Gopalrao Ekbote, C.J.
1. This case has come to us on reference made by a Bench of this court on 28th July, 1971. The Bench noticed the conflict between Addepally Nageswara Rao and Brothers v. Commissioner of Income-tax : 79ITR306(AP) and R.C. No. 50 of 1966 dated February 19, 1970 [Commissioner of Income-tax v. Mandyala Govindu & Co. : 82ITR926(AP) ] and R.C. Nos. 65 and 82 of 1968 dated February 10, 1971 [Khummaji Milapchand & Co. v. Commissioner of Income-tax : 91ITR333(AP) ]. In order to resolve this conflict the matter has been referred.
2. Before November 1, 1957, the Hyderabad Stone Depot consisted of 16 partners. From November 1, 1957, however, under a deed of partnership executed on November 5, 1957, a new partnership consisting of 18 partners was constituted. One of the partners, viz., Subash Keswarkar, being a minor, was admitted to the benefits of partnership.
3. For the assessment year 1959-60, the firm filed an application under Section 26A of the Income-tax Act before the Income-tax Officer. Without making any order on the said application, the Income-tax Officer made anassessment order treating the firm as an unregistered one. The assessment order was made on October 29, 1959. Subsequently, on an application made by the assessee under Section 27 of the Act, the Income-tax Officer re-opened the assessment and made a fresh assessment on March 31, 1960, treating the firm as a registered one. The firm was thus assessed to a tax of Rs. 5,946.46. The Income-tax Officer then allocated the profits among the 15 partners. The Income-tax Officer disallowed the alleged loss of Rs. 26,369 and made certain adjustments.
4. The assessee carried the matter in appeal. The Appellate Assistant Commissioner set aside the assessment order and remitted the case to the Income-tax Officer directing him to dispose of the application filed under Section 26A of the Act before making any allocations under Section 23B of the Act. The Appellate Assistant Commissioner also felt that the relevant factors necessary to make the assessment were not examined by the Income-tax Officer.
5. When the matter thus came before the Income-tax Officer, for the first time he passed an order under Section 26A of the Act refusing to register the firm.
6. On an appeal by the firm, the Appellate Assistant Commissioner disallowing the appeal upheld the order of the Income-tax Officer refusing the registration of the firm.
7. The firm carried the appeal further to the Income-tax Appellate Tribunal. The Tribunal held that the minor was only admitted to the benefits of the partnership and the registration of the firm cannot be refused on that ground. On the question whether the partnership could be registered as the deed did not stipulate the sharing of the loss between the major partners specifically, the Tribunal thought that since there was no loss during the assessment year the said question was of an academic interest and, therefore, did not decide it. The Tribunal, however, while making the reference stated that since it is also a question of law it merits consideration of the High Court. The Tribunal also posed the question as to whether the Income-tax Officer could pass a fresh order refusing to register the firm when he had treated the firm as registered and had assessed it to tax as such. Rejecting some minor contentions the Tribunal allowed the application of the firm for registration.
8. Three questions have been referred by the Tribunal for the consideration of the High Court.
9. In so far as we are concerned, one of the questions is as follows :
'Whether on a proper Construction of the partnership deed the sharesof the (adult) partners in the losses (if any) which the firm may incur arespecified in the instrument and whether, even if the deed of partnershipdid not specifically cover the contingency of loss, registration was rightlyallowed for the assessment year 1959-60, in view of the fact that there was no loss during the accounting year or at any time during the existence of the partnership ?'
10. The Bench disposed of the second question by saying that it does not arise. The third question has not been considered and answered by the Bench. Noticing the conflict between the cases mentioned at the outset of this judgment, it is a common ground that the matter relating to the first question alone has been referred to the Full Bench. We, therefore, proceed to consider only the first question. In order to appreciate the implications of the first question it becomes necessary to read a few paragraphs of the partnership deed.
'Para. 5 :
That the initial capital of the firm hereby constituted shall be Rs. 1,00,000 (rupees one lakh only) and the partners hereto have contributed the following amounts towards capital.
