TaxTMI 
TaxTMI 
1955 (8) TMI 43
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.... respect to its assessment for the assessment year 1949-50, an alleged firm, calling itself Messrs. R.C. Mitter & Sons, made an application for registration and, along with the application, filed an instrument of partnership executed on the 27th of September, 1949. The relative accounting year was the period between the 14th of April, 1948, and the 13th of April, 1949. The applicant's case was the a partnership had been formed by verbal agreement on the 14th of April, 1948, and that throughout the accounting year that partnership had subsisted. In support of its case that the partnership had come into existence on the 14th of April, 1948, the applicant relied on a letter addressed to a bank on the 15th of April, 1948, whereby the constitution of the firm was communicated to the bank. It would, however, appear from that letter that if it represented the correct state of things, the firm had been constituted even earlier and what had happened on the 14th of April, 1948, was that a third son of Sri R.C. Mitter had been admitted to the partnership. The letter contained no specification of the shares of the individual partners. The Income-tax Officer rejected the application for re....
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....red that the partnership should originate in a written instrument and should be created by it. He pointed out that the section spoke of a firm constituted "under" an instrument of partnership and not a firm constituted "by" an instrument. The preposition "under", Mr. Mitra contended, could not possibly connote that the instrument to which it referred would be an instrument by the force of which the firm had been constituted. Mr. Khaitan, who appeared in the next Reference, Sri D.C. Auddy & Brothers v. Commissioner of Income-tax, West Bengal Reported infra at p. 713 (Income-tax Reference No. 17 of 1953) submitted to us that one of the points involved in his case was identical and prayed that before we decided the point in connection with the present Reference, he also might be given an opportunity for making his submissions. We accordingly heard Mr. Khaitan as well. He adopted the arguments of Mr. Mitra and in addition relied on the provisions of section 28(2) of the Act. It must be admitted that, as a matter of language, if section 26A contemplates a firm created by an instrument of partnership, the preposition "under" has been a very inapp....
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....ht into existence by some legislative enactment, so that it would be the law itself which would constitute the company directly and by its own force. Briefly stated, the view of the Court was that companies constituted by law meant statutory companies. The other case to which I would refer is the case of In re Smith; Davidson v. Myrtle [1896] 2 Ch. 590, which was concerned with a provision under which certain trustees had power to invest funds in companies "incorporated by Act of Parliament." The trustees invested their funds in a company properly constituted under the Companies Act and it was contended that since the Companies Act was an Act of Parliament and the company was constituted under or in accordance with the provisions of that Act, it was a company incorporated by an Act of Parliament. Once again, the Court held that such a company could not come under the description "incorporated by Act of Parliament", because what the expression contemplated was a company directly incorporated under the provisions of some legislative enactment. The company in which the funds had actually been invested was only a company incorporated under an Act of Parliament, but ....
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....hich a formal deed was subsequently executed, there would be no room in the section for partnerships actually created by an instrument and such partnerships, although most obviously entitled to registration, would be excluded from the purview of the section. Even etymologically or textually, I do not think that the word "constituted", when used in relation to a firm or such other body, can mean anything but "created" when the reference is to some deed or instrument to which the inception of the firm or other body is to be traced. Apart from the textual meaning, I consider it impossible to adopt a construction which would have no room for firms really created by an instrument as distinguished from firms created by a verbal agreement which is subsequently embodied in a formal deed. The difficulty created by the word "under" however remains. But, in my view, any embarrassment caused by that very unfortunate preposition is removed by the use of the expression "instrument of partnership", which carries, in itself, the meaning that the deed contemplated is one by which the parties thereto are agreeing in the present as to a course of business to b....
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....- "The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed." In view of the terms of sub-section (2), it is obvious that no construction of section 26A can be accepted as the true construction, unless it can stand alongside the rules and unless there is no disharmony between what the section, as construed, enjoins, and what the rules prescribe. The rules, as they now stand, contemplate that not only a firm existing at the time of the application for registration, but also a dissolved firm, can be registered. It was pointed out to us that the rules, as they stood originally, did not provide for the registration of a dissolved firm and that it was only by an amendment made in 1941 that dissolved firms were brought within the purview of the rules. Taking up the rules now, it is not necessary to refer to any of them for the present purpose, except rule 2(a), which provides for the normal case and lays down that an application for registration must be ....
