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Kerala Publicity Bureau Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 49 of 1982, 586 of 1985, 4 and 40 of 1986 and 10 and 11 of 1987
Judge
Reported in[1993]200ITR366(Ker)
ActsKerala Agricultural Income Tax Act, 1950 - Sections 20 and 27; Income Tax Act, 1961 - Sections 184; Indian Partnership Act, 1932 - Sections 13
AppellantKerala Publicity Bureau
RespondentCommissioner of Income-tax
Appellant Advocate B.S. Krishnan and; P. Raman, Advs.
Respondent Advocate P.K.R. Menon and; N.R.K. Nair, Advs.
Cases ReferredPitchiah Chettiar v. Subramanian Chettiar
Excerpt:
direct taxation - registration - sections 20 and 27 of kerala agricultural income tax act, 1950 and section 184 of income tax act, 1961 - refusal of registration of firm on grounds of non-mention of shares of partners in loss of firm in partnership deed challenged - in case no minor admitted to benefits of partnership firm registration cannot be refused either under section 27 or under section 184 merely on alleged ground - in absence of indications to contrary it should be taken that partners agreed to bear loss in same proportion in which profits were shared - specification of individual shares of partners not requirement under section 27 for granting registration - absence of specific reference to share in loss not valid reason for refusing registration. head note: income.....k.k. usha, j. 1. income-tax reference no. 49 of 1982 and i.t.rs. nos. 10 and 11 of 1987, are coming up for consideration of the full bench in view of separate orders of reference by two benches of this court. theissue involved in the above cases relates to the question of registration of firms under the kerala agricultural income-tax act, 1950, and the income-tax act, 1961. the provisions regarding registration of firms under the above-mentioned statutes and the rules issued thereunder are substantially similar. while i.t.r. no. 49 of 1982 relates to a reference under section 60(2) of the kerala agricultural income-tax act, 1950, i.t.r. nos. 10 and 11 of 1987 relate to a reference under section 256(1) of the income-tax act, 1961.2. the detailed reference order is in i.t.r. no. 49 of 1982......
Judgment:

K.K. Usha, J.

1. Income-tax Reference No. 49 of 1982 and I.T.Rs. Nos. 10 and 11 of 1987, are coming up for consideration of the Full Bench in view of separate orders of reference by two Benches of this court. Theissue involved in the above cases relates to the question of registration of firms under the Kerala Agricultural Income-tax Act, 1950, and the Income-tax Act, 1961. The provisions regarding registration of firms under the above-mentioned statutes and the rules issued thereunder are substantially similar. While I.T.R. No. 49 of 1982 relates to a reference under Section 60(2) of the Kerala Agricultural Income-tax Act, 1950, I.T.R. Nos. 10 and 11 of 1987 relate to a reference under Section 256(1) of the Income-tax Act, 1961.

2. The detailed reference order is in I.T.R. No. 49 of 1982. The learned judges of the Bench doubted whether an earlier Bench decision of this court in CIT v. Ithappiri and George : [1973]88ITR332(Ker) and the decisions following the same, taking the view that the individual shares of partners in losses also should be specified in the partnership deed, to enable registration under Section 184 of the Income-tax Act, would apply even in cases where minors are not admitted to the benefits of partnership and there are indications to show that the partners are to share equally. It was also felt that the matter requires reconsideration in the light of later decisions of the Supreme Court in Mandyala Govindu and Co. v. CIT [1976] 102 ITR Land the Full Bench decision of the Andhra Pradesh High Court in CIT v. Krishna Mining Co. : [1980]122ITR362(AP) . We make it clear-that we are not concerned in this case as to what will happen if, in a particular case, minors are admitted to the benefits of partnership and the individual losses of the partners are not specified in the partnership deed. We leave that aspect open.

3. Relevant facts.--Income Tax Reference No. 49 of 1982 is at the instance of an assessee under the Kerala Agricultural Income-tax.Act, 1950, which is a firm constituted by an instrument of partnership dated January 6, 1959. Registration was granted to the firm under Section 27 of the Kerala Agricultural Income-tax Act read with Rule 2 of the Kerala Agricultural Income-tax Rules, 1951, and it was being assessed as a registered firm. For the assessment years 1961-62, 1962-63 and 1963-64, even though the Commissioner of Agricultural Income-tax initiated proceedings to cancel the registration for the reason that there was no stipulation of individual shares of the partners in the partnership deed, it was finally dropped on being convinced that there were materials available to show that the partners had equal shares. Up to the year 1965-66, assessments were completed assigning the status of a registered firm. Renewal of registration had been granted even for the subsequent years up to 1975-76 and assessments were completed on that basis. For the year 1965-66, proceedingswere again initiated to cancel the renewal of registration already granted and by an order dated April 20,1981, the Deputy Commissioner of Agricultural Income-tax took the view that the firm was not entitled to registration since the individual shares of the partners were not specified in the deed. The above order is the subject-matter of I.T.R. No. 586 of 1985.

4. The Commissioner of Agricultural Income-tax issued notice dated May 2, 1980, proposing to withdraw the renewal of registration granted for the years 1960-70 to 1975-66, on the allegation that the individual shares of the partners were not specified in the deed of partnership dated January 6, 1959, and, therefore, the instrument of partnership would not conform to the requirements envisaged under Section 27 of the Agricultural Income-tax Act. While objecting to the above proposal, the assessee contended that the individual shares of the partners of the firm were clearly specified in the partnership deed dated January 6, 1959, and that the above question was considered in detail by the Commissioner of Agricultural Income-tax, Thiruvananthapuram, in his order dated March 3, 1969, and it was held that the instrument of partnership specified the individual shares of the partners. The assessee placed strong reliance on the decisions of the Supreme Court in Kylasa Sarahhaiah v. CIT : [1965]56ITR219(SC) and Parekh Wadilal Jivanbhai v. CIT : [1967]63ITR485(SC) . It was contended that the clause relating to division among the partners in the partnership deed dated January 6, 1959, stipulated that the net profit shall be divided among the partners and the division was to be made in equal shares. It was also submitted that the books of account would reflect division in the above manner. Reliance was placed on the provisions contained in Section 13(b) of the Indian Partnership Act, 1932. It was contended by the assessee that, in the absence of a different profit sharing ratio stipulated in the partnership deed, the partners shall share the profit/loss equally.

