Gupta, J. - (1.) This appeal by special leave is directed against an order of the High Court of Andhra Pradesh at Hyderabad answering in the negative and in favour of the revenue the following question referred to it under Sec. 66 (1) of the Indian Income Tax Act, 1922 (hereinafter referred to as the Act)."Whether the Assessee is entitled to registration under Section 26A of the Income Tax Act, 1922 for the assessment year 1961-62."
(2.) The assessee is a firm. The instrument of partnership was executed on January 5, 1959 but the application for registration under Sec. 26A remained undisposed of until the assessment for the year 1961-62 was taken up. The instrument shows that three persons, Mandyala Narayana, Mandyala Vehkatramaiah, Mandyala Srinivasulu and a minor, Mandyala Jaganmohan who was admitted to the benefits of the partnership, held the following shares:Narayana 31 per cent, Venkatramaiah 23 per cent,. Srinivasulu 23 per cent, and minor Jaganmohan 23 per cent. Clause 2 of the instrument which sets out the shares of the partners adds that the "profits of the above partnership business shall be divided and enjoyed according to the shares specified above." There is no clause in the instrument specifying the proportion in which the three adult partners were to share the losses, if any. Having set out all the terms of agreement, the instrument closes with clause 9 which states: "We (the partners) are bound to act according to the above mentioned stipulations and also according to the provisions of the Indian Partnership Act.......... . . " '
(3.) The High Court was of the view that unless the instrument of partnership specified the shares of the partners not only in the profits but also in the losses, the firm would not be entitled to registration under Sec. 26A, and negatived the contention raised on behalf of the assessee that clause 9 of the instrument indicated how losses were to be apportioned between the partners. The correctness of this decision is challenged by the appellant firm.;