COMMISSIONER OF INCOME TAX Vs. KIKANI AND CO

JUDGEMENT

(1.) AT the instance of the Revenue, the question that has been referred to us which is common to the assessment years 1974-75 and 1975-76, is as to whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the continuation of registration granted to the firm for the assessment years 1974-75 and 1975-76 cannot be cancelled on the ground that on the attainment of majority by one of the minors admitted to the benefits of partnership, no new deed of partnership was drawn by the partners.

(2.) THE firm, Kikani and Company, Coimbatore, was constituted under the partnership deed dated June 8, 1963, and had, inter alia, admitted one Yogeshkumar Kikani, at that time a minor, to the benefits of partnership. THE said minor attained the age of majority on March 14, 1973. THE firm had been registered and the registration of the firm had continued from year to year. After the erstwhile minor attained majority, he did not give any public notice that he has elected to become a partner nor opted out of the partnership firm, and consequently at the expiry of six months from March 14, 1973, he became a partner of the firm by virtue of the proviso to Section 30, Sub-section (5) of the Partnership Act. THE date on which he attained the age of majority as also the expiry of a period of six months therefrom occurred in the accounting year of the firm which ended on October 25, 1973. In that year no new deed for partnership was drawn up. THE firm, however, initially filed Form No. 11 prescribed under Rule 22 of the Income tax Rules. THE assessee having later realised that it was an inappropriate form as that form has to be used only in case there was no change in the constitution of the firm and in the shares of the profits and losses among the partners in the firm and as in the books of the firm, the erstwhile minor was shown as having two per cent. share in the losses and two of the partners, Arvind K. Kikani and Vasantlal K. Kikani, were shown as having a reduced share in the losses at 11 per cent. each while according to the partnership deed they had 12 per cent. share in the losses and the erstwhile minor had no share in the losses, Form No. 11A was filed duly signed by all the partners and in which this change in the losses sharing ratio was set out. THE Income-tax Officer initially granted registration to the firm in which these three persons had altered the ratio in which they were to share the losses. THE order registering the firm was passed on November 29, 1975. However, subsequently on March 14, 1980, the registration was cancelled on the ground that the firm was not genuine. THE cancellation was effected under Section 186 of the Act.

(3.) LEARNED counsel for the Revenue, fairly invited our attention to the recent decision of the Supreme Court in the case of Progressive Financers v. CIT [1997] 224 ITR 595. The court after review of the decisions of the High Courts and the earlier decisions of the Supreme Court in the case of Mandyala Govindu and Co. v. CIT [1976] 102 ITR 1 and Kylasa Sarabhaiah v. CIT [1965] 56 ITR 219 held that the Assessing Officer cannot reject an application for registration of a firm merely because in the deed of partnership the shares of the partners are not expressly specified, and that even if the shares of the partners were not expressly specified in the instrument of partnership deed, if they could be ascertained by the Income-tax Officer from the application and the required information supplied therewith, then the requirements of the law could be said to have been satisfied. The court also held that where the shares of the partners in the profits of the firm are unequal, the losses must be shared in the same proportion as the profits, if there is no agreement as to how the losses are to be apportioned.