5. Rejecting the objections raised by the assessee, the Commissioner of Agricultural Income-tax held in his order dated August 6, 1981, that the order passed in the revision petitions for the years 1961-62, 1962-63 and 1963-64 was not binding for the other assessment years, that there was no mention regarding the capital allotted to each partner though there is a stipulation that the net profit should be divided among the partners and that as specification of shares in the partnership deed is a condition precedent to granting registration and for allowing the application for renewal of registration, the registration and renewal granted to the assesseewere wrong. It was further held that the facts of the pases relied on by the assessee were entirely different and, therefore, those decisions were of no help to the assessee, that in order to ascertain the shares of the partners, it was not open to refer to extraneous evidence, that the provisions in Section 13 of the Partnership Act would apply only to profit and loss, and not to capital and, therefore, the defect of failure to refer to the share capital in the deed cannot be rectified. By taking recourse to the decisions of the Supreme Court in R.C. Mitter and Sons v. CIT : [1959]36ITR194(SC) and N.T. Patel and Co. v. CIT : [1961]42ITR224(SC) , it was held that non-specification of the shares of the partners in the firm disqualified it for registration under section 27 of the Agricultural Income-tax Act. The renewal of registration granted for the year 1975-76 was withdrawn and the assessing authority was directed to modify the assessment order assigning to the assessee the status of an unregistered firm. Similar view was taken by the Deputy Commissioner of Agricultural Income-tax and Sales Tax for the assessment years 1969-70 to 1974-75 under proceedings dated July 20, 1981, which is the subject-matter of I.T.R. No. 4 of 1986.

6. At the instance of the assessee, in I.T.R. No. 49 of 1982, which relates to the assessment year 1975-76, the following question is referred ;

' On the facts and in the circumstances of the case, whether the Commissioner of Agricultural Income-tax is justified in holding that the firm was not entitled to registration or renewal of registration under section 27 of the Agricultural Income-tax Act, 1950?'

7. The assessee had filed Original Petition No. 1453 of 1982-B before this court for compelling the Commissioner of Agricultural Income-tax to refer all the three questions sought to be referred by the assessee for the year 1975-76. Pursuant to the judgment of this court in the above original petition dated March 8, 1985, the Commissioner of Agricultural Income-tax referred all the three questions in I.T.R. No. 40 of 1986. Question No. 1 in I.T.R. No. 40 of 1986 is the same as the sole question referred in I.T.R. No. 49 of 1982. In I.T.R. No. 586 of 1985 relating to the assessment year 1965-66 and in I.T.R. No. 4 of 1986 relating to the assessment years 1969-70 to 1974-75, all the three questions referred in I.T.R. No. 40 of 1986 are referred. Since the reference order of the Bench covers only one question, namely, the sole question referred in I.T.R. No. 49 of 1982 which is the same as question No. 1 in the other I.T.Rs., it is only that question which is being considered in this judgment.

8. Income-tax References Nos. 10 and 11 of 1987 are at the instance of an assessee under the Income-tax Act, 1961. They relate to the assessment years 1978-79 and 1979-80. The assessee-firm consisting of two partners was formed under a partnership deed dated February 28, 1977, with effect from January 1, 1977, in the name and style ' Kerala Publicity Bureau '. While the head office of the partnership was at Ernakulam, it had a branch office at Kottayam.

9. Clause 10 of the instrument of partnership provided that the net profit of the firm, after usual business outgoings, shall be shared by the two partners. The whole of the profit of the Ernakulam office was set apart to the share of Sri Kuriakose, one of the partners and the whole of the profit of Kottayam branch to the share of the other partner, Sri Philipose. It is the above partnership deed which is relevant for the assessment year 1978 79. Later, the two partners executed a fresh partnership deed dated November 20, 1978, which was to take effect from January 1, 1978. The above partnership deed which is relevant for the assessment year 1979-80 refers to a branch office at Calicut and provision for opening branches at other places. Clause 11 of the deed provided for the manner in which profits were to be shared by the partners. While Sri Kuriakose was entitled to the whole of the profit of the Ernakulam office and Sri Philipose to the profit from the Kottayam office, it was further provided that profit/loss of any branch or branches of the firm situate outside Ernakulam and Kottayam shall be shared by Sri Kuriakose and Sri Philipose in the ratio of 55 per cent. and 45 per cent., respectively.

10. The assessee was directed to show cause why registration should not be refused in the absence of specific mention in the partnership deed of profit and loss to be apportioned among the partners. It was contended on behalf of the assessee for the year 1978-79 that their intention at the time of forming the partnership was to share the profit by allotting 100 per cent. profit of the Ernakulam office to Sri Kuriakose, 100 per cent. profit of the Kottayam office to Sri Philipose and to share the loss on the same basis. Two affidavits signed by the partners were also submitted to the above effect. For the assessment year 1979-80, the Objection raised was that the partnership deed dated November 20, 1978, did not specify as to how the losses are to be absorbed in respect of the business done at the Ernakulam and Kottayam offices. The Income-tax Officer passed orders dated July 23, 1980, and February 6, 1982, under Section 185(1)(b) of the Income-tax Act refusing registration to the firm under Section 184 of the Income-tax Act, 19C1. The finding of the Income-tax Officer was affirmedby the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The Tribunal, following the decisions of this court in United Hardwares v. CIT : [1974]96ITR348(Ker) , CIT v. hhappiri and George : [1973]88ITR332(Ker) and CIT v. Best Automobiles : [1979]117ITR877(Ker) , took the view that, in order to be eligible for registration under section 184 of the Income-tax Act, there must be a specification of shares in the loss as well in the instrument of partnership and on this view it was held that the assessee was not entitled to registration. At the instance of the assessee, the following question is referred in I.T.Rs. Nos. 10 and 11 of 1987.

' Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee-firm is not entitled to registration ?'

11. The relevant provision regarding the registration of a firm under the Kerala Agricultural Income-tax Act, 1950, reads as follows :

' Section 27. Procedure, in registration of firms.--(1) Application may be made to the Agricultural Income-tax Officer on behalf of any firm constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purpose of this Act and of any other enactment for the time being in force relating to agricultural income-tax or super-tax.

(2) The application shall be made by such person or persons and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed ; and it shall be dealt with by the Agricultural Income-tax Officer in such manner as may be prescribed. '

12. Detailed provisions are made under Rule 2 to Rule 6 of the Kerala Agricultural Income-tax Rules, 1951, regarding the form and the manner in which the application for registration has to be made.

13. As far as registration under the Income-tax Act, 1961, is concerned, detailed provisions are made under Sections 184 and 185. The relevant portion of Section 184 for the purpose of this case read as follows :

' 184. Application for registration.--(1) An application for registration of a firm for the purposes of this Act may be made to the Assessing Officer on behalf of any firm, if--

(i) the partnership is evidenced by an instrument ; and

(ii) the individual shares of the partners are specified in that instrument.'

