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.... holding that the profit or loss of the firm arises only on the last day of the accounting year. The question then is with regard to the distribution of the profits of the accounting year, as to who should receive the profits on distribution and in what proportion. According to learned counsel for the Department, since the profit of the business of the firm is to be computed and determined at the end of the relevant previous year for the whole year, the distribution must also be made according to the sharing ratio as evidenced by the two partnership deeds, the one dated September 8, 1969, and the other dated June 30, 1970, which cover the whole year. In other words, the sharing ratio of the profit or loss shall follow the sharing ratio of the two partnership deeds for the period for which they have been in vogue. There is no dispute with the proposition that the profit or the loss which accrue during the accounting period to the firm has to be distributed between the partners. The question, however, is, which partnership deed will determine the sharing ratio; whether the latter alone, or the former and the latter together ? According to learned counsel for the assessee, since....