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....ive accounting period and at the date of the application for registration. The result would be to exclude not only dissolved firms, but probably other firms as well, the constitution of which had changed. But we are informed that this note is required to be complied with only when it is applicable and that in practice, it is scored through in other cases. Proceeding now with the paragraphs, the next one is paragraph 4, of which only the first sub-paragraph is relevant. It says that on receipt of an application for registration, the Income-tax Officer shall enter a certificate of registration at the foot of the instrument or certified copy, if he "is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made." I am bound to say that this paragraph, if it is to be taken literally and containing the whole provision as to what the Income-tax Officer is to be satisfied about, would lend strong support to the view that what is meant by "any firm constituted under an instrument of partnership" in section 26A is no more than a firm of which the constitution appears from an inst....
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....ot;under", paragraph 2 may fairly be read as itself requiring that what has got to be filed is a deed by which the firm is or was constituted. If the stage of paragraph 2 cannot be passed without filing an instrument of partnership, being an instrument of the character I have just described, it was perhaps not thought necessary to provide in paragraph 4(1) that the instrument of partnership should be examined in order to see whether it created the partnership or merely recorded an earlier constitution. I must, however, confess that however much one might try to reconcile the language of paragraph 4(1) with what, to my mind, section 26A clearly means and implies, some disharmony remains. The effect of the disharmony is strengthened by the provision contained in sub-section (2) of section 26A to the effect that the application for registration "shall be dealt with by the Income-tax Officer in such manner as may be prescribed." If the manner prescribed in paragraph 4(1) of the form be that the Income-tax Officer shall only see whether the constitution of the firm is as shown in the instrument of partnership, it would seem that an instrument, not creating the partnership....
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....f partnership", as connoting or signifying "created by". I do not think that any argument in favour of the assessee's contention can be founded on section 28(2) of the Act. Certain decisions were referred to at the Bar to which I may now refer. In Kalsi Mechanical Works, Nandpur v. Commissioner of Income- tax, Simla [1953] 24 I.T.R. 353, and Income-tax Commissioner, Delhi v. Messrs. Birdhi Chand Girdhari Lal ([1955] 28 I.T.R. 280), both decided by the East Punjab High Court, it was held that where a firm was constituted by a verbal agreement, and such verbal agreement was followed by an instrument in writing, the instrument could not have retrospective effect and registration of the firm with respect to its assessment for any period prior to the date of the instrument could not be claimed. In Padam Prasad Rattan Chand v. Commissioner of Income-tax, Delhi [1954] 25 I.T.R. 335, and Bery Engineering Co. Delhi v. Commissioner of Income-tax, Delhi [1955] 28 I.T.R. 227, the proposition laid down in the two cases, which I have just referred to, was carried a little further and it was held that the fact that an instrument of partnership recorded the formation of the fir....
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....tnership by which the firm of which registration is sought was constituted, an instrument executed at or before the commencement of the relative accounting year and an instrument which governed the distribution of the profits in that year. I do not intend to say that some apparent difficulty may not be experienced in some cases in applying section 26A, as so construed. If there is a deed of partnership executed on a certain date, but it says that the partnership shall be deemed to have commenced on some date in the past, though actually there was no such partnership in existence then, no difficulty would arise. An application for registration could succeed only in respect of the firm constituted as on the date of the deed and with reference to the period commencing with and subsequent to that date. As was pointed out by Rowlatt, J., in Waddington v. O'Callaghan ([1931] 16 T.C. 187), when people enter into a deed of partnership and say that they are to be partners as from some date which is prior to the date of the deed, that does not have the effect that they were partners before the beginning of the deed. No one, the learned Judge observed, could alter the past by an agreement....