14. The relevant portion of section 185 read as follows :

' 185. Procedure on receipt of application.--(1) On receipt of an application for the registration of a firm, the Assessing Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and --

(a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year ;

(b) if he is is not so satisfied, he shall pass an order in writing refusing to register the firm,'

15. The definition of ' partnership ' under Section 4 of the Partnership Act is as follows :

'' Partnership ' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.'

16. Section 13(b) of the Partnership Act reads as follows :

' 13. Mutual rights and liabilities.-Subject to contract between the partners-- . . .

(b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm ; '

17. Arguments were addressed by learned counsel, Sri Jose Joseph, onbehalf of the applicant in I.T.R. No. 49 of 1982 and by learned counsel,Sri Premjith Nagendran, on behalf of the applicant in I.T.R. Nos. 586 of1985, 4 of 1986 and 40 of 1986 and Sri T. Karunakaran Nambiar, learnedSpecial Government Pleader (Taxes) representing the respondents. InI.T.Rs. Nos. 10 and 11 of 1987, learned counsel, Sri P. Raman, appearedon behalf of the applicant, and standing counsel, Government of India(Taxes), Sri P.K.R. Menon, represented the respondents.

18. The main contention raised on behalf of the applicants is that specification of the individual shares of the partners required under Section 27 of the Agricultural Income-tax Act, 1950, and Section 184 of the Income-tax Act, 1961, does not contemplate expressly setting out in fractional or other shares. If there is no provision in the partnership deed indicating a contra-intention, it should be taken that the partners are entitled to share the profits equally by applying the provisions contained underSection 13 of the Partnership Act. It is also to be presumed that the partners are to bear the losses in proportion to the share of their profits. A further submission is that, for the purpose of ascertaining the individual shares of the partners, it is competent to refer to and rely on materials other than the recital in the deed such as the accounts of the partnership and other connected documents.

19. It is contended on behalf of the applicants in I.T.Rs. Nos. 49 of 1982, 586 of 1985, 4 of 1986 and 40 of 1986, that specification of the individual shares of the partners in the capital is not a requirement at all under Section 27 of the Kerala Agricultural Income-tax Act, 1950. Therefore, the view taken by the Commissioner that the firm is not entitled to registration in the absence of specification of the individual shares of the partners in the capital is erroneous. The relevant portion of the partnership deed to be construed in I.T.R. No. 49 of 1982 and connected cases read as follows :

'Para 1. Whereas we felt that it is essential to make an agreement containing future administration and procedures regarding the property called Padannaparambu the boundaries and measurements of which are described in the schedule below, which was jointly obtained by utilising the funds of each of us and possessed by us with the entire rights such as Ottikkanam for Rs. 31,000, Kuzhikkanam, interest on mortgage amount, simple kanam, etc., thereon from Kunnummal Appa Nair, Azhikode Amsom and Desom as per the registered deed No. 1449 of the Sub Registry, Valapattanam, on August 26, 1953 ; and, therefore, this agreement happened to be executed.'

'Para 6. It is also hereby decided that an account of the net income after deducting the entire expenses for supervising and collection of proceeds, cost of maintenance, tax payment, etc., should be prepared on March 31, in the respective year and rendered to the remaining shareholders before April 30, and assign the share of each person in the account or to disburse to each sharer the amount due to him then and there and obtain receipts thereof.'

20. The above would show that the partners had jointly acquired the property under a registered deed No. 1449 of 1953, dated August 26, 1953. Reference is made to the above document in the proceedings of the Commissioner of Agricultural Income-tax, dated March 3, 1969 (exhibit A-6), while finding that the registration granted to the firm for the assessment years 1961-62, 1962-63 and 1963-64 were in order. It was pointed out on behalf of the applicants that the abovementioned saledeed and the accounts of M/s. Rajeswari Weaving Mills, Azhoekode, where the partners had shares would show that they had contributed equally towards the purchase price of the property. It was based on the above material and an affidavit filed by the advocate on behalf of the firm regarding the payment of balance consideration in equal shares of the partners, that the Commissioner of Agricultural Income-tax came to the conclusion in exhibit A-6 that the shares of the partners were equal. It is, therefore, contended that there is no justification for taking a different view for the subsequent years. The applicants submit that there is nothing in the recitals in the partnership deed, the relevant portion of which is quoted above, which would go to show that the partners are not entitled to share equally. No minor is admitted to the benefits of the partnership. Therefore, according to the applicants, it is a case where the presumption under Section 13(b) of the Partnership Act can be drawn in their favour and they should be treated as sharing the profits earned equally and contributing equally to the losses sustained by the firm.

21. Reliance was placed by the applicants in support of their contention on the decisions of the Supreme Court in Kylasa Sarabhaiak v. CIT [1965] 56 1TR 219, Parekh Wadilal Jivanbhai v. CIT : [1967]63ITR485(SC) , CIT v. Bagyalakshmi and Co, : [1965]55ITR660(SC) and Mandyala Govindu and Co. v. CIT : [1976]102ITR1(SC) . They also relied on a decision of this court in T.V. Mathew and Sons v. Commr. of Agrl. I. T. : [1977]108ITR47(Ker) and the decisions of the Andhra Pradesh High Court in Addepally Nageswara Rao and Bros. v. CIT : [1971]79ITR306(AP) , CIT v. Hyderabad Stone Depot : [1977]109ITR686(AP) and CIT v. Krishna Mining Co, : [1980]122ITR362(AP) . Learned counsel appearing on behalf of the applicants sought to distinguish the decision in N. T. Patel and Co. v. CIT : [1961]42ITR224(SC) and R. C. Hitter and Sons v. CIT : [1959]36ITR194(SC) , relied on by the Commissioner of Agricultural Income-tax for the reason that the facts of these cases are entirely different from those of the present case.

22. Learned counsel appearing on behalf of the applicants in I.T.Rs.Nos. 10 and 11 of 1987, also put forward similar contentions and reliedon the same decisions in support of his contention. The relevant portionof the partnership deed dated February 28, 1977 (annexure C-l), to beconsidered for the assessment year 1978-79 reads as follows :

' 4. The head office of this firm shall be at Ernakulam and branch office at Kottayam and this firm may open any branches at any other place or places as may be decided upon by the partners from time to time.

9. The initial capital of the firm shall be a sum of Rs. 1,25,000 (Rupees one lakh twenty-five thousand only), Rs. 65,000 (Rupees sixty-five thousand only) contributed by Sri T. 0. Kuriakose, party of the first part and Rs. 60,000 (Rupees sixty thousand only) contributed by Sri T. O. Philipose, party of the second part.

10. The net profit of the firm after the usual business outgoings shall be shared by the partners as follows :

(a) Sri T. O. Kuriakose, party of the first part shall be entitled for the whole of the profits of Ernakulam office.