No.Nameof the partnerAmount
Para.16:Theprofit or loss will be determined on 31st October and will be divided betweenthe partners as follows:
Name of the partnerShare of profit or loss
1.HajiMohd. Vazeer2.3nP. in the rupee2.KhajaAbdul Khader2.3do3.AbdulGani2.3do4.GopalaraoHanchate5.6do.5.ShankarHanchate5.6do.6.M.Balwant Rao4.168do.7.RatnaBai8.335do.8.AbdulRahman4.165do.9.AbdulKarim4.165do.10.AbdulGafoor6.9do.11.Chandrasekhar8.0do.12.Gouramma8.0do.13.GulaniAli8.0do14.MauikRao 8.0do15.HiralalHanchate6.0do.16.Babulal3.0do17.PanditVed Prakash3.0do18.YesodaBai4.167do.19.SubhashKeswarkar7.0
nP.in the rupee.'
11. What was argued before the Bench was that taking 100 paise as unit the profit was agreed to be shared between all the 18 partners including the minor partner. Since the minor is admitted to the benefits of the partnership the total share of the other partners would come to 93 paise in a rupee. It was, therefore, contended that as there is no provision for distribution of losses of 7 paise in the rupee, the deed of partnership cannot be said to have any provision for the sharing of any losses between the 18 major partners. The partnership, therefore, does not conform to Section 26A of the Act, and, as a result, the registration of the firm has necessarily to be refused.
12. Now, at the outset, in order to avoid confusion one must bear in mind the distinction between a case where no provision for sharing of the losses is at all made in the partnership deed and a case where a provision to share the losses amongst the major partners is made, but is defective in the expression of clear and express intent in that behalf. In so far as the cases where no provision whatsoever is made to share the losses by the major partners, it was common ground that the requirements of Section 26A would not be deemed to have been satisfied and the registration of the firm in such cases can validly be refused. We are concerned with the type of cases where provision is made for sharing the losses but on account of the language employed in making such provision the intention of the executants of the document is not made expressly clear. The question in such cases is whether it would be deemed that no provision has been made in regard to sharing losses or the court can make an attempt to find out the true intent of the parties and give effect to it. It will immediately be seen that in truth and substance the question in such cases relates to the interpretation and construction of the document. It follows that applying the necessary rules of construction, if the court comes to the conclusion that though some provision is made for sharing losses the provision is so vague and uncertain that no clear-cut intention can be gathered and no effect can be given to it, it is obvious that the registration of the firm under Section 26A can be refused on the ground that no provision for sharing the losses is clearly made in the partnership deed. If, on the other hand, after appreciation of a document as a whole and applying the well-recognised principles of construction a conclusion is reached that the deed provides for the sharing of losses and the intent of the partners can be gathered in that behalf, it is plain that it cannot be said in such cases that the partnership deed does not contain any provision for sharing losses. The firm consequently cannot be refused to be registered. The question thus is of construction of a document and each case naturally has to be decided upon the terms of the deed and the facts and circumstances of that case. No hard and fast rule in that behalf can be laid down except perhaps broadly 'stating that thedocument should be read as a whole and attempt should be made to gather the real intention of the parties to the document by applying the rules of construction appropriately.
13. Now, it cannot be in doubt that although Section 26A does not specifically mention that the individual shares both in profit and loss of the partners should be referred to in the partnership deed and in the application under that section, the section and the rules made in that behalf make it abundantly clear that the individual shares of the partners both in profit and loss are required to be specified.
14. Since the right to registration under Section 26A is conditional upon the specification of such individual shares of the partners, a deed of partnership between individuals should specify such shares. Although mere collective shares of the firm or the partners without anything more may not be considered as complying with the requirements of Section 26A, the substance of the partnership deed, however, cannot be permitted to be overshadowed merely by the use of the collective description of some of the persons who agreed to be partners.
