Jagannatha Shetty, J.
1. The question referred under s. 256(2) of the I.T. Act, 1961 (the 'Act'), runs as follows :
'Whether, on the facts and in the circumstances of the case, the assesses-firm was not entitled to continuance of registration under the Income-tax Act, 1961 ?'
2. The assessee is a partnership firm. The firm was established by an indenture dated June 21, 1971. S. N. Gundu Rao and S. C. Madhukar were partners and also parties to the deed. Besides, Master Santosh Kadam (minor)has been admitted to the benefits of partnership. The relevant portions of the deed of partnership are set out below for immediate reference :
'Whereas the parties have agreed to admit Master Santosh Kadam to the benefits of partnership on the same terms and conditions hereinafter mentioned and described.
'The net profits and losses of the firm for any year shall be divided among partners as follows :
Sri S. N. Gundu Rao 20%Sri S. C. Madhukar 40%Master Santosh Kadam 40% Clause-13 :
'The minor member admitted to the benefits of the partnership shall have no rights over the goodwill of the firm'.'
3. For the assessment year 1972-73, the ITO by an order dated January 29, 1975, granted registration to the firm under s. 185 of the Act. By the same order, he continued the registration for the subsequent year 1973-74.
4. But the Commissioner in the exercise of his powers under s. 263 of the Act has found fault with the order granting registration to the firm. According to him, the minor was made a full-fledged partner. He was not admitted only to the benefits of the partnership. The registration was erroneous and prejudicial to the interests of the Revenue. So, he cancelled the registration of the firm.
5. The firm appealed to the Tribunal. The Tribunal confirmed the order of the Commissioner with some more reasons. It held that there is no specification as to distribution of 40% loss of minor's share as between the major partners. So, the minor cannot be held to have been admitted only to the benefits. The case was governed by the decision of the Supreme Court in Mandyala Govindu & Co. v. CIT : 102ITR1(SC) . The decision of the High Court of Andhra Pradesh in CIT v. Hyderabad Stone Depot : 109ITR686(AP) , is no longer good law in view of the said decision of the Supreme Court. The Tribunal has also referred to some decisions of other High Courts.
6. Sections 184 and 185 of the Act are special provisions applicable to firms for registration.
7. Section 184 provides for filing application for registration of a firm for purposes of the Act.
8. Section 184 provides that the partnership should be evidenced by an instrument. The individual shares of the partners must also be specified in that instrument. The firm must be in existence in the accounting year in respect of which the assessment is required to be made.
9. The second requirement mentioned under s. 184(2) is that the individual shares of the partners should be specified in the instrument of partnership. The purpose behind this requirement is to enable the income-tax authorities to make proper assessment. If the firm is registered, the assessment on the income of each partner should be at the concessional rate of tax. If there is no specification of such individual shares, it would be difficult for the income-tax authorities to make proper assessment. There appears to be no other intention in s. 184 in insisting upon that individual shares of the partners should be specified in the instrument.
10. Section 185 prescribes the procedure to be followed by the ITO on receipt of such application. Sub-section (2) thereof requires the ITO to intimate the defect, if any, in the application. If the application is not in order, the ITO must give the firm an opportunity to remove the defect within a period of one month. If the defect is not removed within that period, the ITO shall reject the application. Likewise, the ITO has also to provide an opportunity to rectify the defect, if any, in the declaration furnished by the firm under sub-s.(7) of s. 184.
11. These provisions were indubitably meant to confer benefits of the concessional rate of tax to genuine firms.
12. In this context, it is also necessary to refer to s. 30 of the Partnership Act. It provides that 'a person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership'. Sub-sections (2) and (3) of s. 30 provide that such minor has a right to such share of the property and of the profits of the firm, but not loss. It, therefore, goes without saying that if a minor is admitted as a full partner with the rights and liabilities of an adult partner, then the deed of partnership would not be valid. (See CIT v. Dwarkadas Khetan & Co. : 41ITR528(SC) .
