AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
1961 (8) TMI 61
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....of the following partners). (a) Kylasa Veeresalingam .... (b) Nagendra Rao } 090 2. K. Sathaiah .... 036 3. V. Narayana .... 036 Total 100 2. The application was signed by K. Veeresalingam, K. Nagendra Rao, K. Sathaiah and V. Narayana. The assessment year was 1955-56 and the accounting year for the relevant assessment year was from November 7, 1953, to October 26, 1954. The deed of partnership on which reliance was placed for the purpose of registration under the Indian Income Tax Act was dated December 12, 1953. The Income Tax Officer rejected the application. On appeal, the order of the Income Tax Officer was confirmed by the Appellate Assistant Commissioner which in its turn was confirmed by the Income Tax Appellate Tribunal, Hyderabad Bench. On an application filed by the assessee to the High Court, the Tribunal referred the above question for decision. The material portions of the de....
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.... Share held.. Rs. A. P. 1. Kylasa Sarabhaiah firm consisting of the partners: (i) K. Veeresalingam 1/2 share (ii) K. Nagendra Rao 1/2 share constituted under an instrument of partnership dated February 20, 1952 } 090 2. Kolluri Sathaiah 036 3. Veeravalli Narayana 036 Total&nb....
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....e a partnership between Kylasa Sarabhaiah, a firm constituted under an instrument of partnership dated February 20, 1952, and Kolluri Sathaiah and Veeravalli Narayana. It is well settled that a firm as such cannot become a partner of another firm. Section 4 of the Indian Partnership Act, 1932, defines "partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. This section further specifies that persons who have entered into partnership with one another are called individually " partners and collectively "a firm, and the name under which their business is carried on is called the "firm name". In Dulichand Laxminarayan v. Commissioner of Income Tax, the Supreme Court held that a firm is not an entity or "person" in law, but is merely an association of individuals and that a firm is only a collective name of those individuals, who constitute the firm and that a firm as such is not entitled to enter into a partnership with another firm or individuals. The Supreme Court, therefore, held that there can arise no question of registration of a partnership purporting to be one between three firms, a Hindu u....
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....ship constituted between the individual and the constituent members of the firm; and that such is the intention can be made clear if the partnership deed itself is signed not only in the name of the firm but by all the constituent members of that firm." 8. It was further held that : "An instrument of partnership may be constituted by one or several documents and what section 26A requires is that the documents which constitute the instrument of partnership must specify the shares of the partners; it is not necessary that the shares must be specified in one document along with the other terms of the partnership." 9. Chagla C.J., who delivered the judgment of the bench in that case, referred to the decision of the Supreme Court in Dulichand Laxminarayan v. Commissioner of Income Tax and distinguished it. The learned Chief Justice pointed out that, in that case, on a true reading of the partnership deed, it is the constituent members of the two firms and not the two firms as entities that had entered into the partnership with the individual and that fact was amply borne out both by the recitals and the fact that the partnership deed had been signed by the constituent mem....
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....ted to the benefits of the partnership and who were entitled to equal shares in the profits of that firm. This is not specified in the partnership deed in question, where, as already mentioned, only two adult partners, Veeresalingam and Nagendra Rao, were each shown as having been given half share in this entire 0-9-0 share allotted to the first partner, Kylasa Sarabhaiah firm. It has been held in Kannappa Naicker & Co. v. Commissioner of Income Tax, that : "A partnership cannot be registered as a firm under section 26A of the Indian Income Tax Act where the instrument of partnership does not specify on the face of it the individual shares of the partners. Therefore, where a partnership does not specify on the face of it the individual shares of the partners. Therefore, where a partnership consists of a firm and some individuals and the deed of partnership, while mentioning the proportion in which the profits and losses are to be shared between the firm and the other partners respectively, does not specify the shares of the partners of the firm which is a member of the partnership, the partnership cannot be registered as a firm under section 26A. The fact that the smaller ....
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....e instrument of partnership in question, it is stipulated that the profits or losses of the partnership firm shall be divided between and borne by the parties in the shares mentioned therein as and form September 5, 1953. It means that the minors, who were admitted to the benefits of the partnership under the instrument of partnership dated December 12, 1953, also could be equally liable for the losses. Such a course is not permissible in law. In Commissioner of Income Tax v. Dwarkadas Khetan & Co., it is pointed out by the Supreme Court that : "Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner, though with the consent of the adult partners he may be admitted to the benefits of partnership. Any document which goes beyond this section cannot be regarded as valid for the purposes of registration under section 26A of the Indian Income Tax Act. Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it." 14. It was also further held that : "If the Income Tax authorities register the partnership as between the adults only contrary to the terms of the document, ....