LexM/S. PROGRESSIVE FINANCERS versus THE COMMISSIONER OF INCOME TAX, MADRAS
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A MIS PROGRESSIVE FINANCERS v. THE COMMISSIONER OF INCOME TAX, MADRAS FEBRUARY 20, 1997 B [S.C. AGRAWAL AND G.T. NANAVATI, JJ.) Income Tax Act 1961-S. 184-Partnership-Minor partner admitted to benefits-Application for registration-ITO to construe the instrument of partnership as a whole to ascertain the share of partners--lTO cannot reject C application for registration merely 011 the ground that the deed does not specify the respective shares of the partners. The Appellant, a partnership firm consisting of five partners one of whom was a minor, applied far registratian with the Income Tax officer under Section 184 of the Income Tax Act 1961, for the assessment year D 1967-68 and for renewal for the assessment years 1969-70 and 1970-71. The application was rejected by the ITO and assessment orders treating the appellant as an Association of Persons was passed for 1968-69 and sub- sequent years, holding interalia, that, though in the opening para of the partnership deed it was mentioned that a minor was admitted to the E benefits of partnership, the clauses indicated that she was taken as a full partner since she had contributed the maximum capital and her mother as guardian had signed on her behalf. Other flaws in the partnership deed were also pointed out. Aggrieved by the order of the ITO, the appellants preferred an F appeal to the Appellate Assistant Commissioner. Relying on the AP High Court dedsion in Addepally Nageswara Rao & Brothers v. Commissioner of Income Tax, 79 ITR 306, the Appellate Assistant Commissioner dismissed the order of the ITO holding that the instrument of partnership has to be construed harmoniously and that, since the minor was only admitted to G the benefits, she will not be liable for losses and therefore the firm was entitled to be registered. From the order of the Appellate Assistant Commissioner, the Revenue appealed to the Income Tax Appellate Tribunal. The Tribunal upheld the decision of the Appellate Assistant Commissioner relying on H the decisions in Commissioner of Income Tax, Mysore v. Shah Mohandas 280 - I .... T \ PROGRESSIVE FINANCER v. C.l.T., MADRAS 281 Sadhuram., 51 ITR 415 and Commissioner of Income Tax, Mysore v. Shah A Jethaji Phulchand, 51 ITR 588 and of the decision of AP High Court in Addepally Nageswara Rao. Since the Revenue wanted a reference to the High Court, the Tribunal referred the question as to whether the appellant was entitled to the benefit of registration under S. 185 of the Income Tax Act 1961, on the facts and circumstances of the case. The High Court allowed the appeal of the Revenue relying on the decisions of Gujarat High Court in Thacker & Co. v. CIT, 61 ITR 540, Kerala High Court in Ithappri & George, 88 ITR 332 and AP High Court in Mandyala Govindu & Co. v. Commissioner of Income Tax AP, 102 ITR B 1 for the proposition that the partnership deed should specifically provide C for the sharing of the losses and should not be left for inference. Appealing to this Court, from the order of the High Conrt, the appellant submitted that the High Court was wrong; that the Kerala High· Court decision relied upon has since been overruled by a Full Bench in Kera/a Publicity Bureau v. Commissioner of Income Tax, 200 ITR 366, and D that the instrument of partnership did indicate how profits were to be shared by the partners. It was the case of the Revenue that since S. 184 · confers a benefit which is not othern'ise available, its provisions have to be strictly complied with; and that the shares of the partners in profit or loss should be specified. E Allowing the appeal, this Court HELD : 1. Ir the partnership deed is construed reasonably it did by necessary implication provide for the proportion in which the losses of the firm were to be shared by the major partners. The application for registra- F tion made by the appellant fulfilled the conditions laid down by section 184 of the Act and, therefore, the ITO ought to have granted registration and made assessment of the appellant for the relevant years on that basis. 1be High Court was wrong in taking the contrary view. Therefore the judgment and order passed by the High Court is set aside and answer the questimn referred to the High Court by holding that for th_e assessment year 1968-6!1 G the appellant was entitled to registration and for assessment years 1969-70 and 1970-71 it was entitled to renewal/continuation of registration. [2
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