(b) Sri T. O. Philipose, party of the second part shall be entitled for the whole of the profits of Kottayam office.'

23. The relevant portion of the partnership deed dated November 20, 1978 (annexure C-2), to be considered in the assessment year 1979-80, reads as follows :

' 4. The head office of this firm shall be at Ernakulam and branch offices at Kottayam and Calicut and this firm may open any branch or branches at any other place as may be decided upon by the partners from time to time.

10. The initial capital of the firm shall be a sum of Rs. 1,25,000 (Rupees one lakh twenty-five thousand only). Rs. 65,000 (Rupees sixty-five thousand only) contributed by Sri T. 0. Kuriakose, party of the first part and Rs. 60,000 (Rupees sixty thousand only) contributed by Sri T.O. Philipose, party of the second part.

11. The net profit of the firm after the usual business outgoings shall be shared by the partners as follows :

(a) Sri T. O. Kuriakose, party of the first part, shall be entitled for the whole of the profit of Ernakulam office.

(b) Sri T.O. Philipose, party of the second part, shall be entitled for the whole of the profits of Kottayam office.

(c) Profits or losses of any branch or branches of the firm situated outside Ernakulam and Kottayam shall be shared by Sri T. O. Kuriakose, party of the first part and Sri T. 0. Philipose, party of the second part in the the ratio of 55 per cent. and 45 per cent., respectively. '

24. It is contended on behalf of the applicants in the light of the above provisions that it should be assumed that losses are also to be contributed by the partners in the same ratio in which they are to share profits asprovided in the deed. Absence of a specific reference to the share in the loss, therefore, shall not be a reason for refusing registration. Learned counsel appearing on behalf of the applicants in I.T.R. Nos. 10 and 11 of 1987 submits that the question referred has to be answered in the negative.

25. According to the learned Special Government Pleader (Taxes) who represented the respondents in I.T.R. No. 49 of 1982, and connected cases, in order to qualify for registration under Section 27 of the Agricultural Income-tax Act, the partnership should contain an agreement to share the profit and loss, there must be express specification regarding the sharing of the profit and loss and it is not permitted to resort to either Section 4 or Section 13(b) of the Partnership Act to ascertain the individual shares of the partners in profit and loss. According to him, the terms of section 27 shall be strictly complied with since registration under Section 27 makes the firm entitled to certain advantages in the matter of assessment under the Agricultural Income-tax Act, 1950. Strong reliance was placed by him on the decision of the Supreme Court in JV. T. Patel and Co. v. CIT : [1961]42ITR224(SC) . He relied on the earlier decision of the Supreme Court in Rao Bahadur Ravulu Subba Rao v. CIT : [1956]30ITR163(SC) , where the Supreme Court had occasion to consider the claim for registration under Section 2GA of the Indian Income-tax Act, 1922. He submits that the Kerala Agricultural Income-tax Act, 1950, and the rules framed thereunder should be treated as exhaustive in regard to the conditions under which registration can be granted under Section 27 and it is not open to look into any other statute for the above purpose. The other decisions which were cited and relied on by learned counsel are K.D. Kamath and Co. v. CIT : [1971]82ITR680(SC) , Sri Ramamohan Motor Service v. CIT : [1973]89ITR274(SC) and Mandyala Govindu and Co. v. CIT : [1976]102ITR1(SC) . It is submitted that the decisions of this court in CIT v. Ithappiri and George : [1973]88ITR332(Ker) and United Hardwares v. CIT : [1974]96ITR348(Ker) laid down the correct law and, therefore, do not require reconsideration.

26. Learned standing counsel, Government of India (Taxes), who appeared on behalf of the respondent in I.T.Rs. Nos. 10 and 11 of 1987, also took the stand that specific reference to the individual share of loss of the partners in the partnership deed is mandatory for getting registration under Section 184 of the Income-tax Act, 1961. According to him, it is not open to the authorities under the Act to look into the provisions of statutes other than the Income-tax Act and the Rules made thereunderand materials outside the recitals of the partnership deed, to ascertain whether the firm is entitled to registration. It is true that the terms' firm ', 'partner' and 'partnership' have been defined in Section 2(23) of the Income-tax Act, 1961, as having a meaning respectively assigned to them in the Indian Partnership Act, 1932. But, since Section 2 starts with the words, 'unless the context otherwise requires', according to learned counsel, reliance cannot be placed on the provisions contained in Section 13(b) of the Partnership Act to ascertain the share of loss of the partners even though the firm sought to be registered under Section 184 is a partnership as defined under the Indian Partnership Act, 1932. The requirement of an instrument under Section 184(1)(i) of the Income-tax Act, 1961, is a deviation from the provisions of the Indian Partnership Act under which a partnership can be formed even under an oral agreement.

27. Learned counsel further proceeds to submit that the insistence of a specification of the shares in profit and loss in the instrument as per the provisions contained in Section 184(1)(i) is also to be treated as a provision derogatory to the provisions of Section 13 of the Partnership Act. He made attempts to draw support from the decision of the Supreme Court in CIT v. Bayyalakshmi and Co. : [1965]55ITR660(SC) According to learned counsel, the decision of the Supreme Court in Mandyala Govindu and Co. v. CIT : [1976]102ITR1(SC) , would support his contention, viz., that the shares of the individual partners in the loss should be specifically mentioned in the deed of partnership.

28. Referring to proposition No. 9, namely, ' where there is provision for sharing the profits only but no losses, such firm also is not entitled for registration ', learned counsel submits that the Full Bench decision of the Andhra Pradesh High Court in CIT v. Krishna Mining Co. [1980] 122 ITR 302 would also support his contention.

29. The main issue arising in these cases is the interpretation of Section 27(2) of the Kerala Agricultural Income-tax Act, 1950, and Section 184(2) of the Income-tax Act, 1961. Whether these provisions make it essential that the shares of individual partners in the loss sustained by the firm shall be specifically delineated in the instrument of partnership even in cases where no minor is admitted to the benefits of the partnership so as to make the firm entitled to seek registration is the question to be considered.

30. Admittedly, there is conflict in the views taken by the different High Courts. This court had followed the view that there should be specific reference in the instrument of partnership to the shares of individualpartners in the loss of the firm. How far the above view taken, relying on certain observations in the earlier derisions of the Supreme Court, is in accord with the later decisions of the Supreme Court and what is the total effect of the decisions of the Supreme Court, considered as a whole, is the matter to be examined.

31. C. T. Palu and Sons v. CIT : [1969]72ITR641(Ker) is an earliest judgment of this court cited at the Bar on the issue in question. One ground on which the application for continuation of registration of the firm under the Income-tax Act, 1961, was declined was, that, while the partnership deed as modified by a clarification deed showed that the profit shall be shared in the ratio of 50 : 25 : 25 between the two partners and the minor who was admitted to the benefits of the partnership and it was specifically made clear that the minor was not to bear any portion of the loss, there was no provision in the deed which would specify how and by whom the 25 per cent. of the loss shall be borne. The above finding of the Appellate Tribunal was upheld by the High Court. The assessee contended that, if the shares of the partners in the profit of the business are specified in the deed of partnership, it is not necessary to specify the shares in the loss, as the law provides that, in the absence of a contract to the contrary, the loss shall be borne in the same proportion as the profit. A Bench of this court held that, even if the contention taken by the assessee is accepted as a general principle, as per the terms of the partnership deed modified by the clarification deed, the major partners can be treated as liable to bear loss at the rate of 50 per cent. and 25 per cent. in proportion to their share in the profit and the general principle would not be helpful to find out how the balance 25 per cent. of loss is to be shared between the two major partners.

32. In CIT v. Ithappiri and George [1973] 88 ITK 332, there was no minor admitted to the benefits of the partnership. There were four major partners and it was provided that the net profit of the business after adjustments, shall be divided among the partners in the ratio of 30 : 30: 20 : 20. There was no provision in the partnership deed about the manner in which the loss of the firm, if any, should be shared by the partners. A question arose as to whether the partnership was entitled to registration under Section 184 of the Income-tax Act, 1961. This court held that, in the absence of a specific provision in the partnership deed regarding the proportion in which loss had to be shared between the partners, there was no compliance with the provisions of Section 184 and, therefore, the firm was not entitled to registration. After referring to theconflict of decisions between the High Courts of Allahabad, Mysore, Andhra Pradesh and Bombay on the one side and that of the High Court of Gujarat on the other, the Division Bench came to the above-mentioned conclusion, relying on N. T. Patel's case : [1961]42ITR224(SC) , In the light of the provisions contained in Section 184(2) of the Income-tax Act, it was observed that the assessing authorities have necessarily to determine the share of the loss of the individual partner of a registered firm so that the loss may be set off against the other income of the partner or carried forward and set off in accordance with the provisions of Sections 184(2) of the Income-tax Act, 1961. Therefore, the specification of the proportion in which loss is to be shared is as important as specification of the shares in profit. Even though reference was made to Section 13(b) of the Indian Partnership Act, 1932, the Bench took the view that the expression ' the individual shares of the partners' in Section 184 should normally cover both profit and loss and there was no compelling reason to read down the expression and give it a limited meaning. The deed itself should contain the specification of both profit and loss and any other provision of law including Section 13(b) of the Indian Partnership Act shall not be looked into for the purpose of ascertaining the proportion of loss.

33. In United Hardwares v. CIT : [1974]96ITR348(Ker) , the firm was constituted of three partners who were to share the profit in the ratio of 40 : 35 : 25. But, there was a specific provision in the deed that loss sustained by the partnership business will not he binding on the third partner. It was then provided that, in matters regarding which no specific mention is made in the deed, the provisions in the Indian Partnership Act, 1932, shall prevail with respect to the relationship between the partners and the firm and third parties. A Bench of this court took the view that the partnership was not entitled to registration as the deed had failed to satisfy the mandatory condition laid down in Section 184 of the Income-tax Act, 1961. Reference was made to the Supreme Court decisions in Kylasa Sarabhaiah v. CIT : [1965]56ITR219(SC) and Parekh Wadilal Jivanbhai v. CIT : [1967]63ITR485(SC) and also to the provisions under Section 13(b) of the Indian Partnership Act, 1932. Ultimately, the Bench came to the conclusion by applying the dictum laid down in N. T. Patel's case : [1961]42ITR224(SC) that specification of the individual shares of the partners in the loss being absent in the deed of partnership, registration was correctly declined by the income-tax authorities. It was further held that Section 13(b) cannot have any application to the facts of the case. It was observed (at page 352) :

' Section 13 as such will apply only when the question arises how the losses are to be borne by all the partners of a firm. When the partnership deed had excluded the liability for loss of one partner, the section cannot apply. Secondly, it is fairly well-established that when profits are to be shared in specified unequal proportions and in the absence of a contract regarding the contribution of losses it must be presumed that the partners agreed to contribute to the losses in the same proportion as that in which they share the profits. In such cases, it is not Section 13 that is applied. So, in the absence of an agreement regarding contribution towards losses between partners 1 and 2, they must be taken to have agreed to contribute to the losses in the same proportion, viz., 40 : 35.'

34. Ultimately, following CIT v. Ithappiri and George : [1973]88ITR332(Ker) , the Bench took the view that the question before it was not (at page 353 of 96 ITR) ' whether it can discern some principle or other for determining in what manner the losses should be borne by these two partners who are to take 40 per cent. and 35 per cent. of the profits but whether the partnership deed has specified that proportion of loss '.

35. The next decision of this court is T. V. Mathew and Sons v. Commr. of Agrl. I. T. : [1977]108ITR47(Ker) . Even though the question considered therein was whether the Agricultural Income-tax Officer was justified in refusing registration under Section 27 of the Agricultural Income-tax Act to the assessee-firm on the ground of the partnership deed being not genuine, there are certain general observations regarding the scope of Section 27 of the Kerala Agricultural Income-tax Act, 1950, in the following manner (at page 51) :

' Now, turning to the question for determination we would like to make some general observations regarding the circumstances under which a firm can be registered. There must be an application in accordance with Section 27 of the Act. The formalities required by the section as well asthe rules prescribed must be complied with. There must be an agreement to carry on a business by all or any of the partners acting for all. The agreement must provide for the sharing of profits. Even in cases where no specific provision is made in the partnership deed regarding the manner in which losses should be shared, Section 13(b) of the IndianPartnership Act, 1932, has provided that in the absence of a contract, the partners are obliged to contribute equally to the losses. When these conditions are satisfied, registration must be granted unless for reasons the taxing authorities are able to come to the conclusion that the partnership deed does not indicate the real state of affairs ...'

36. It is relevant to note that one of the learned judges of the Bench who rendered the above judgment was a party to the judgment in CIT v. Hhappiri and George : [1973]88ITR332(Ker) and United Hardwares v. CIT [1974] 90 ITR 348 .

37. The latest decision of this court referred to at the Bar is CIT v. Best Automobiles [1979] 117 ITK 877. In the above case, there were two minors admitted to the benefits of partnership. The Bench referred to two earlier decisions of this court on this point, and the decisions of the Supreme Court Sri Ramamohan Motor Service v. CIT : [1973]89ITR274(SC) and Mandyala Govindu and Co. v. CIT [1976] 102 ITK 1 and also to the provisions of Section 13(b) of the Partnership Act. Ultimately, the Bench took the view that it is not necessary to resolve the conflict of decisions as, in its opinion, there was no specification of the shares of the loss of the two minors either expressly or impliedly and there was nothing on which the officer could be satisfied that the shares of the minors in the losses had been specified.

