J D ENTERPRISES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) PURSUANT to the direction given by this Court by a judgment and order, dt. 2nd Aug., 1988, passed in Civil Rule No. 3(M) of 1986 under S. 256(2) of the INCOME TAX ACT, 1961, the following two questions have been referred by the Tribunal for the opinion of this Court:

(2.) THE ITO, A -Ward, Digboi, while passing the order under S. 185 found that the assessee -firm was constituted by a deed of partnership dt. 23rd, Feb., 1978, with three partners, namely, (1) Shri Jogendranath Deka ; (2) Shri Dhiren Deka ; and (3) Shri Jiten Deka. Shri Khanin Deka, minor son of Shri Jogendranath Deka, was admitted to the benefits of the partnership. According to the ITO cl. 5 of the said deed provided that the profits and losses of the partnership to be divided and borne by the partners in equal proportions and there was no other clause specifying individual shares in the profits and losses of the partners or the minor. Therefore, the ITO held that the minor had been made liable to share the losses. When this matter was brought to the notice of the assessee, it was contended that it had been clarified in the partnership deed that the minor had been admitted to the benefits of the partnership with such charges of profit with rights and liabilities as per S. 30 of the Indian Partnership Act, 1932. It could not be said that the minor was made liable for the losses. The ITO disagreed with the submission of the assessee. He was of the view that the deed must specify the share of each partner in the profits and losses of the firm and, therefore, according to the ITO, the partnership deed was invalid and the firm could not be granted registration for the year under consideration. The assessee took up the matter before the AAC. The AAC allowed the appeal of the assessee holding that cl. 5 of the partnership deed relied on by the ITO would not reasonably be interpreted as repugnant to the validity of genuineness of the firm, agreeing with the contentions of the assessee to the effect that the information contained in the application for registration carried sufficient relevance for the purpose of determining the genuineness of the firm and the same should not be ignored. Accordingly, the ITO was directed to allow registration. The Revenue preferred an appeal before the Tribunal contending, inter alia, that the AAC was wrong in directing registration of the firm under the facts and circumstances of the case. The Tribunal after hearing the matter held that a minor could be made liable to share losses of the firm to the extent of his share in the firm as per the provisions of sub -s. (3) of S. 30 of the Indian Partnership Act. The Tribunal found that the deed was valid inasmuch as the said deed of partnership specified the shares of the partners in losses. The Tribunal, however, found that it was unable to accept the assessee's claim for registration in the present case as the declaration made by the assessee in the application for registration in Form No. 11 with regard to the sharing of losses among the various partners and the minor was not in accordance with the partnership deed. The assessee thereafter, filed an application stating that there was a mistake apparent in the order of the Tribunal and that it requires rectification. It was submitted that from the order of the Tribunal, it was clear that application in Form No. 11 filed by the assessee was found to be defective and in the circumstances the provisions of S. 185(2) would come into play and the ITO should have been directed to allow the assessee to remove the defects stipulated by S. 185(2). The Tribunal rejected the said application holding that there was no mistake in the order of the Tribunal which required to be rectified. The Tribunal in its order on the appeal did not find that Form No. 11 was defective. Again the assessee filed another miscellaneous application which was also rejected. The assessee requested the two questions to be referred. However, the Tribunal declined to draw up a statement of case for reference to this Court under S. 256(1). The assessee, therefore, moved this Court under S. 256(2) in Civil Rule No. 3(M) of 1986 and this Court directed the Tribunal to make the reference.

(3.) BEFORE we consider the rival contentions of the parties, it will be apposite to examine the deed of partnership and also to look to some of the relevant provisions of the Indian Partnership Act as well as the IT Act. We find the deed of partnership at pages 36 to 39 of the paper book. In the said deed, it has been recited as under: