These two appeals were originally disposed of by this Tribunal by the orders in ITA No. 489/Coch/1989 dated 24-6-1993, and ITA No.32/Coch/1990, dated 20-7-1994. In compliance with the directions of the High Court under section 256(2) of the Income Tax Act, the Tribunal referred the following question at the instance of the revenue for the assessment years 1982-83 and 1986-87, for its esteemed opinion : "Whether, on the facts and in the circumstances of the case, the revenue could treat the firm as registered under section 183(b) of the Income Tax Act, 1961 ?" The assessee-firm engaged in the business of commission agent and export of tea was originally constituted as a partnership firm by three parties under a partnership deed dated 27-11-1963. By a deed dated 16-9-1981, the partnership was reconstituted with the admission of a new partner and also with the admission of a minor to the benefits of the partnership. In the assessment the assessing officer took the view that though the assessee had not complied with the conditions prescribed for registration of the partnership firm under the Income Tax Act, yet it was advantageous for the revenue to confer registration on the firm under the provisions of section 183(b) of the Income Tax Act. He went through the provisions of the partnership deed dated 16-9-1981, and held that as per clause 7 no definite share was given to any partner, that the partnership deed was vague as to the sharing of profit between the partners and the minor and that there was no agreement as to the proportion in which the profits were to be shared among the partners and so there was no contract as to the proportion in which the profits were to be shared. He invoked the provisions of section 13(b) of the Partnership Act and held that the profits were to be distributed among the partners including the minor equally as there was no contract to share the profit otherwise. By doing so, he had that it would be advantageous for the revenue to grant registration to the firm though the assessee had not complied with conditions for granting registration. In that view of the matter, he apportioned the total as determined for the assessment year 1982-83 between two periods i.e., the period from 8-11-1980 to 15-9-1981 and the period from 16-9-1981, to 27-10-1981. This apportionment was made as in his view it was necessary in view of the change in the constitution of the firm with effect from 16-9-1981. After apportioning the total income as between the above two periods, he adopted the profit sharing ratio as laid down in the partnership deed dated 27-11-1963, insofar as the first period was concerned. As for the second period he apportioned the income equally among the four partners as also the minor admitted to the benefits of partnership. For the assessment year 1986-87 as there was no change in the constitution of the firm, the entire total income was apportioned among the partners as also the minor admitted to the benefits of the partnership in equal proportion.
On appeal, the Commissioner (Appeals) held that the assessing officer was justified in invoking section13(b) of the Partnership Act in making the assessment in the status of a registered firm under section 183(b) of the Income Tax Act. On further appeal, the Tribunal by the order dated 24-6-1993, adverted to the provisions of the partnership deed dated 16-9-1981, in general and clause 7 in particular and came to the conclusion that on perusal of clause 7 of the partnership deed as a whole, it could be seen that what was intended was not to have a profit or loss sharing arrangement in equal proportion nor to have as a permanent profit or loss sharing ratio. The Tribunal noted that the deed was silent about the profits to be dealt with. In the opinion of the Tribunal clause 7 deals with the distribution of profits but such distribution is to be made subject to the agreement among the partners from time-to-time when the question of distribution arises.
When the basis of distribution has thus been described the Tribunal took the view that it could not be said that there was no contract among the partners with regard to the manner in which they would share the profits or losses. Therefore, the Tribunal concluded that the provisions of section 13(b) were not attracted to the facts of the case. The Tribunal further held that no material was brought on record to show as to how it would be advantageous for the revenue to treat the assessee as a registered firm invoking section 183(b). The Tribunal thus found it necessary to set aside the orders of the Commissioner (Appeals) and restored the issue to the file of the assessing officer with a direction to examine the issue afresh.
When the matter came in reference before the High Court, in the judgment in Income Tax Ref Nos. 5 & 6 of 1996, dated 4-8-1998 reported as CIT v. Saraf Trading Corporation (1999) 239 ITR 41 (Ker), it was held as under : "In view of the above observations, it is not possible to record categorical findings on both the questions. So far as section 183(b) of the Act is concerned, the Tribunal has already remanded the matter to the assessing officer with necessary directions and rightly so. In view of the above discussion, we direct the Tribunal to remand the question pertaining to the application of section 13(b) of the Partnership Act as well to the assessing officer to record a clear finding in the light of the observations made by us in the body of the judgment." These appeals have thus come back to the Tribunal with the clear direction of the High Court to remand the question pertaining to the application of section 13(b) of the Partnership Act to the assessing officer to record a clear finding in the light of the following observations contained in the body of the judgment : "Para 14 : We are, therefore, of the view that the question pertaining to section 13(b) should have been remanded by the Tribunal to the assessing officer asking him to elaborate whether any agreement sequel to the partnership deed dated 16-9-1981, which does not specify share ratio in profits/losses, was made among partners specifying profit-sharing ratio and the ratio in which partners agreed to contribute the losses. Obsessed by the fact that the deed dated 16-9-1981 furnished the basis as to how the profits/losses will be shared by the partners, the Tribunal straight away concluded that on the facts of the case, section 13(b) would not apply it is not the basis alone, but the factum of the agreement specifying share ratio in profits/losses is necessary to exclude the right to share profits/losses equally. If upon scrutiny it is found that no contract specifying the share ratio in profits/losses was made after 19-6-1981 to distribute profits/ losses for the assessment year 1982-83, then section 13(b) will apply. Neither the assessing officer nor did the Tribunal probe into the vital aspect whether the partners, in fact, made any agreement after 16-9-1981, to specify share ratio in profits/losses," At the time of hearing Shri P. J. Pardiwala appearing on behalf of the assessee made a submission before us that while considering the application of section 13(b) of the Partnership Act to the facts of the present case, it would be necessary to bear in mind the fact that during the previous years under consideration there was a minor admitted to the benefits of the partnership and that under the Partnership Act, the minor was not to be burdened with the liability to share the loss of the business. It was his contention that while recording a finding regarding the application of section 13(b) of the Partnership Act, the assessing officer would have to give a finding as to whether in spite of the presence of the minor in the partnership, section 13(b) would have the application. The learned Departmental Representative, Shri C.D. Nair, in this context pointed out that at the time of the original appeal before the Tribunal the assessee had already raised the ground as to whether the assessing officer was right in allocating the total profits on an equal basis between the partners and the minor beneficiary and that having found that section 13(b) had no application, the Tribunal had no occasion to consider the plea against distribution of profits on equal basis between the partners and the minor beneficiary.
Having considered the submissions on both sides, we do not think it necessary to give any decision at this stage as to whether the provisions of section 13(b) of the Partnership Act would apply in regard to equal distribution of the profit/loss in a case where there is a minor admitted to the benefits of the partnership. Suffice it to say that as the matter regarding the application of section 13(b) of the Partnership Act is remanded the assessee would be free to raise any argument before the assessing officer in regard to the application or otherwise of the relevant provisions. We only make it clear at this stage that the assessing officer has to record a finding on the application of section 13(b) of the Partnership Act in all perspective in the light of the observations contained in the judgment of the High Court. We accordingly remand the matter to the assessing officer for recording a clear finding as to whether the provisions of section 13(b) of the Partnership Act are applicable to the facts of the case for the assessment years 1982-83 and 1986-87.
In the result, these appeals by the assessee are treated as allowed for statistical purposes.