15. It is also plain that registration under Section 26A confers a benefit on the partners. Therefore, the right of registration can be claimed only in accordance with the statute. A person seeking relief under Section 26A must bring himself strictly within the terms of that section. It is useful to remember that the word 'specifying' used in Section 26A and Rule 2 of the Rules can only mean 'mentioning', 'describing' or 'defining' in detail. It cannot, however, mean expressly setting out in fractional or other shares. Thus, if the shares in the losses are defined in the deed, though they were not worked out in precise fraction or are not worked out on the basis of 16 annas in a rupee or 100 paise as a unit, that would satisfy the requirement of Section 26A and the rules relating thereto. See Kylasa Sarabhaiah v. Commissioner of Income-tax : 56ITR219(SC) .
16. 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.
17. Our conclusion is supported by a decision of this court in Addepally Nageswara Rao v. Commissioner of Income-tax : 79ITR306(AP) . In that case, like the present one, the partnership deed provided that the minor was admitted to the benefits of the partnership. Having provided that, the deed went on to specify that the shares in profits and losses would be borne in proportion to the shares mentioned in the document. While mentioning the shares in profit and loss of the partners, the minor was shown to have one anna share in a rupee. Construing the deed the learned judges held that the partnership deed cannot be said to have not specified the sharing in the losses by major partners. It was observed (page 325):
'While the three major partners would in proportion to their shares bear the loss as if the unit of loss was 15 annas, the same thing can be arithmetically worked out treating 16 annas as a unit. In other words, they would, in proportion to their respective shares, bear the entire loss taking 16 annas as a unit, that is to say, the loss will be borne by them in the proportion of 1 : 2 : 2. That being implicit in Clause 3(a) of the document, it would not be correct to say that such a contingency is not met by the document.'
18. In S. R. Ginning & Oil Mills v. Commissioner of Income-tax  2 APLJ 194 , a similar situation was present. There were two minors along with other major partners. The deed provided that all the partners, including the minors, shall share the profit in proportion to their respective shares. In regard to the losses, the deed said that those partners who were the guardians of the minor partners 9 and 16 shall bear the loss and partners 9 and 16 would have no connection with losses. A similar provision was made in regard to the profits and losses. The shares of the minors also were shown together with the capital which they had invested. N. Kumarayya C.J. and Kondaiah J. held that the requirements of Section 26A were satisfied and directed the registration of the firm.
19. In Parekh Wadilal Jivanbhai v. Commissioner of Income-tax : 63ITR485(SC) , the partnership deed provided in Clause 10 that 'after meeting all expenses, interest and other charges, the resulting net profit or loss shall be ascertained and shall be divided among all partners.'
20. Clause 3, earlier, had provided that the shares allotted to different partners will be equal, i.e., each partner will get five shares. Reading the partnership deed as a whole it was held by the Supreme Court that there was specification of individual shares of partners of profits within the meaning of Section 26A of the Act and the assessee-firm was entitled to registration.
21. Likewise, in Commissioner of Income-tax v. Shah Mohandas Sadhuram : 57ITR415(SC) , in Clause 8, the partnership deed mentioned that the profits of the firm will be distributed pro rata according to the proportionof capital investment, as detailed, of each member ; the losses were agreed to be shared by the members in the like manner. There was a minor who was admitted to the benefits of the partnership. The Supreme Court held that the income-tax authorities should not have declined to register the firm.
22. Our attention was drawn, however, to the two following decisions which seem to take a contrary view.
23. In C. T. Palu & Sons v. Commissioner of Income-tax : 72ITR641(Ker) , a Bench of the Kerala High Court was concerned with a partnership deed which provided for the sharing of the profits in the ratio of 50: 25 : 25. It did not state in what proportion the loss was to be shared by the partners. Since no provision was made for the sharing of loss the Kerala High Court thought it sufficient to disentitle the firm for registration. In spite of this, the following observation appears in the judgment (page 644):
'The liability of the major partners is, therefore, only to bear the loss in the proportion in which they are entitled to share the profit. This means that they are liable to bear 50% and 25% each of the loss ; and the deed of partnership is blank regarding the sharing of the balance of 25% of the loss.'
