ORDER
R. JAYASIMHA BABU, J:
At the instance of the Revenue the question that has been referred to us which is common to the asst. yrs. 1974-75 and 1975-76, is as to whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the continuation of registration granted to the firm for the asst. yrs. 1974-75 to 1975-76 cannot be cancelled on the ground that on the attainment of majority by one of the minors admitted to the benefits of partnership, no new deed of partnership was drawn up by the partners.
2. The firm, Kikani & Co., Coirribatore, was constituted under the partnership deed dt. 8th June, 1963 and had inter alia, admitted one Kikani at that time Yogesh Kumar a minor to the benefits of partnership. The said minor attained the age of majority on 14th March, 1973. The firm had continued from year to year. After the erstwhile minor attained majority, he did not give any public notice that he has elected to become partner or opted out of the partnership firm, and consequently at the expiry of six months from 14th March, 1973 he became partner of the firm by virtue of the proviso to s. 30, sub-s. (5) of the Partnership Act. The date on which he attained the age of majority as also the expiry of a period of six months therefrom occurred in the accounting year of the firm which ended on 25th Oct., 1973. In that year no new deed for partnership was drawn up. The firm, however, initially filed the Form 11 prescribed under r. 22 of the IT Rules. The assessee having later realised that it was inappropriate form as that form was to be used only in case there was no change in the constitution of the firm and in the shares of the profits and losses among the partners in the firm and as in the books of the firm, the erstwhile minor was shown as having two per cent share in the losses and two of the partners Arvind K. Kikani and Vasantlal K- Kikani were shown as having a reduced share in the losses at 11 per cent each while according to the partnership deed they had 12 per cent share in the losses and the erstwhile
minor had no share in the losses, Form 11A was filed duly signed by all the partners and in which this change in the loss-sharing ratio was set out. The ITO initially granted registration for the firm in which these three persons had altered the ratio in which they were to share the losses. The order registering the firm was passed on 29th Nov., 1975. However, subsequently on 14th March, 1980, the registration was cancelled on the ground that the firm was not genuine. The cancellation was effected under s. 186 of the Act.
3. Against that order of cancellation the assessee appealed to the CIT(A). The CIT(A) allowed the appeal after observing that the cancellation had been effected on the basis of the Revenue audit objection and that in the experience of the CIT(A), the Revenue audit has all too frequently been introducing variations of its own invention into the taxing statute, and that after the CIT(A) had gone through ss. 184 and, 186 with a fine toothed comb, so to speak, he could not find anything in either provision to even remotely suggest that when a minor partner admitted to the benefits of the partnership comes of age and elects to continue as a partner, a fresh instrument of partnership has to be drawn up or that in the absence of such an instrument, the firm which has already been allowed registration for the year in which the change took place, such registration should be cancelled. The Tribunal to whom the Revenue carried an appeal against the order of the CIT(A) concurred with the view of the CIT(A) and also pointed out that several circulars issued by the Department also showed that when an erstwhile minor becomes a partner of firm, after attaining the age of majority, it was not essential that a fresh deed should be drawn up for the continuance of the registration of the firm.
3A. That view of the Tribunal has been objected to before us by the learned counsel for the Revenue. Learned counsel submitted that though under S. 2(23) of the Act for the purpose of income-tax even a minor has to be regarded as a partner in the firm, unless the context requires that they should not be so treated, and when the minor who is admitted to the benefits of the partnership and he attains the age of majority, and becomes a partner by reason of his inaction for a period of six months after attaining the age of majority, though it cannot be said that there is any change in the constitution of the firm, nevertheless it is essential that such a partner must have a share in the losses and that share must be ascertainable from the terms of the partnership deed, in order to permit the continuance of that firm as a registered firm. Counsel further submitted that, if any change in the loss sharing ratio is brought about by an agreement of parties, such a change should be reflected in and form part of a new partnership deed, and it is only on the basis of such a new partnership deed that fresh registration can be granted to that new firm.
3B. In this case, it was pointed out by counsel, admittedly, the original partnership deed showed that the two adult Kikanis were to have a 12 per cent share each in the losses while the erstwhile minor Yogeslikumar Kishendas was not to have any share in the losses and that position remains unaltered in the deed, even though all the partners including the Kikani who was the erstwhile minor had signed and filed Form 11A reporting change in loss sharing ratio. Consequently, it was submitted, it cannot be said that there was any deed of partnership which reflected the loss sharing ratio set out in the Form I 1A and in the absence of any such document, registration could not have been validly granted and it could not be said that there was any genuine firm in existence. The cancellation of registration on the ground that it was not genuine, it was submitted by counsel, was, therefore, fully justified and was in accordance with the terms of s. 186 of the Act.
