V. BHARGAVA, C.J. - The question referred for our opinion is :
'Whether, on a true construction of the Income-tax Rules, the application for registration of the firm preferred on November 17, 1953, is defective ?'
The statement of the case submitted by the Tribunal shows that the assessee commenced business on December 1, 1952, as a partnership and an instrument of partnership was executed. The application for registration of the firm under section 26A of the Income-tax Act was presented on November 17, 1953, in respective of the assessment year 1954-55 for which the previous year was the 1st December, 1952, to 30th November, 1953.
The Income-tax Officer rejected the application for registration on the ground that the firm was not genuine.
On appeal, the Appellate Assistant Commissioner held the firm to be genuine, but rejected the application on the ground that it was presented after the expiry of the period of limitation, and on the additional ground that minors were made responsible for losses which was contrary to law. On second appeal, the Tribunal disagreed with both these grounds given by the Appellate Assistant Commissioner and held that the delay in presentation of the application had been condoned by the Income-tax Officer himself so that the application was within time. It further held that the contents of the partnership deed as a whole showed that the minors were admitted to the befits of the partnership and were not made liable to losses, so that there was no legal defect in that behalf in the partnership deed under the Indian Partnership Act. The Tribunal, however, proceeded to reject the application on two different grounds. One ground was that in the application made for registration of the firm on November 17, 1953, there was no specification of the shares in which the losses had to be shared by the partners other than the minors, who had been admitted to the benefits of the partnership. The second ground for refusing registration was that in Part B of the Schedule to the application, the particulars required to be mentioned had been omitted. This view of the Tribunal having been challenged by an application under section 66(1) of the Income-tax Act, the Tribunal has referred the question mentioned by us above for our opinion.
So far as the first ground for rejecting the application and refusing registration given by the Tribunal is concerned, it appears to us that the Tribunal has taken much too technical a view. In the Schedule to the form of application for registration of a firm, the heading of column 6 is 'Share in the balance of profits (or loss) (Annas and pies in the rupee).' In addition, there is a note at the bottom of the form which is Note 2 and reads as follows :
'If any partner is entitled to share in profits but is not liable to bear a similar proportion of any losses, this fact should be indicated by putting against his share in column 6, the letter P.'
It appears to us that the effect of these entries to be made in the form is that an assessee desiring registration must enter in column 6 the share of each partner in the balance of profits, and in cases where there is any partner who is entitled to share in profits only but is not liable to bear a similar proportion of any losses, the further entry to be made is of a letter 'P' against his name in that very column. No further entries are required to be made. Thus, if there be four partners having equal shares in profits, entries in column 6 will be against the name of each partner. If one of them is not to share any losses, Note 2 requires that the letter 'P' should be entered, in addition, against his share specified in column 6. Thereafter, there is nothing in the form or the rule which requires any further, entries to be made in respect of the losses in the column.
It has been contended before us by learned counsel for the department that, if one partner ceased to have a share in the losses in proportion to his share in the profits, the shares in the losses of the remaining partners would become different from those entered as their shares in profits, and, consequently, in column 6 the shares of the remaining partners should also be entered. If any such requirement was considered necessary, there was no difficulty in adding in Note 2 a further requirement that after entering the letter 'P' against the names of those partners who are not to share in losses, further entries should be made against the names of other partners showing their shares in losses as worked out after omitting the shares of the partners who are not to share losses. In the alternative, such purpose could easily have been achieved if column 6 had been split into two separate columns, in the first of which the shares of profits and in the other the shares of losses had to entered. It appears that the framers of the rule considered it sufficient that the shares in the profits should be entered in column 6 and non-sharing of losses should be indicated by entering the letter 'P' against the entry of that partner who was not to share in losses. This entry was considered sufficient and no further requirement was considered necessary, under which the assessee should recalculate or respecify the shares of the partners in the losses. The entries in our opinion were clearly made in accordance with the directions contained in the Rules and in the Notes to the form itself.
As urged by learned counsel for the department, it may be that the failure to enter the shares of the remaining partners in the losses may entail some inconvenience and possible difficulty in calculating their shares in losses. In fact, learned counsel went a step further and urged that it may not be possible to calculate at all the shares of the remaining partners in the losses; but we fail to see any force in this submission because shares in profits and losses are not to be calculated on the basis of the entries in this application; their proportion can be determined in accordance with the terms of the deed of partnership. No deed of partnership has been held to be invalid merely because shares in profits are specified of all the partners including those admitted merely to the benefits of the partnership, and there is no separate specification of shares of the remaining partners who are to share losses indicating their separate shares in the losses. Further, the Rules and the form do not say that there should be any such calculation made by the assessee and entered in this form of application. May be that this is an omission in the form, but it can be cured by suitably amending the form. While the form stands as it is, we cannot say that there is any defect in filing it, if the shares of losses only are not entered., where one or more of the partners sharing the profits does not share losses and the letter 'P' is entered against his name in accordance with Note 2. In the present case, it is true that the letter 'P' was not entered against the names of the two partners who were to share in profits only and not in losses, but the actual application form shows that, against their names, a bracketed line was drawn and a note was made that these partners had been admitted to the benefits of the partnership. This note clearly served the purpose of indicating exactly what the idea of the letter 'P' in column 6 would have indicated. In fact the note made by the assessees was an effort to show that these partners were sharing profits which could have been shown by the letter 'P' in accordance with Note 2. In substance, therefore, the entries actually made complied with the requirements of Note 2 and consequently we disagree with the Tribunal that there was any defect in filling up the form in this respect.
The second reason given by the Tribunal was that particulars required to be mentioned in Part B of the Schedule of the application had not been given at all. On this point it appears that the Tribunal very clearly misdirected itself. The form itself clearly mentions that particulars of Part B were to be filled in only in cases where the application is made after the end of the relevant previous year; this is given in the heading of Part B itself. In the present case, the facts given by the Tribunal itself show that the previous year in question began on 1st December, 1952, and ended on the 30th November, 1953, while the application was made on November 17, 1953. The application was made before the end of the relevant previous year and the Tribunal expressed its opinion without paying any attention at all to this aspect. The Tribunal ignored the fact that this Part B was not applicable to this particular application at all.
As a result, the question referred to us is answered in favour of the assessee and in the negative. The assessee shall be entitled to the costs of this reference. Counsels fee is fixed at Rs. 200.
Question answered in favour of the assessee.