1953 (12) TMI 34 - HC - Income Tax

Oral Partnership Agreement Valid for Registration under Income-tax Act: Punjab & Haryana High Court Decision

Bery Engineering Co. Versus Commissioner of Income-tax

The Punjab & Haryana High Court, in a judgment delivered by Justice Falshaw, ruled that a firm formed by an oral agreement but later documented in ... - Issues:Whether a firm constituted by oral agreement, later reduced to writing, is entitled to registration under section 26A of the Income-tax Act.Analysis:The judgment by the Punjab & Haryana High Court, delivered by Justice Falshaw, addresses the issue of whether a firm formed by oral agreement but subsequently documented in writing is eligible for registration under section 26A of the Income-tax Act. The case involved the Bery Engineering Company of Delhi, initially a one-man business, which transformed into a partnership involving the owner and his sons. The partnership transitioned from oral to written form through a partnership deed executed on September 8, 1949. The Income-tax authorities and the Tribunal rejected the registration applications for the partnership, citing its oral formation in April 1949. However, the Tribunal sought clarification on the legal aspect of registration under section 26A.Justice Falshaw analyzed the interpretation of 'constituted under an instrument' in section 26A, referencing precedents like the Ram Gulam-Madan Lal case. The judgment emphasized that the phrase implies creation through a formal deed, but the partners' claim of prior oral partnership does not necessarily disqualify registration under section 26A. While acknowledging that a deed cannot retroactively impact tax assessments, Justice Falshaw opined that partners should be allowed registration when their partnership terms are documented, even if they claim prior existence orally. The judgment highlighted the legislative intent to facilitate partnership registration for accurate income-tax assessment, rejecting a strict interpretation that penalizes partners for mentioning prior oral agreements in the deed.Consequently, Justice Falshaw answered the legal question affirmatively, advocating that presenting a partnership deed for registration, even with claims of prior oral partnership, should not hinder firm registration under section 26A. The judgment clarified that this decision does not prejudge the firm's 1950-51 assessment or the partnership's genuineness, leaving those aspects to be determined by the Income-tax authorities. Chief Justice Bhandari concurred with the decision, and the court directed each party to bear their own costs, concluding the judgment.