38. The above discussion shows that strong reliance was placed on N. T. Patel's case : [1961]42ITR224(SC) by the Benches of this court in taking the view that specific reference to the individual shares of the partners in profit and loss of the firm shall be made in the partnership deed itself and it is not open to look into any material outside the partnership deed or to the provisions of any other statute to ascertain the individual shares of the partners. Therefore, it is necessary to examine the facts of N. T. Patel's case : [1961]42ITR224(SC) and the reasoning of the Supreme Court in detail.

39. A partnership constituted by a deed of partnership dated March 29, 1954, applied for registration under Section 26A of the Indian Income-tax Act, 1922, for the assessment year 1955-56. In the course of the assessment proceedings, it was detected that there was no specific provision in the deed for the division of profits and losses and the partners executed a supplemental document on September 17, 1955, purporting to rectify the error adding thereby a new clause to the deed specifying the shares in which the profit and loss of the partnership should be apportioned. It is clear from the statement of facts that a reference was made to sharing of profit or loss in Clauses 9, 11, 34 and 41(a) of the deed under certain contingencies. But, there was no recital at all regarding sharing of profit or loss in the normal course of business, much less a specification of the shares of the individual partners. After referring to the different clauses in detail, the Supreme Court held as follows (at page 228) :

' But in none of these clauses is it stated what the shares of the partners in the profits and losses of the firm were to be and that in our opinion was requisite for registration of the partnership under Section 26A of the Act and as that was wanting, registration was rightly refused. '

40. How far the above finding entered under the particular facts and circumstances of the case can be applied in all cases where the individual shares of the partners in the profit or loss has not been specified in the deed of partnership is the question to be examined. There may be partnership deeds where provision is made for sharing the profit and loss but the specific proportion of the individual share of the partners would not have been recited. In certain deeds, like the one in I.T.Rs. Nos. 10 and 11 of 1987, there may he provision regarding sharing of profit with details of the proportion but no reference to the sharing of the loss. In yet another category, there will be provision for sharing profits without specifying the individual shares of the partners and with no provision ' regarding sharing of loss as in the case of the partnership deed in I.T.R. No. 49 of 1982, and connected cases. Is it the rule that, in all such cases, registration shall be refused to the assessee-finns ?

41. In Kylasa Sarabhaiah v. CIT : [1965]56ITR219(SC) , the interpretationof the word ' specify' in Section 2GA came up for consideration before a Bench of five judges, and it was held ( at page 223): 'the word 'specify' is used in section 2GA and rule 2 as meaning mentioning, describing or defining in detail : it does not mean expressly setting out in fractional or other shares'. In Parekh Wadilal Jivanbhai v. CIT : [1967]63ITR485(SC) also the Supreme Court refused to take a strict interpretation of the word ' specify ' used in Section 26A. In Clause 3 of the partnership deed which came up for consideration, capital was allotted to each partner equally. Clause (10) stated, ' after meeting all expenses, interest and other charges, the resulting net profit or loss shall be ascertained and shall be dividedamongst all partners '. It was also noticed that in all the applications for registration by the assessee-firm under Section 2CA, the three partners had been shown to share the profits of the partnership firm equally. Reference was also made to the books of account where the profits had been shown apportioned equally among the three partners of the firm.

42. It was, therefore, held that reading the partnership as a whole and in the context of the relevant circumstances of the case, there was specification of the individual shares of the partners in the profits within the meaning of Section 26A and the assessee-firm was entitled to registration.

43. Even though the decision in K. D. Kamath and Co. v. CIT : [1971]82ITR680(SC) was relied on by the Revenvie, we find no consideration of the specific issue in the above decision. In Sri Ramamohan Motor Service v. OT : [1973]89ITR274(SC) also, the question which came up for consideration was entirely different. There, it was found that the deed was void in view of section 30 of the Partnership Act as one of the five partners was a minor and that the applications made for registration of the firm and for renewal of registration were defective being not in accordance with the rules. It was, therefore, held that the firm was not entitled to registration.

44. No later decision of the Supreme Court which has dissented from the view taken in Kylasa Sarabhaiah v. CIT : [1965]56ITR219(SC) or Parekh Wadilal Jivanbhai v. CIT : [1967]63ITR485(SC) was brought to our notice. Our attention is not invited to any decision of the Supreme Court where, after considering the view taken in Patel's case : [1961]42ITR224(SC) , Kylasa Sarabhaiah's case : [1965]56ITR219(SC) and Parekh Wadilal's case : [1967]63ITR485(SC) , the Supreme Court has chosen to affirm one view or the other. In Mandyala Govindu and Co, v. CIT : [1976]102ITR1(SC) , the question whether it is essential for registration under Section 26A of the Indian Income-tax Act, 1922, that the shares of the partners in the losses must be specified in the partnership deed was left open. We will come to a detailed discussion of the above decision at a later stage.

45. Rao Bahadur Ravulu Subba Rao v. CIT : [1956]30ITR163(SC) has been relied on in support of the contention that the Income-tax Act is a self-contained code and, if the individual shares of the partners in the profit and loss of the firm are not discernible from the partnership deed itself, it is not open to look into the provisions of other statutes to ascertain the same. The question which arose for consideration in the above case was the eligibility of a firm for registration under Section 26A of the Indian Income-tax Act, 1922, where the application was signed not by the partner in person but through his power of attorney holder. It was held that the intention behind the provisions of the Act was that the firm should be given the benefit of Section 23(5)(a) only if it was registered under Section 26A in accordance with the conditions laid down in that section and the rules framed thereunder. As those rules require the application to be signed by the partner in person, the signature by an agent on his behalf being invalid. The contention raised by the assessee on the basis of the right under common law and Section 2 of the Powers ofAttorney Act, 1882, to be represented through an agent was not accepted. It was held that the right to apply for the registration of a firm under Section 26A was to be determined exclusively by reference to the prescriptions laid down therein. It would be repugnant to the character of such a right to add to the terms of Section 2GA by reference to other laws.