24. If the provision was really there in the partnership deed, we fail to see, how it can be construed that there was no provision made for sharing the losses. In such a case since the minor is exempted from the losses, 75 could have been taken as a unit and it could be held that the two major partners had agreed to share losses in that unit in the ratio of 50 : 25. It cannot, in any case, be held that the deed would be deemed to have made no provision for sharing the losses by the major partners. If this is not the view which the Kerala High Court has taken, then, with due respect, we find ourselves unable to share the view.
25. A Bench of this court in R.C. No. 65 of 1968 decided on 10th February, 4971 [Khummaji Milapchand v. Commissioner of Income-tax : 91ITR333(AP) was confronted with a partnership deed in which there were some minors while others were majors. Clause 7 of the deed defined that the major partners would have shares of 23 nP., 17 nP. and 14 nP. The minors were admitted to the benefits of the partnership and were given a share of 23 nP. only in profits. It was specifically mentioned that the major partners will share the losses in the proportion set out in the instrument.
26. The learned judges thought that since provision is made for sharing the loss in 77 nP., only 23 nP. of loss was considered to have been left undistributed and no shares of partners have been mentioned in that loss. The only possible interpretation, the learned judges thought, was that the shares of the major partners in the loss have not been specified in the instrument ofpartnership. The learned judges, therefore, held that the Tribunal was in error in coming to a contradictory conclusion.
27. With great respect to the learned judges who decided the case, we are bound to say that we are not persuaded to take that view. The attention of the learned judges was obviously not invited to an important aspect, that is to say, that 77 paise can be taken as a unit for sharing the losses by the major partners in proportion to their shares specified for that unit. It is always possible to arithmetically work out the sharing of losses which occurred in a given year. It would amount to ignoring the clear intention of the parties in making the provision for sharing the losses. It would not be correct to contend that no provision was made for sharing the losses in 23 paise, the balance of the unit of hundred. It is plain that, even for that, the proportion of losses can be worked out taking 77 paise as the unit.
28. We do not desire to burden the judgment with the decisions of the Mysore and other High Courts taking the view which we have taken. It is not necessary for us to express any opinion on the question whether in view of Section 13(b) of the Partnership Act, even in a case, where the partnership deed is silent as regards sharing of the loss, it shall be deemed that the partners will bear the losses in proportion to the shares of their profits. That question does not arise in this case.
29.Mandyala Govindu & Co. : 82ITR926(AP) is a case where provision was made for sharing the profits and no provision was made for sharing of losses whatsoever. That case, therefore, cannot be said to be an authority for the proposition with which we are concerned in this case. It is no doubt true that the learned judges considered in spite of holding that the deed does not provide for sharing the losses, the two possible interpretations of the partnership. The first was that the major partners should bear the entire losses in proportion to their shares in profit. If the losses were to be worked out on that basis, the learned judges thought that provision would have been deemed for sharing the losses in 77 paise and there will be no provision for showing as to how 23 paise of the losses should be borne. The learned judges rejected both the interpretations on the ground that since for profit 100 is treated as one unit and 'if now the unit for the purpose of bearing the losses is taken as 77 paise instead of 100 paise the burden of each of the partners with respect to the losses incurredby the firm would be increased.'
30. If the interpretation of the deed disclosed to the learned judges that there was in fact no provision for sharing the loss made, then the conclusion of that case is unassailable. But, on the other hand, if the construction of the deed leads one to hold that the losses also are directed to be shared by the major partners in proportion to their shares in the profit, then we find it very difficult to agree with the reasoning of the learned judges. 77 paisecan, without any hitch, be taken as a unit and the losses worked out appropriately. We fail to see how, if the losses are worked out on that basis, the shares of the major partners in losses would have increased. If they had agreed to share the entire losses in proportion to the shares of their profits taking 77 as the unit, the liabilities in proportion to their shares would be fixed and no question of any increase in their burden can arise.
