TaxTMI 
TaxTMI 
1990 (12) TMI 121
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....other cases the same fate shall follow. 2. The assessment year involved in all the appeals is 1984-85, for which the previous year is claimed to have ended with 31st March, 1984. The status of all the assessees have been accorded as resident AOP. Assessments have been framed under section 143(3) read with section 167A(2) of the Income-tax Act, 1961. The address of all the assessees, their status and nature of business are also claimed to be the same. It is also claimed that all assessees belong to Somani Group of family. The assessees claim the status of URF. The issue revolves around the interpretation of the terms of the deed of partnership, which, in the case of Supreme Corporation (ITA No. 6615/Bom/89), reads as under :-- Deed of partnership of Messrs Supreme Corporation THIS INDENTURE OF PARTNERSHIP made and entered into at Bombay on 25th day of October, in the Christian year one thousand nine hundred eighty three by and between :-- 1. SHRI SHREEPRAKASH SOMANI, S/o Nathmalji Somani, resident of Bombay, hereinafter called the Party of the First part and 2. SMT. SARASWATIDEVI SOMANI W/o Shri Nathmalji Somani, resident of Bombay, hereinafter called the Party of the....
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....s hereto may decide upon from time to time. Profit of the partnership business means the profit earned by the firm and whether divided or not and capital of the partnership business means profits of the partnership business accumulated from year to year but excluding the capital contributed by the partners from time to time. 8. The 5% profits or losses of the partnership business shall be divided and apportioned by and between the parties hereto in the following proportions :-- 1. Shri Prakash Somani 70% 2. Smt. Saraswatidevi Somani 30% --------- Total 100% ----------- 9. Accounts : The accounts of the partnership business shall be kept and maintained and all the transactions of the partnership business shall be entered therein which are usually made in the proper books of account and the books of account shall be kept at the registered office of the firm and any of the partner shall have the right to inspect and examine the same and also to take copies of the same as and when required and that the partnership accounts shall be made up, adjusted and finally settled and closed on 31st December every year. The Profit and Loss Account and Balance Sheet shall be pr....
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....wingly cause or suffer to be done anything whereby the partnership property may be endangered. (d) Mortgage or exchange or otherwise transfer his/her share in the profit of the firm. (e) Except in the ordinary course of business draw, accept or endorse any bill of exchange or promissory note on account of the firm. (f) Do or affect any speculative or forward business in any commodity. Any partner committing any breach of the terms and conditions and stipulations herein contained shall indemnify the other from all losses and expenses on account thereof. 16. Arbitration : That all the disputes and differences whatsoever which shall either during the partnership or after the termination thereof arise between the partners or their respective representatives or between any partner and representatives of the other partners touching these presents or the construction or application thereof, or any clause or thing herein contained on any account, valuation, division, debts or liabilities to be made hereunder or as to any act, deed or commission of any partner as to any other partner under these presents shall be referred to arbitration under the provisions of Indian Arbitration....
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....2) of the Act or that of Unregistered Firm. The assessee has placed on the file of the Assessing Officer as also the learned first appellate authority written arguments, a copy of which has been provided to the Income-tax Appellate Tribunal and are pages 1 to 4 and 5 to 11 of assessee's paper book. Justifying the stand of the assessee that the partners have agreed to divide the balance profit 95% at a later date for various reasons, the reasons given are :-- (i) who will contribute more capital ; (ii) who will devote more time ; (iii) who will bring more business ; (iv) to avoid frequent retirement and dissolution ; and (v) to maintain unity in family. The stand of the assessee is that the assessee meets the requirements of law in terms of the definitions in the Income-tax Act, 1961 and the Indian Partnership Act, 1932 vis-a-vis the definitions of 'firm', 'partners' and 'partnership'. The stand of the revenue is that charge of tax, qua the assessees have to be under section 167A inasmuch as shares of the constituents are unknown and the assessee is an Association of persons, not a firm or a partnership. Section 167A of the Act reads as under : '(1) Where the....
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....re the agreement, which is supposed to evidence a partnership relation, is uncertain in its terms, then it becomes difficult to determine the existence or non-existence of a partnership relation. A part of the uncertainty in determining the relationship could be due to lack of precision in the language to express and in that case it will be subject to the provisions of the Indian Partnership Act, 1932 but when the uncertainty is in terms of clear expression, then the replationship cannot be termed as partnership. In the case of the assessees-appellants, a part of the profits - a very negligible part of the profit - is to be apportioned and the big chunk is subject to uncertainty, since it provides that it shall be divided among the parties in such manner/such proportion and at such time as the parties hereto (to the deed of partnership) may decide from time to time. [Emphasis supplied]. The stipulation dealing with 'dissolution' speaks of that, 'dissolution not necessary'. It provides that death/retirement/insanity/ insolvency, etc., of the partner shall not dissolve the firm and the remaining partners shall be entitled to carry on the business of the firm, if they so desire. (Emph....
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....ere, having elected to retain the property and manage it as a joint venture producing income, were assessable as association of persons. Yet again, the Hon'ble Bombay High Court in the case of Indira Balakrishna, Manager of Estate of Balakrishna Purshottam Purani v. CIT [1956] 30 ITR 320, held that, " in the case of income, which is received by joint owners of an asset, the question whether they should be assessed as separate individuals in respect of their respective shares in the income, or as an association of persons in respect of the entire income, depends on whether these persons have earned the income by reason of their association or have done any joint act in respect of the property which has resulted in, or helped to produce the income. The mere fact that they have received the income jointly is not sufficient to make them liable to be assessed as an association of persons ". Before the Hon'ble Bombay High Court, the facts of the case were that three co-widows of a deceased Hindu received income from the assets, which they jointly inherited from their husband and which income fell under the heads of income, 'income from property', 'dividends', 'shares in a registered firm....
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....ining what is an association of persons. Their Lordships further observed that there was no formula of universal application but it must depend on the particular facts and circumstances of each case as to whether the conclusion be drawn or not about there being an association of persons. In the case of CIT v. Rupchand Routhmall [1963] 50 ITR 295 (Cal.), a Karta of Hindu undivided family entered into partnership and the contract was not between the family and the other partners but between the Karta individually and the other partners. Prior to that, there was an agreement of partition whereby the mother got a share and from that fact their Lordships inferred and held that there was a general partition and not a partial partition and, accordingly, in view of the above facts it was held that after partition of a Hindu undivided family, there can be a reunion of two or more of its members but such a reunion is a result of an agreement between the persons. A minor is incompetent to contract and, as such, there could not have been a reunion in that case and since the minors were partners in the firm and their shares were also not specified, the agreement of partnership was held to be in....
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....the deed of partnership, which did not provide expressly individual shares of eight partners who constituted the firm but did mention that they belonged to three groups and each was to have 1/3rd share in the profits. Another clause, viz., 3 in that case provided that partners of each group would in that proportion bear the losses also. Their Lordships held in favour of the assessee with the reasoning that by implication the partners are entitled to equally share the profits falling to the share of their respective groups. They further relied on the assessment orders in the case of each of the eight partners where the Department itself has assessed the groups as having 1/3rd share and each partner in the group having equal shares. On page 297 of the said report, their Lordships observed 'no firm can be registered, unless the instrument of partnership specifies the individual shares of the partners in the profits of the partnership. However, the specification of shares need not be expressed ; it may be implied'. In the case of the present assessees-appellants, sharing of profit/losses is not only not specified qua big chunk but also is left to uncertainty about ratio, division and t....