Law: Income Tax Act, 1922

Section: 23,23(5),26A

[Indian Income Tax act, 1922(XI of 1922)]........Sections 23(5), 26A- Firm-Registration Minor admitted to benefits of partnership-Shares of partners in profits alone specified-Unequal shares-Shares in losses not specified or ascertainable-Whether firm entitled to 13 b registration--Held no-Partnership Act, 1932, Section 13(b). N. V and S were partners in the appellant firm having respectively shares in the profits of 31 per cent., 23 per cent., and 23 per cent., and J a minor, was admitted to the benefits of partnership with a share of 25 per cent in the profits. There was no clause in the deed of partnership specifying the proportion in which the three adult partners were to share the losses. Clause 9 of the deed provided that the partners were bound to act according to the stipulations in the deed and according to the provisions of the Indian Partnership Act, 1932. The question was whether the firm was entitled to registration under Section 26 A of the Indian Income Tax Act, 1922. The firm contended that it was sufficient if the proportion in which the losses were to be shared was otherwise ascertainable and that clause 9 satisfied the requirement as it brought in by implication Section 13{b) of the Partnership Act : Held that (i) the Income Tax Officer, before allowing the application for registration under Section 26A of the Indian Income Tax Act, 1922, must be in a position to ascertain the shares of the partners in the losses even if Section 26A did not require the shares in the losses to be specified in the instrument of partnership ; since the partners had unequal shares, there could be no presumption that the losses were to be shared equally and having regard to the scope of Section .3 (b) of the Partnership Act the section had no application. Further, the rule that where the shares in the profits were unequal, the losses must be shared in the same proportion as the profits also did not apply because, even if the adult partners were to bear the losses in proportion to their respective shares in the profits, there was no means of ascertaining how the amount of loss in the minors share was to be apportioned. that; therefore, the firm was not entitled to…

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