13. It is now necessary to examine the true nature and incidents of 'benefits of partnership' and the rights of the guardian of a minor in regard to it. In CIT v. Shah Mohandas Sadhuram : 57ITR415(SC) , the Supreme Court observed at page 420 thus :
'... it is necessary to consider what are the incidents and true nature of 'benefits of partnership' and what is a guardian of a minor competent to do on behalf of a minor to secure the full benefits of partnership to a minor. First, it is clear from sub-section (2) of section 30 of the Partnership Act that a minor cannot be made liable for losses. Secondly, section 30, sub-section (4), enables a minor to sever his connection with the firm and if he does so, the amount of his share has to be determined by evaluation made, as far as possible, in accordance with the rules contained in section 48, which section visualises capital having been contributed by partners. There is no difficulty in holding that this severance may be effected on behalf of a minor by his guardian. Therefore, sub-section (4) contemplates that capital may have been contributed on behalf of a minor and that a guardian may on behalf of a minor sever his connection with the firm. If the guardian is entitled to sever the minor's connection with the firm, he must also be held to be entitled to refuse to accept the benefits of partnership or agree to accept the benefits of partnership for a further period on terms which are in accordance with law. Sub-section (5) proceeds on the basis that the minor may or may not know that he has been admitted to the benefits of a partnership. This sub-section enables him to elect, on attaining majority, either to remain a partner or not to become a partner in the firm. Thus it contemplates that a guardian may have accepted the benefits of a partnership on behalf a minor without his knowledge. If a guardian can accept benefits of partnership on behalf of a minor, he must have the power to scrutinise the terms on which such benefits are received by the minor. He must also have the power to accept the conditions on which the benefits of partnership are being conferred. It appears to us that the guardian can do all that is necessary to effectuate the conferment and receipt of the benefits of partnership.'
14. When a deed of partnership comes up for consideration with an application for registration of the firm, the income-tax authorities must broadly examine whether the deed generally conforms to the requirements prescribed under s. 184(2). In doing so, the deed like any other document must receive a reasonable and fair construction. There shall be an attempt to effectuate the intention of the parties to the deed and not to highlight the bad drafting, if any. As far as possible, the various recitals should be reconciled with a view to extend the statutory benefits to parties, if they are legitimately entitled to by the tenor of the deed.
15. There is also one other salutary principle to be borne in mind in construing a deed of partnership. The Supreme Court observed in Shah Mohandas Sadhuram's case : 57ITR415(SC) , that if the recital of the deed expressly states that it is the major members who had decided to constitute the partnership and admitting the minors to the benefits of the said partnership, then the rest of the clauses must be construed in light of that recital. (underlining is ours).
16. With these preliminary observations, let us have a close look at the deed in question.
17. The deed of partnership was between two major partners : (i) Sri S. N. Gundu Rao, and (ii) Sri S. G. Madhukar. They were the only two parties to the deed. They constituted the firm to do business under the name and style of 'Conpro Corporation'. Preamble to the deed states that the said two persons agreed to admit Master Santosh Kadam to the benefits of partnership. The minor represented by the guardian was not eo nomine party to the deed. The business, as the preamble states, was required to be conducted only by the parties to the deed. The entire capital of the firm was contributed only by the parties to the deed.
18. By clause (9), Sri S. N. Gundu Rao was constituted as the managing partner charged with the duty to do the day-to-day business of the firm.
19. Clause (12) provides for dissolution of the partnership and distribution of the assets and liabilities. It states that the outgoings of the firm shall be paid first and out of the balance, the capital contributed by the partners shall be refunded. It also states that the remaining properties of the firm shall be distributed among the parties including the minor in the same proportion in which they are entitled to share the profits. This clause takes care to mention that the minor is not liable for loss, if any, on the accounts being taken upon dissolution of the partnerships.
20. Clause (13) provides that the minor member admitted to the benefits of the partnership shall have no rights over the goodwill of the firm.
21. Sri Raghavendra Rao, learned counsel for the Department, urged that the effect of all the above clauses has been destroyed by clause (8). He urged that there is no means to ascertain as to how the 40 per cent. allocated to the minor should be apportioned between the two major partners in the event of the firm incurring loss. Since the deed is silent in regard to that, the firm cannot be registered. In support of the contention, he relied upon the decision of the Supreme Court in Mandyala Govindu & Co.'s case : 102ITR1(SC) .
22. We do not think that there is any such difficulty in the distribution of any loss in the instant case. Firstly, clause (8) does not refer to losses only. It refers to profits and losses. Secondly, it should be construed in harmony with the other recitals in the deed. The parties to the deed were only the two major partners. They had agreed to confer some benefits on the minor who is a third party to the deed. They had expressly stated in the preamble that the minor was admitted only to the benefits of partnership. It is, therefore, unreasonable to construe that the major partners who were parties to the deed had intended to impose on the minor, the liability to share the loss. Such a construction, in the first place, would be inconsistent with the preamble and clauses (3), (5), (9), (12) and (13), to which we have earlier referred. Secondly, it cannot be said that it is not possible to apportion the losses as between the two major partners.
