MANDYALA GOVINDU & CO. versus COMMISSIONER OF INCOME TAX, ANDHRA PRADESH

Citation: [1976] 2 S.C.R. 131 · Decided: 06-10-1975 · Supreme Court of India · Bench: V.R. KRISHNA IYER · Disposal: Dismissed

Judgment (excerpt)

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i 
131 
MANDYALA GOVINDU & CO. 
v • 
COMMISSIONER OF INCOME TAX, ANDHRA PRADESH 
October 6, 1975 
A 
[V. R. KRISHNA IYER, A. C. GUPTA ANDS. MURTAZA.FAZAL ALI, JJ.] 
B 
Registration of firms-Income Tax Act, 1922-Sec. 26A-Whether share of 
parlllers in loss to be mentioned in the Partners/zip Deed-Sec. 13 (b) of Part-
ners/zip Act-In the aibsence of contract regarding share in loss-Whether to 
be borne equally or proportionate to profit. 
· 
The appellant assessee is a firm, having three partners and one minor admitted 
to the benefits of the partnership. 
One of the partners has 31 % share and 
the remaining two partners and the minor have 23 % share each in the profit 
of the firm but the partnership deed is silent about their shares in the losses. 
Clauses 9 of the partnership deed provides that the partners are bound to 
act a·ccording to the provisions of the Indian Partnership Act. 
The firm applied 
for registration under s. 26A of the Income Tax A:t, 1922 which was refused 
by the Income Tax Officer. 
The High Court in a reference under s. 66(1) held that unless the instrument 
of partnership specified the shares of the partners not only in the profits but 
also in the losses, the firm would not be entitled to registration under s. 26A. 
The High Court negatived the contention of the assessee that clause 9 of the 
instrument indicated how losses were to be apportioned between the partners. 
On appeal by special leave it was contended by the appellant : 
( 1) S. 26A does not require that the instrument of partnership must specify 
the respective shares of the partners in the losses and it is sufficient if the 
c 
D 
proportion in whi.:h the losses are to be shared is otherwise ascertainable. 
E 
(2) Assuming that s. 2iiA does require mentioning the proportion of losses 
in the instrument of partnership, clause 9 of the instrument read with s. 13 (b') 
of the Partnership Act satisfies that requirement. 
Dismissing the appeal, 
HELD : (1) A firm whether registered or unregistered is &n assessee under 
the Act and can do business as such. 
However, registration under s. 6A 
confers on the partners a benefit to which they would not have been entitled 
F 
but for s. 26A and such a right being a creature of a statute can be claimed 
only in accordan:e with the statute which confers it and the per.son who seeks 
relief under s. 26A must bring himself strictly within its terms before he rnn 
claim the benefit of it. 
[l33D-E] 
Rao Bahadur Revulu Subba Rao and others v. Commissioner of Income-Tax, 
Madras, (1956) 30 LT.R. 163, relied on. 
· 
(2) In the case of a registered firm the share of each partner in the profit 
or loss is added to or set off against, as the case may be, to the other income 
of the partner. Thus, the loss, if any, affects the assessment proceedings and, 
therefore, Income Tax Offi.cer has to know what are the respective shares of 
the partners in the loss before allowing the firm to be registered. 
[134-C-D]' 
( 3) There is a conflict of opinion amongst the High Courts whether it is 
essential for registration under s. 26A that the shares of the partners must be 
specified in the partnership deed. It is not necessary to decide for the purpose 
of this appeal which of the conflicting views is correct because in the present 
case the appeal is bound to fail on any view. It is not dispu.ted and ,cannot 
be disputed that the Income Tax Officer before allowing the applicatfon for 
G. 
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132 
SUPRE1-IE COURT REPORTS 
(1976] 2 S.C.R. 
registrati<Jn must be in a position to ascertain the shares of the partners in 
the losses even if s. 26A did not require this to be specified in the instr:un1ent 
of partnership. 
[135E-F] 
( 4) The contention that clause 9 brings in by implication s. 
13 (b) 
of 
the Partnership Act and thus specifies the shares of the partners in the losses 
is Untenable. S. 13(b) makes the partners liable to contribute equally to the 
losses only when they are entitled to share equally -in the profits. In this case 
the shares of the partners are not equal. The case of K. Pitchiah Chettiar v. 
G. Suhrc1mania1n Chettiar I.L.R. 58 Mad. 25 and In re Albion Life Assurance 
Society, 16 Ch. Div. 83, 87, applied. 
(135 G-H] 
The law stated in these' cases in the context of section 253 (2) of the 
contract Act applies equally to s. 13(b) of the Partnership Act which is in 
identical terms. In the absence of any indica:tion to the ~ontrary, where the 
partners have agreed to sha

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