ADDITIONAL COMMISSIONER OF INCOME TAX Vs. PROGRESSIVE FINANCIERS

JUDGEMENT

(1.) THE assessee is a firm of partnership consisting of five partners, of whom one was a minor admitted to the benefits of the partnership. THE capital of the partnership was Rs. 5 lakhs. THE contribution of each partner of the capital was as follows : <FRM>JUDGEMENT_18_ITR118_1979Html1.htm</FRM>

(2.) IT is seen from the above capital contribution that the shares of capital contribution work out as 25%, 37.5%, 12.5%, 12.5% and 12.5%. An application for registration was made on March 31, 1968, in respect of the assessment year 1967-68. The partnership deed itself was executed on 1st July, 1967. The partnership deed was signed by the guardian on behalf of the minor along with other partners. The application for registration was signed by the major partners. The partnership deed provided that the net profits ascertained shall be divided between the partners in proportion to their shares in the capital. The deed did not specify the shares of the partners in the losses. The ITO rejected the application among other grounds stating that there is no specification about the sharing of the losses in the instrument of partnership itself and that, therefore, the assessee is not entitled to get the firm registered. Bat on appeal against this order, the AAC was of the view that though there is no specification of the shares of the losses in the document itself, it should be taken that the parties intended to share the losses in proportion to the share in which they have contributed the capital leaving the minor not liable for the losses, since the minor was admitted to the benefits of the partnership. This view was confirmed by the Tribunal on an appeal preferred by the revenue. At the instance of the revenue, the following question has been referred to this court under Section 256(1) of the I.T. Act, 1961 :