PANDEY, J. - (1.) AT the instance of the assessee, the Appellate Tribunal, Bombay has, under S. 66 (1) of the Indian Income -tax Act, 1922, referred to this Court for its opinion the following question of law : Whether, on the facts and in the circumstances of the case, the firm of M/s. Chimanlal Umaji and Sons constituted under an instrument of partnership dated 29 -9 -1954 could be denied registration on the ground that the instrument of partnership did not specify the individual shares of the partners as required by section 26 -A of the Act ?
(2.) THE material facts, as appearing from the statement of the case, are these. The assessment year is 1958 -59, the corresponding previous year being the one which ended on 23rd October 1957. The assessee is a firm consisting of three partners, namely, Chimanlal, Mangalchand and Hukumchand and one minor, Gulabchand, has been admitted to the benefits of the partnership. The firm was constituted by a deed of partnership dated 29th September 1954, the material terms of which, as translated from Hindi, read as follows : "Clause 5. Shares in profit and loss of this partnership have been decided as under (Repetition of this very sentence is there). Clause 6. Seth Chimanlal Umaji, - age 50 - 4 as. Seth Mangalchand S/o. Chimanlal - age 21 - 4 as. Hukumchand S/o. Chimanlal - age 18 - 4 as. Thus the share of profits of twelve annas in a rupee has been allocated amongst us, the three partners, Gulabchand son of Chimanlal who is a minor has been admitted to the benefits of partnership and his share has been decided at remaining 4 as." This firm commenced its business as soon as it was formed. It applied for and secured, registration under section 26 -A of the Act for the assessment year 1956 -57 and its renewal for the assessment year 1957 -58. The application for renewal of registration for the assessment year 1958 59 was signed by the three partners including Chimanlal who signed it on behalf of the minor also. The apportionment of income, profits and gains (or loss) as shown in paragraph 3 of the application was Name of Partner Address Date of admittance to partnership Interest on capital or loans. (if any) Salary or commission from firm Share in the balance profits (or loss (annas and pies in the rupee) 1 2 3 4 5 6 Chimanlal Umaji M. T. Cloth Market, Indore Tel Gali, Malhar ganj. 29 -9 -1954 ..... ..... -/4/ - Mangalchind s/o Chimanlal do do ..... ..... -/4/ - Hukumchand s/o Chimanlal do do ..... ..... -/4/ - Gulabchand s/o Chimanal do do ...... ...... -/4/ - The Income -tax Officer refused to grant renewal of registration on the ground that, accord ing to clause 6 of the deed of partnership. The minor was made to share the profits as well as losses and that, even if he could be regarded as not sharing the losses, it was not clear from the deed in what proportion the losses were to be shared. The Appellate Assistant Commissioner, while agreeing that the minor was merely admitted to the benefits of the partnership, held that there was no indication in the partnership deed how the remaining one fourth share of the loss was to be divided among the three adult partners though it was incorrectly stated in the application for renewal that, the minor too was to share equally with the adults the loss, if any. The Tribunal concurred in the view taken by the Income tax authorities about the vagueness in the partnership deed relating to the one -fourth share of loss and held that, having regard to that uncertainty which could not be resolved without any complicated inference or resort to the provisions of the Partnership Act, 1932, the instrument of partnership did not specify the shares of individual partners within the meaning of section 26 -A of the Act and the refusal to renew the registration was, therefore, justified. Having heard the counsel, we have formed the opinion that the instrument of partnership did specify the individual shares of the partners as required by section 26 -A of the Act and that the renewal of registration could not be refused on the ground that it did not do so.In order to qualify for registration under section 26 -A of the Act, there must be in existence a valid and genuine firm constituted by an instrument of partnership, which specifies the individual share of the partners. Then an application for registration on behalf of the firm should be made in accordance with the requirements of Rules 2 to 6 -B of the Indian Income -tax Rules, 1922. If a firm desires to have this privilege, it must conform strictly to those requirements Rayulu Subba Rao v. Commissioner of Income -tax, Madras 1956 -30 ITR 163 : (AIR 1956 SC 604) and N. T. Patel and Co. v. Commissioner of Income -tax, Madras 1961 -42 ITR 224 : (AIR 1961 SC 1356).It must be mentioned at the outset that, in this case, there was, as required, a full disclosure of the particulars of apportionment in paragraph 3 of the application for renewal which also fulfilled all other prescribed requirements and all that is said about it is that the statement therein made to the effect that the minor shared the profits (or losses) to the extent of one -fourth share was not in accord with the vague term of the deed of partnership relating to the sharing of loss appertaining that share to the benefits of which he had been admitted.
(3.) THIS takes us to the instrument of partnership dated 29th September, 1954. A large number of cases were cited before us to show that the instrument did not specify the individual shares of partners or was otherwise invalid. As the terms of that instrument show, the minor was admitted to the benefits of the partnership to the extent of one -fourth share. He was not, as in the case of Commissioner of Income -tax v. Dwarkadas Khetan and Co., 1961 -41 ITR 528 : (AIR 1961 SC 680), admitted as a full partner. The facts of Steel Brothers and Co. Ltd. v. Commissioner of Income -tax 1958 -33 ITR 1 : (AIR 1958 SC 315) : 1961 -42 ITR 224 : (AIR 1961 SC 1356) (supra). In re, Parekh Wadilal Jiwanbhai 1961 -42 ITR 266 (Bom), Karnidan Rawatmull v. Commissioner of Income -tax 1963 -48 ITR 922 (Cal), Dastur Dadi and Co. v. Commissioner of Income tax 1963 -49 ITR 554 (Bom), Commissioner of Income -tax v. Rupchand Rauthmal 1963 -50 ITR 295 (Cal), and V. M. Periasami Chettiar and Co. v. Commissioner of Income -tax, 1964 -52 ITR 134 (Mad) are easily distinguishable because in these cases the individual shares of the partners or at least some of them were not specified. The law requires that the individual share of each partner must be specified in the instrument of partnership Kannappa Naicker and Co. v Commissioner of Income -tax, Madras 1937 -5 ITR 49 : (AIR 1937 Mad 316) and 1958 -33 ITR 1 : (AIR 1958 SC 315) (supra). It is not that, in the case before us, the individual shares of partners, including the share to the benefits of which the minor has been admitted are, in that sense, not specified in the instrument. All that is urged in support of the view that shares are not so specified is that it is not stated in the instrument how the loss appertaining to the one -fourth share to the benefits of which the minor has been admitted would be shared.;