31. If we then consider the relevant clauses of the partnership deed in the present case, we are clear that the partners have made specific provision for sharing the losses in proportion to their shares in the profit. The intention of the partners, on a reasonable construction of the deed, appears to us to be clear, firstly, that the minor was admitted only to the benefits and not losses of the partnership. Thus, reserving his share of 7 paise only in the profits, and, secondly, Clause 16 of the deed can be taken to have provided for sharing the losses amongst the major partners taking 93 paise as the unit for apportionment of the losses. In that view of the matter, the registration of the firm cannot be rejected. The deed, in our opinion, satisfies the requirements of Section 26A of the Act and the rules made relating thereto.
32. For the reasons which we have already given, we answer the first part of the first question in the affirmative.
33. We hold that on a reasonable and proper construction of the partnership deed the shares of the major partners in the losses which the firm may incur are specified in the instrument. The registration on that account, therefore, cannot be refused.
34. In view of our answer to the first part of the question, the second part of the question need not be answered as it does not arise in the present case. We, however, hold that the registration was rightly allowed for the assessment year 1959-60, as in our view the shares of the adult partners in the losses are specified in the partnership deed.
35. We need not, therefore, consider the hypothetical question as to what would happen if no loss during the accounting year or at any time during the existence of the partnership occurs.
36. The question is answered accordingly. The case will go before the Bench for the disposal of the other matters.
37. [The following judgment of the Division Bench was delivered by SRIRAMULU J. on 1-8-1972 after the reference was answered by the Full Bench.]
38. At the instance of the Commissioner of Income-tax, Andhra Pradesh, three questions have been referred to this court by the Income-tax Appellate Tribunal under Section 66(1) of the Income-taxAct, 1922. On account of the conflict between the decisions of this court in Addepally Nageswara Rao & Brothers v. Commissioner of Income-tax : 79ITR306(AP) and R.C. No. 50 of 1966 (Commissioner of Income-tax v. Mandyala Govindu & Co. : 82ITR926(AP) ) dated February 19, 1970, and R.C. Nos. 65 and 82 of 1968 (Khummaji Milapchand & Co. v. Commissioner of Income-tax : 91ITR333(AP) ) dated February 10, 1971, a Division Bench of this court consisting of late Mr. Justice Vaidya and one of us (Sriramulu J.) referred the case to a larger Bench. A Full Bench of this court consisting of Hon'ble the Chief Justice, A. V. Krishna Rao J. and Madhava Rao J., by their judgment dated 14th July, 1972, answered the first part of the question in the affirmative, that is to say, that on a reasonable and proper construction of the partnership deed, the shares of the major partners in the losses which the firm may incur are specified in the instrument and the registration on that account to the firm cannot be refused. In view of the above answer, the Full Bench considered that the second part of the first question need not be answered, as it did not arise in this case.
39. In the order of reference to the Full Bench dated 28th July, 1971, the Division Bench has answered the second question as stated at page 4 of that order.
40. The third question in the reference now remains to be considered and that question has been framed in the following terms :
'Whether the Tribunal was justified in very peculiar circumstances of the case to condone the defects of the application for registration?'
41. A best judgment assessment under Section 23(4) of the Indian Income-tax Act, 1922 (hereinafter called 'the Act'), was first made in the status of an unregistered firm. It was set aside under Section 27 of the Act. Then, without passing a separate order under Section 26A of the Act allowing registration to the assessee-firm, the Income-tax Officer made the assessment on the firm and allocated the profits amongst the partners as is done in the case of a firm which was granted registration. On appeal, the assessment order was set aside by the Appellate Assistant Commissioner. The Appellate Assistant Commissioner directed the Income-tax Officer to pass a separate order on the registration application. The Income-tax Officer then by a separate order passed on the application for registration, refused registration on the ground that the shares of the major partners in losses were not specified in the instrument of partnership. On appeal, the Appellate Assistant Commissioner upheld the order of refusal of registration.
