1942 (6) TMI 10 - HC - Income Tax

Registration Requirements for Indian Income-tax Act 1922: Impact of Partnership Deed Clause Interpretation

The applications for both fresh registration and renewal of the existing registration under Section 26-A of the Indian Income-tax Act, 1922 were rightly ... - Issues Involved:1. Fresh registration of the firm under Section 26-A of the Indian Income-tax Act, 1922.2. Renewal of the existing registration under Section 26-A of the Indian Income-tax Act, 1922.3. Interpretation of clause 19 of the partnership deed and clause 12 of the will.Issue-wise Detailed Analysis:1. Fresh Registration of the Firm under Section 26-A of the Indian Income-tax Act, 1922:The application for fresh registration was submitted by the surviving partner and the three trustees of the deceased partner's estate. The form prescribed for an application for fresh registration mandates that 'the application must be signed by all the partners in the firm as constituted at the date on which the application is made.' The trustees specifically claimed to be partners in the Makerwal Colliery. However, the will made by the late Mr. Bevan Petman merely appointed them as trustees of the estate and authorized them to continue the business in the interests of the beneficiaries. This appointment did not suffice to make them partners. Moreover, the instrument of partnership referenced in the application was the old instrument drawn up by the original partners, with no new instrument referring to the trustees as partners. Therefore, the application did not state the actual position and was rightly rejected on that ground.2. Renewal of the Existing Registration under Section 26-A of the Indian Income-tax Act, 1922:The application for renewal was based on the assumption that the death of Mr. Bevan Petman had made no material difference to the position. Section 42 of the Partnership Act states that 'subject to contract between the partners a firm is dissolved by the death of a partner.' The assessee's contention was that the partnership continued in accordance with the contract embodied in clause 19 of the partnership deed. However, there can be no firm unless there are at least two existing partners. In this case, only one of the partners survived, and he alone could not be treated as a firm. The estate or the trustees could not be legally regarded as the same person as the late Mr. Bevan Petman. They were different persons and could not take the place of Mr. Bevan Petman as a partner in the absence of a special agreement to that effect. Consequently, the constitution of the firm as specified in the old instrument of partnership had not remained unaltered, an essential condition for the renewal of registration. Hence, the second application was rightly rejected.3. Interpretation of Clause 19 of the Partnership Deed and Clause 12 of the Will:Clause 19 of the partnership deed stated that 'the death of either partner shall not terminate the partnership business and the legal representative of a deceased partner shall be entitled to the benefit of the said lease from Government jointly and equally with the surviving partner and to the benefit of this agreement.' The trustees argued that this clause meant the firm was not to be dissolved by the death of any partner and the legal representative was entitled to become a partner with the same rights and obligations as under the partnership deed. However, clause 12 of Mr. Bevan Petman's will directed that 'my trustees may carry on or join in carrying on for so long a period as they may think fit the trade or business now carried on by me in partnership with Lala Ishar Das.' This clause imposed a further obligation on the trustees to exercise their discretion before adopting the partnership or the term of the lease. Therefore, the trustees had to exercise their discretion to either accept the terms of the old agreement or form a new partnership. The exercise of this discretion constituted a new partnership, even if it had the same terms and existence as the old partnership deed.Judgment:The applications for both fresh registration and renewal of the existing registration were rightly rejected. The trustees did not automatically become partners under the old partnership deed by the operation of clause 19. Instead, a new partnership was constituted by the exercise of discretion under clause 12 of the will read with clause 19 of the partnership deed. The new firm could not apply for the renewal of registration or for the registration of the original partnership. The only course open to the new partners, if they sought registration, was to execute a new deed of partnership and apply for the registration of that deed.Separate Judgment by Muhammad Monir, J.:Muhammad Monir, J. agreed with the judgment, stating that where the legal representatives of a deceased partner are entitled but not bound to come in as partners, the constitution of the firm is altered if they elect to continue the partnership. Therefore, the new firm cannot apply for the renewal of registration or for the registration of the original partnership. The new partners must execute a new deed of partnership and apply for its registration.Reference Answered in the Affirmative:The reference was answered in the affirmative, and costs were to be recovered from the Rs. 100 deposited with the Commissioner.