46. In CIT v. Bagyalakshmi and Co. : [1965]55ITR660(SC) , it has been held that, except where there is a specific provision of the Income-tax Act which derogates from any other statutory law or personal law, the provision will have to be considered in the light of the relevant branches of law. As mentioned earlier, this decision is relied on by both sides in support of their contentions. We find substantial force in the contention of the applicants that so long as no provision derogatory to the provisions contained in Section 13(b) of the Partnership Act obtain in the Agricultural Income-tax Act, 1950, and the Income-tax Act, 1961, those provisions could be looked into to ascertain the individual shares of the partners in the profit and loss of the firm. On the other hand, we find it difficult to accept the contention of the Revenue in I.T.Rs. Nos. 10 and 11 of 1987, that the provisions contained in Section 184(l)(ii) is derogatory to the provisions contained in Section 13(b) of the Partnership Act and, therefore, Section 13(b) cannot be made use of for ascertaining the individual shares of the partners especially in the light of the observations contained in Mandyala Govindu and Co. v. CIT : [1976]102ITR1(SC) . We also find no merit in the contention based on the words ' unless the context otherwise requires ' in Section 2 of the Income-tax Act, 1961, that Section 13(b) cannot be resorted to even though Section 2(23) defines the terms ' firm ', ' partner ' and ' partnership ' as having meanings respectively assigned to them in the Indian Partnership Act, 1932.

47. Now, we come to the latest of the decisions of the Supreme Court on the issue cited at the Bar, Mandyala Govindu and Co. v. CIT : [1976]102ITR1(SC) . The instrument of partnership considered in the above case showed that the three partners and a minor admitted to the benefits of the partnership held the shares in the ratio of 31% : 23% : 23% : 23%. While there was a provision in the deed that the profits of the partnership business shall be divided and enjoyed according to the shares as specified above, there was no clause in the instrument specifying the proportion in which the three adult partners were to share the losses, if any. After having set out the terms of the agreement, the instrument closed with Clause 9 which stated (at page 3) :

'We (the partners) are bound to act according to the above-mentioned stipulations and also according to the provisions of the Indian Partnership Act ...'

48. The question that arose in the case was whether, in the absence of a specific statement in the instrument as to the proportion in which the partners were to share the losses, the requirement of Section 26A could be said to have been satisfied. It was contended by the assessee-firm that Section 26A of the Indian Income-tax Act, 1922, did not require specification of the shares in losses in the instrument of partnership and it is sufficient if the proportion in which the losses are to be shared is otherwise ascertainable and that, assuming the section did so require, Clause 9 of the instrument satisfied that requirement. Reliance was placed on Section 13(b) of the Indian Partnership Act.

49. The Supreme Court, at the outset, rejected the contention of the assessee-firm that, if specific reference to individual shares of the partners in the loss of the firm in the deed of partnership is mandatory, the requirement would be satisfied by making a reference to the provisions contained in Section 13(b) of the Partnership Act. It was held that bringing in Section 13(b) by implication from a general statement that the partners are to act in accordance with the Partnership Act, did not amount to specification of the partners' shares in the losses and the instrument of partnership, therefore, fails to comply with Section 26A of the Act, were this a requirement of that section.

50. The Supreme Court referred to the different views expressed by the High Courts on the question whether it is essential for registration under Section 26A of the Act that the shares of partners in the losses must be specified in the partnership deed. In R. Sannappa and Sons v. CIT : [1967]66ITR27(KAR) , the Mysore High Court and in Hiralal Jagannath Prasad v. CIT : [1967]66ITR293(All) , the Allahabad High Court had taken the view that it is not essential. The Gujarat High Court in Thacker and Co, v. CIT : [1966]61ITR540(Guj) , took the view that shares of profits and losses have both to be specifically stated in the instrument of partnership in order to comply with the conditions laid down under Section 26A to obtain registration and the above view was followed by the Kerala High Court in C. T. Palu and Sons v. CIT : [1969]72ITR641(Ker) and CIT v. Ithappiri and George : [1973]88ITR332(Ker) . After referring to the above decisions of the High Courts and pointing out the conflict of opinion, the Supreme Court held that for the purpose of deciding the case before it, it was unnecessaryto decide which view was correct, as, according to the Supreme Court, on the facts of the case, the appeal was bound to fail on any view.

51. But, the Supreme Court observed that it cannot be disputed that the Income-tax Officer before allowing the application for registration must be in a position to ascertain the shares of the partners in the losses even if Section 2GA did not require the shares in the losses to be specified in the instrument of partnership. The argument put forward by the assessee that, in the light of the provisions contained in Section 13(b), it must be held that the partners of the assessee-firm were liable to share the losses equally, in the absence of a contrary indication, was not accepted. It was observed that Section 13(b) makes the partners liable to contribute equally to the losses only when they are entitled to share equally in the profits. In the facts of the case, the shares of the partners were not equal. After referring to Jessel M. R., in Albion Life Assurance Society, In re [1880] 16 Ch D 83, 87 (CA) : ' It is said, as a general proposition of law, that in ordinary mercantile partnerships where there is a community of profits in a definite proportion, the fair inference is that the losses are to be shared in the same proportion ', it was held that since the partners were having unequal shares in the profits, there can be no presumption that losses are to be equally shared between them. Reference was also made to the decision of Ramesam J. in Pitchiah Chettiar v. Subramanian Chettiar, AIR 1934 Mad 494 ; [1935] ILR 58 Mad 25. The above decision considered the scope of Section 253(2) of the Indian Contract Act, 1872, which is reproduced in Section 13(b) of the Indian Partnership Act, 1932, and it was held that two presumptions are clubbed in one sub-section. The first is, if no specific contract was proved, the shares of the partners must be presumed to be equal. The second presumption is that where the partners are to participate in the profits in certain shares, they should also participate in the losses in similar shares. Even though the section says that both should be in equal shares, it implies that if unequal shares are admitted by the partners as to profits that applies equally to losses. In the absence of a special agreement, this should be the presumption. In the facts of the case, the Supreme Court held that the first presumption cannot be applied as the shares and profits were unequal. The second presumption also could not be applied as it was found that, even if the adult partners were to bear the losses in proportion to their respective shares in the profits, the amount of loss in the minors' share would still remain undistributed. There was no indication in the instrument of partnership as to whether the partners would bear the loss in minor's share equally or to the extent of their own individual shares. It was,therefore, held that the firm was not entitled to registration as there was no means of ascertaining as to how the losses were to be apportioned.

52. It is relevant to note that no reference is made in the above judgment to N. T. Patel's case : [1961]42ITR224(SC) , which has taken adefinite view that the shares of individual partners both in profits andloss of the firm shall be specified in the instrument of partnership. Onthe other hand, after noting the conflicting views of the High Courts, thequestion was left open. A reading of the judgment would show that thedecisions of Jessel M. R. and Ramesam J. were quoted with approval butcould not be applied to the case as there was a minor admitted to thebenefits of the partnership and there was no indication as to how that portion of the loss was to be shared between the partners and the presumption under Section 13(b) could not be invoked for that purpose. Thisdecision does not endorse the view that, under no circumstances, the provisions of law outside the Income-tax Act could be looked into for ascertaining the shares of individual partners in the loss of the firm.