42. In second appeal before the Income-tax Appellate Tribunal the Income-tax Officer sought to sustain the order of refusal of registration on the ground that the application for registration was defective inasmuch as it did not show in column 6 the shares in profits of each of the partners.
43. The Accountant Member in his separate order observed that at that belated stage the revenue cannot claim that registration should be refused on the ground that the application was defective and that the assessee should not be made to suffer because of the default or a defective procedure on the part of the Income-tax Officer.
44. The Judicial Member in his separate order observed that to raise that ground at that stage would be to deny an opportunity to the assessee which he might have had earlier to rectify this technical error and, therefore, the application for registration should be treated as in order and, in view of the unsustainability of the refusal of registration on that ground, on which the income-tax authorities refused registration, the Tribunal directed the grant of registration to the assessee-firm.
45. Sri Rama Rao, the standing counsel for the department, contended that the question as raised by the Commissioner of Income-tax in his application under Section 66(1) of the Act should have been referred to this court by the Tribunal instead of the present question.
46. It was open to the Income-tax Officer to seek to sustain the order of refusal of registration on a ground on which he did not actually refuse registration. The Tribunal has got a discretion either to permit the Income-tax Officer to raise such a new ground or not. But that discretion must be exercised in accordance with sound judicial principles. The power of the Tribunal to admit or refuse to admit a new ground at that belated stage is not in dispute. Hence, the question framed by the Tribunal is not, in our opinion, properly framed. The question stated by the Commissioner of Income-tax in his application is also, in our view, too wide and covers aspects which have also been considered by the Full Bench. Hence, the present question cannot be altered to the one raised by the Commissioner of Income-tax. We would, therefore, reframe the question in the following terms :
'Whether, on the facts and in the circumstances of the case, the order of refusal of registration to the assessee-firm can be sustained on the ground that the assessee had omitted to show in column 6 of the Schedule to the application for registration, the shares of the partners ?'
47. The intent of the law is not that the revenue should gain a larger amount of tax by refusing registration to a firm on the ground of technical, immaterial or insignificant defects in the application. The assessee-firm was in existence and it was evidenced by an instrument in writing and the shares of the partners are specified in the instrument of partnership. The instrument of partnership was also appended to the application. It is not the case of the department that the profits of the firm have not been divided among the partners in accordance with the shares of the partners as specified in the deed of partnership. In these circumstances, the mere omissionto state the shares of the partners in column 6 of the Schedule to the application cannot be said to be a material defect which should be seriously countenanced. It is a curable defect as pointed out by the Accountant Member of the Tribunal. The Income-tax Officer cannot take advantage of the absence of a provision of law under the Income-tax Act of 1922 and refuse registration to a firm for some defects he has detected in the application for registration. It is, in our opinion, the duty of the Income-tax Officer to act in a fair and just manner and to bring to the notice of the assessee the defects in the application for registration and to give him an opportunity to remove those defects. Only if the assessee fails to remove the defects, then the Income-tax Officer could refuse registration to a firm.
48. If such an immaterial or minor defect in the application had been pointed out at the proper time, the assessee would have, certainly, removed the defect. To sustain the order of refusal of registration on such a ground raised for the first time, at the belated stage of second appeal, would be against all canons of justice. The Tribunal had exercised its discretion properly and in accordance with sound judicial principles when it refused to permit the Income-tax Officer to raise such an objection and in not sustaining the order of refusal of registration on that ground of defect in the application for registration.
49. That apart, the particulars which are required to be shown in the Schedule to the application for registration are found in the instrument of partnership which is appended to the application. A reading of the application, along with the instrument of partnership, would make it abundantly clear that the shares of the partners have been specified. It is, in our opinion, a sufficient compliance with the requirements of law.
50. We are, therefore, satisfied in this case that the Tribunal was justified in not sustaining the order of refusal of registration on the ground of defect in the application.
51. We, therefore, answer the re-framed question in the negative. The department shall pay the costs of the assessee. Advocate's fee Rs. 250.