Law: Income Tax Act, 1961

Section: 186

Income-tax----Firm---Registration---Cancellation of registration---Firm consisting of three adult partners and one minor---Partnership deed providing for profits and losses to be shared among adult partners in proportion of 20:25:30--¬Minor to share profits at 25 paise in a rupee and not to share in losses except as defined in Partnership Act, 1932---Balance loss of 25 paise in a rupee also to be fully distributed among adult partners---Cancellation of registration of firm---Not valid---Indian Income Tax Act, 1961, S.186(1). The assessee-firm was constituted by a partnership deed, dated March 15, 1967, and consisted of three adult partners and a minor was admitted to the benefits of the partnership. The partnership deed provided that the profits of the firm were to be shared in the proportion of 20 paise, 25 paise and 30 paise in a rupee among the adult partners and 25 paise was to be the share of the minor. The losses were to be shared in the same proportion in which the partners were entitled to share the profits, except that the minor was not liable for the losses of the firm except as defined in the Partnership Act, 1932. The assessee-firm was granted registration for the assessment years 1968-69 and continuation of registration for the following years. The Assessing Officer, on audit objections, cancelled the registration under section 186(1) of the Income Tax Act, 1961, on the ground that no specific provision was made in the partnership deed to share the losses and that even the minor was held responsible for losses to the extent permitted by the provisions of the Partnership Act. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal held that the plain meaning of clause (2) of the deed was that the shares of the adult partners in the losses would be the same as in the case of profits, i.e., in the ratio of 20:25:30 and that it was incorrect to state that the shares of the partners in the losses had not been specifically mentioned. The Tribunal, therefore, quashed the order cancelling the registration under section 186(1) of the Act. On a reference, the Revenue contended that though clause (2) of the deed…

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