53. A number of decisions of different High Courts were referred to and relied on by both sides. In R. Sanappa and Sons v. CIT : [1967]66ITR27(KAR) and in R.B. Angadi and Sons v. CIT : [1969]73ITR93(KAR) , the Mysore High Court took the view that specific reference in the partnership deed to the shares of individual partners in the loss of the firm is not a mandatory requirement for registration. The same view was taken by the Allahabad High Court in Hiralal Jagannath Prosad v. CIT : [1967]66ITR293(All) . In A. Asha and Co. v. CIT : [1973]87ITR57(Mad) , the Madras High Court took the view that it would be proper for the Department to refer to a plurality of documents for ascertaining the profit-sharing ratio of the partners and refusing to look into other deeds for such ascertainment when there is no dispute about the genuineness of the partnership would be a hypertechnicality with no substance. A similar view was taken by the Bombay High Court in CIT v. Kolhia Hirdagarh Co. Ltd. [1949] 17 ITR 545. On the other hand, the Gujarat High Court has taken the view in Thacker and Co. Ltd. v. CIT : [1966]61ITR540(Guj) that the shares in the profit and loss have both to be specifically stated in the instrument of partnership in order to comply with the conditions laid down under Section 26Aof the Indian Income-tax Act, 1922, to obtain registration.

54. CIT v. Krishna Mining Co. : [1980]122ITR362(AP) is a decision of a Full Bench of the Andhra Pradesh High Court. Most of the important decisions on the issue, including the decision of the Supreme Court in Mandyala Govindu and Co. : [1976]102ITR1(SC) , have been referred to inthe above case. It was held therein that the specification of the individual shares of the partners in the deed of partnership may be either express or implied or worked out. It is one of intention or object of the partners who constituted the firm. This intention and object of the partners of the firm with regard to the specification of the individual shares of the partners can be gathered either from the very recitals of the deed of partnership as a whole or from the proved facts and circumstances indicated in the application for registration, books of account and the conduct of the parties. Nine principles have been drawn up in the above judgment as emerging from the discussion. One among the above-mentioned principles referred to in the judgment is' where there is provision for sharing profits only, but no losses, such firm is not entitled to registration'. The above observation has to be understood as reference to a case where there is specific provision not to share the loss. Otherwise, the statement would be contradictory to an earlier statement, namely, 'such deed of partnership must specify, either expressly or by implication, the individual shares of the partners'. The intendment and object of the requirement of specification of the individual shares of the partners may be gathered on a reasonable and fair reading of the whole document of partnership with the particulars furnished in the application.

55. In the light of the decisions in Kylasa Sarabhaiah : [1965]56ITR219(SC) and Parekh Wadilal : [1967]63ITR485(SC) of the Supreme Court, instructions were issued by the Department under letter No. 26/12/67-IT(A-II), dated November 15, 1967, to the effect that, if reading the partnership deed in a reasonable manner indicates that the shares both in profits and in losses can be inferred from the deed, registration cannot be refused.

56. In the light of the above discussions, we are inclined to take the view that, where no minor is admitted to the benefits of the partnership, a firm cannot be refused registration either under Section 27 of the Kerala Agricultural Income-tax Act, 1950, or under Section 184 of the Income-tax Act, 1961, only on the ground that the shares of the individual partners in the loss of the firm have not been specifically mentioned in the instrument of partnership. In the absence of an indications to the contrary, it should be taken that the partners have agreed to bear the loss in the same proportion in which they are to share the profits. When shares of the individual partners are not actually worked out in the deed, it is open to ascertain the shares by reading the entire instrument as a whole and giving it a reasonable interpretation by looking into theaccounts and other documents of the firm which would show how the profit or loss had been actually apportioned between the partners and also by taking recourse to Section 13(b) of the Indian Partnership Act, 1932. We, therefore, hold, with great respect to the learned judges, that the decisions in CIT v. Ithappiri and George : [1973]88ITR332(Ker) and United Hardwares v. CIT : [1974]96ITR348(Ker) , where, a contrary view had been taken, are not good law. We also hold that specification of the individual shares of the partners in the capital is not a requirement under Section 27 of the Kerala Agricultural Income-tax Act, 1950,

I. T. Rs. Nos. 49 of 1982, 586 of 1985 and 4 and 40 of 1986 ;

57. Para 1 of the partnership deed refers to the investment made by the partners in the firm. It is seen from exhibit A-6 proceedings of the Commissioner of Agricultural Income-tax dated March 3, 1969, that suffi-cent materials were available with the Department to show that the partners had contributed equally to the capital. Para 6 of the partnership deed states that the net income after deducting the entire expenses, etc., should be shared between the partners. In the absence of any indication to the contrary, the partners should be taken to have agreed to share the profits equally and are liable to contribute to the loss also equally.

58. We, therefore, answer the sole question referred in I.T.R. No. 49 of 1982 and the first question referred to in I.T.Rs. Nos. 585 of 1985, 4 of 1986 and 40 of 1986 in the negative, in favour of the assessee.

I. T. R. Nos. 10 and 11 of 1987 :

59. In annexure C-l, partnership deed, relevant for the assessment year 1978-79, para 10 refers to the share of individual partners. It is stated that while Sri T. O. Kuriakose, one of the two partners, shall be entitled to the whole of the profits of the Ernakulam office, namely, one of the two branches of the firm, the other partner, Sri T. O. Philipose, shall be entitled to the whole of the profits of the Kottayam office, namely, the second branch of the firm. In the absence of a contra indication, it has to be taken that Sri T. O. Kuriakose would bear the loss, if any, of the Ernakulam office and Sri T. 0. Philipose would be liable to contribute to the whole of the loss, if any, of the Kottayam office. Annexure C-2, the partnership deed relevant for the assessment year 1979-80, also gives similar indications regarding the individual shares of the partners in the profits of the two branches of the firm at Ernakulam and Kottayam. It is also stated that, as far as other branches are concerned, the partners would share the profit and loss of the firm in the ratio of 55 per cent. and 45 per cent.There is no indication in the deed that the two partners are to bear the loss of the two branches at Ernakulam and Kollayam otherwise than on the terms on which they were to share the profits of the two branches. On a reasonable and proper interpretation of the deed, it has to be held that there were sufficient materials before the authorities to arrive at the shares of individual partners in the loss of the firm.

60. Therefore, we answer the questions referred in I.T.Rs. Nos. 10 and 11 of 1987, in the negative, in favour of the assessee.

61. Income-tax References Nos. 585 of 1985, 4 of 1986 and 40 of 1986 will be considered by the Division Bench for answering the remaining questions referred.


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