4. Learned counsel for the Revenue, in support of his submission, referred to
the decision of the Full Bench of the High Court at Allahabad in the case of Badri Narain Kashi Prasad vs. Add]. CIT 1978 CTR (A11JB) 390 : (1978) 115 ITR 858 (Aff) (FB) wherein it was held by the Court that on the minor attaining the age of majority and electing to become a partner, the redistribution of the shares of the losses was necessary and should be ascertainable from a deed of partnership, and that in cases where the original deed itself provided as to how the share in the loss of the firm of the erstwhile, minor should be determined, drawing up the new deed of a partnership was unnecessary and even in the absence of such a fresh document, registration could be granted. Counsel also referred to the decision of the Madhya Pradesh High Court in the case of CIT vs. Hiralal Agrawal (1996) 218 ITR 21 (MP) wherein, after referring to the aforementioned judgment of the Allahabad High Court, it was held that even a minor modification in the loss sharing ratio in a partnership on the minor attaining the age of majority would amount to a change in the constitution of the firm. Counsel also referred to the judgment of the Allahabad High Court in the case of Raj Stores vs. C1T (1987) 65 CTR (All) 146 : (1988) 170 ITR 119 (All) : 5, wherein it was held that no oral agreement could be pleaded regarding the sharing of losses after the minor attained majority, as a loss-sharing ratio specified in the deed of partnership could not be altered by oral agreement, and in the absence of a written deed of partnership specifying the share of the erstwhile minor who had since become a partner in the losses of the firm it could not be said that firm was in existence which could be registered. It was also observed therein that a genuine firm for the purpose of s. 186 of the Act could not be equated with a legally constituted firm and that the concept of a genuine firm for registration purposes under the Act is that the firm must continue with the identity of the partner and the share ratio in the profits and losses, as specified in the deed.
5. Learned counsel for the Revenue fairly invited our attention to the recent decision of our Supreme Court in the case of Progressive Financiers vs. CIT (1997) 139 CTR (SQ 339: (1997) 224 ITR 595 (SQ). The Court after review of the decisions of the High Courts and the earlier decisions of the Supreme Court in the case of Mandyala Govindu & Co. vs. CIT 1976 CTR (SC) 20 : (1976) 102 ITR 1 (SQ) : 9 and Kylasa Sarabhaiah vs. CIT (1965) 56 1TR 219 (SC) : 9, held that the AO cannot reject an application for registration of a firm merely because in the deed of partnership the shares of the Partners are not expressly specified, and that even if the shares of the partners were not expressly specified in the instrument of partnership deed, if they could be ascertained by the ITO from the application and required information supplied therewith, then the requirements of the law could be said to have been satisfied. The Court also held that where the shares of the partners in the profits of the firm are unequal, the losses must be shared in the same proportion as the profits, if there is no agreement as to how the losses are to be apportioned.
6. For deciding the case on hand, we must take guidance from this judgment of the Supreme Court which has laid down with its reasonableness that must be the guiding style in order to construing the sufficiency of the documentation produced by the applicant for the registration of a firm. Minor omissions in the document or the statement of the same in a separate document of matters which could have been stated in the principal document are not factors which would deprive the firm of the benefit by registration. If it is necessary to construe the documents and a reasonable construction permits an inference which would help to supply what had not been expressly stated in the document, such an exercise is permissible, as where the share in the profits are
mentioned and the share in the losses are not mentioned in the instrument of partition. Also: if in another document which is reliable and is capable of binding the firm and the partners, is to be found declarations or statement, which construed along with the original document of partnership, would entitle the firm to registration, such registration is not to be denied only on the ground that all that is required to be stated has not been stated in a single document, namely, the deed of partnership.
7. In the instant case undoubtedly a partnership deed was drawn up in the year 1963. The firm had been registered. The registration had been continued from year to year. Even after one of the minors admitted to the benefits of the partnership, had attained the age of majority, the firm with the erstwhile minor as full-fledged partner with a specified share in the losses was recognised and registered in the year 1975. It is only five years later in 1980, the registration so granted, was cancelled on the ground that the firm was not genuine. The ITO held that the absence of a registration of a partnership deed incorporating therein all the terms of the partnership including the one relating to the share in the losses of the firm of the erstwhile minor and the consequent marginal reduction in the share in the losses by two of the partners, was decisive on the question of the existence and the genuineness of the firm. It is not the case of the Revenue that there was any change in the firm other than a change in the proportion in which the loss was to be shared among these Kikanis. The only change being the reduction from 12 per cent each to 11 per cent each in the extent to which the two adult Kikanis were to share in the losses, and the share of the erstwhile minor in the loss being now fixed 2 per cent while earlier he was not required to share in the loss as a minor. No other change had taken place in the firm. In this background what was required was ascertainment of the substance of the mater, rather than mere form, namely, the existence or otherwise of a new document setting out all the terms of the partnership. It is necessary to restate here that all the partners including the erstwhile minor had signed Form 11A filed before the ITO in which this’ ange in the loss sharing ratio was set out. It is always open to the partners by agreement among themselves to alter the terms of the partnership deed. The filing of the Form 11A duly signed by all the partners, in the circumstances should have been, as in fact, it was initially, regarded as an amendment to the partnership deed which admittedly had been drawn up and was in existence for several years from 1963.
8. Although after the change in the loss-sharing ratio, the registration granted to the old firm could not have been continued, the registration of the firm with the new loss-sharing ratio, however, could not have been denied. The ITO had rightly registered the firm, but erred in cancelling the same five years later. The ground on which cancellation was effected, namely, that the firm was not genuine, in the circumstances, is wholly unsustainable. The only reason given for holding that the firm is not genuine is the absence of a separate partnership deed, ‘Form 11A read along with the original partnership deed shows that the firm is genuinez.
9. The Tribunal, in our view, was right in holding that the continuation of registration granted to the firm for these assessment years could not have been cancelled on the ground that, on the attainment of majority by one of the minors admitted to the benefits of partnership, no new deed of partnership was drawn up by the partners.
10. We, therefore, answer the question referred to us in the affirmative against the Revenue and in favour of the assessee.
11. Having regard to the circumstances of the case, we direct the parties to bear their respective costs.
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