23. A clause somewhat similar to clause (8) was considered by a Full Bench of the Andhra Pradesh High Court in CIT v. Hyderabad Stone Depot : 109ITR686(AP) . In that case, the firm was reconstituted after including a minor as partner with 7 paise share out of 100 paise and the partners have to share profits and losses according to the ratio prescribed in para. 16 of that deed. The High Court while construing the instrument held that the minor was admitted only to the benefits of the partnership, but to determine the shares of the major partners in the losses, the parties would be free to take any digit or figure as a unit. The court observed at page 692 :
'There is no rule which compels the partners to always take 100 paise or 16 annas as a unit and then determine the shares of the partners in the losses. The parties are free to take any digit or figure as a unit and specify the shares of the major partners in the losses in that unit. As long as the partnership deed specifies the shares of the partners in profit and loss, whatever may be the method by which that is specified, it cannot be argued that the deed does not specify the shares of the partners in profit and loss as required by section 26A of the Act. As long as the shares can be worked out according to the specification made in the deed, the registration cannot be refused on the ground that the deed omits to specify the share in profit or loss.'
24. The view taken in the above decision has been accepted by a larger Bench of five judges of the same High Court in CIT v. Krishna Mining Co. : 122ITR362(AP) [FB], and at page 373, it was observed :
'... that the specification of the shares need not be expressly set out in fractional or other shares, that there is no rule which compels the partnership firm always to take 100 paise or 16 annas as a unit, that it is open to the partners to take any digit as a basis and specify the shares in profits and losses...'
25. Section 184(2) which states that the individual shares of the partners should be 'specified' in the instrument has not prescribed any particular method of specification. If the shares of the individuals are generally mentioned in the instrument, then it would meet the statutory requirement. In Kylasa Sarabhaiah v. CIT : 56ITR219(SC) , the Supreme Court while explaining the meaning of the word 'specify' under s. 26A of the 1922 Act has observed at page 223 :
'The word 'specify' is used in section 26A and rule 2 as meaning mentioning, describing defining in detail : It does not mean expressly setting out in fractional or other shares.'
26. Bearing in mind these principles, if the instrument in this case is perused, one will not fail to see that the partners have specified the ratio in which the profits and losses have to shared. The profits are required to be allocated in the ratio in which it has been set out in clause (8). Since the minor was admitted to the benefits of the partnership, he should be saddled with any loss of the partnership. The loss must fall to be shared only as between the two major partners.
27. In other words, the intention of the parties to the deed was to take 100 as unit for dividing the profits and 60 as unit for sharing the losses. The minor partner thus stands excluded from the liability to share the losses. It cannot, therefore, be said that there is no means to ascertain as to how the amount of losses is to be allocated among the major partners. The firm, in our opinion, was entitled to registration.
28. What remains to be considered is whether the Tribunal was justified in stating that the decision of the Andhra Pradesh High Court in Hyderabad Stone Depot's case : 109ITR686(AP) [FB] is no longer good law in view of the decision of the Supreme Court in Mandyala Govindu & Co.'s case : 102ITR1(SC) . It seems to us that the Tribunal was not justified in taking that view. The decision in Hyderabad Stone Depot's case : 109ITR686(AP) was rendered by the Andhra Pradesh High Court on July 14, 1972. The Supreme Court gave the decision in Mandyala Govindu & Co.'s case : 102ITR1(SC) on October 6, 1975. There was no occasion for the Supreme Court to consider the validity of the ratio of that decision of the Andhra Pradesh High Court. But the effect of the decision of the Supreme Court in Mandyala Govindu & Co.'s case : 102ITR1(SC) , on the correctness of the decision in Hyderabad Stone Depot's case : 109ITR686(AP) came up for consideration before a larger Bench of the Andhra Pradesh High Court in Krishna mining Company's case : 122ITR362(AP) . There, the Andhra Pradesh High Court after considering both the decisions has reiterated the view taken in Hyderabad Stone Depot's case : 109ITR686(AP) , by observing thus at page 378 :
'We must, therefore, hold that the case of Mandyala Govindu & Co. v. CIT : 102ITR1(SC) , is distinguishable on facts. The decision of the Full Bench of this court in CIT v. Hyderabad Stone Depot  109 ITR 6876 must be upheld as, on a reasonable construction of the instrument of partnership as a whole, it was found that there was specification of the shares of the partners in respect of loss, if any, of the partnership in the same proportion as they distribute the partners' share of profits. We are unable to agree with Sri. P. Rama Rao, learned standing counsel for the Revenue, that the Full Bench decision must be deemed to have been overruled or is no longer good law in view of the decision of the Supreme Court in Mandyala Govindu & Co. v. CIT : 102ITR1(SC) .'
29. In the result, we answer the question in the negative and in favour of the assessee.