COMMISSIONER OF INCOME TAX Vs. RADHIKA RICE MILLS

JUDGEMENT

(1.) This is a reference under section 256 of the Income-tax Act, 1961, at the instance of the Revenue. The following questions are referred for the opinion of this court :

(2.) The controversy which led to the reference of the above questions relates to the assessment year 1980-81 for which the previous year ended on 31/03/1980. On 6/04/1979, a partnership was entered into, in which Sri Ashok Kumar was one of the partners. He was to receive a 5 per cent. share in the profits of the firm subject to a minimum of Rs. 3,000 per annum, but there was no liability to share the losses. The firm was granted registration under section 185 of the Income-tax Act. But later in exercise of the powers under section 263 of the Act, the Commissioner cancelled the registration purporting to apply the judgment of this court in CIT v. B. Pandaiah and Co. [1983] 143 ITR 464. On appeal, the Income-tax Appellate Tribunal took the view that though Ashok Kumar was not sharing the losses of the firm, the mere circumstance that a partner was to share profits only but not losses would not by itself militate against the presumption of partnership. So holding, the Tribunal allowed the appeal of the respondent-assessee by setting aside the order of the Commissioner. From that order, the questions aforementioned have, arisen.

(3.) Learned standing counsel for the income-tax contends that only a minor can be admitted to the benefits of the partnership and that the said Ashok Kumar, a major, could not have been admitted and, therefore, the partnership was an illegal partnership and as such the registration of the firm was rightly cancelled by the Commissioner.