TaxTMI 
TaxTMI 
1959 (4) TMI 45
X X X X Extracts X X X X
X X X X Extracts X X X X
....t profits. (b) Sudhir Chandra Mitter - 30 percent. of the net profits. (c) Sukumar Mitter - 20 percent of the net profits. (d) Sushil Chandra Mitter - 10 percent. of the net profits. 4. The firm intimated its bank, the Bengal Central Bank, Limited, (as it then was), of the constitution of the firm as set out above, by its letter dated April 15, 1948. The letter also stated that a partnership deed was going to be drawn up and executed by the partners aforesaid, and that the deed so drawn up will be forwarded to the bank in due course. Though the firm is said to have come into existence in April, 1948, the deed of partnership, which is set out as annexure "A" at page 5 of the paper book, was drawn up only on September 27, 1949. This deed of partnership appears to have been registered under the provisions of the Indian Partnership Act, on October 12, 1949. It was also forwarded to the Bengal Central Band, Ltd. Head Office at Calcutta, as it appears from the seal of the bank and the signature dated December 7, 1949. An application to register the firm under section 26A for the assessment year 1949-50, was made to the Income-tax authorities. The firm preferred an appeal to the In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, he conclude with the remarks : "It appears to me to be desirable that the language of the section, as also that of the Rules should receive legislative attention." 6. In Civil Appeal No. 389 of 1957, Messrs. D. C. Auddy & Brothers, Calcutta, claim to be a partnership consisting of Dulal Chand Auddy, Prem Chand Auddy Gora Chand Auddy and Kalipada Nandy. The partnership business is said to have begun in June, 1944. An application was made on August 24, 1949, for the registration of the partnership. The Income-tax Officer and the Appellate Assistant Commissioner were of the opinion that the partnership was not a genuine one, and could not be registered. Another reason for not ordering registration was that the partnership deed, having been executed on June 2, 1948, could not be operative during the two years under consideration, namely 1945-46 and 1946-47. On appeal, the Income-tax Appellate Tribunal rested its decision on the finding that the alleged partnership had not been constituted under an instrument of partnership within the meaning of those words in section 26A of the Act. At the instance of the assessee, the Tribunal framed the following question for determined by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Rules before those amendments. Rules 2 requires such an application to be signed by all the partner personally, and to be made before the income of the firm is assessed for the year under section 23 of the Act. Rule 3 requires that the application be made in the Form annexed to the rule, and that the application "shall be accompanied by the original instrument of partnership under which the firm is constitute..." The Form appearing in rule 3 requires the assessment year to be specified. Thus, the registration is for a particular year of assessment, and not for future years also, and therefore, the application for registration has to be made every year, which in fact means an application for renewal of the registration. Paragraph 3 of the Form requires a certificate to be signed by the applicants for registration, to the effect that the profits (or loss, if any) of the previous year were divided or credited as shown in section B of the Schedule. The form contains the Schedule in 7 columns which require the names of the partners, their addresses, the date of admittance to partnership, their shares in the profits or loss, etc., to be filled in. Under the Schedule, there are section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om what has been said above with reference to the relevant provisions of the Act, that the certificate of registration has reference to a particular assessment year, and has effect for the assessment to be made for that particular year. In other words, the terms of the partnership should appear in instrument of partnership in respect of the relevant accounting year. It is equally clear that the firm to be registered should have been in existence during the accounting year, "constituted as shown in the instrument of partnership". The Rules, thus, contemplate a document operative during the accounting year. We are not here concerned with the further question whether the document should be in existence at the very inception of the accounting year, or before the year is out. The provision of the Act, set out above, do not present any serious difficulty except for the words "constituted under an instrument of partnership" occurring in section 26A and the relevant Rules. On the interpretation of these words, there has been a conflict of judicial opinion, as will presently appear. On behalf of the assessee-appellants, it has been contended that so long as the assessment has not been a m....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the firm should have been created by an instrument of partnership, or, at any rate, such an instrument should be in existence during the relevant accounting year, that is, the year previous to the year of assessment in respect of which the application for registration has been made. For the first part of the submission on behalf of the respondent, there is ample authority in the decision under appeal which had been relied upon before the Bombay High Court. In that case, (R. C. Mitter & Sons v. Commissioner of Income-tax) Chakravarti, C.J. Who delivered the opinion of the court under section 66(1) of the Act, after a very elaborate discussion, came to the conclusion which may best be expressed in his own words, as follows : "If by the expression constituted under an instrument of partnership is meant a firm which originated in a verbal agreement but with respect to which 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r an instrument of partnership" have some meaning which can be attributed to them harmoniously with the rest of the relevant provisions. A partnership may be created or set up by a contract in writing, setting out all the terms and conditions of the partnership, but there may be many cases, and perhaps, such cases are more numerous than the other class where a partnership has been brought into existence by an oral agreement between the parties on certain terms and conditions which may subsequently be reduced to writing which will answer the description of an instrument of partnership. Such an instrument would, naturally, record all the terms and conditions of the contract between the parties which, at the initial stages, had not been reduced to writing. In such a case, though the partnership had been brought into existence by an oral agreement amongst the partners, if the terms and conditions of the partnership have been reduced to the form of a document, it would be right to say that the partnership has been constituted under that instrument. The word "constituted" does not necessarily mean "created" or "set up", though it may mean that also. It also includes the idea of clothing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessed upon their individual total income than upon the total income of the partnership. It is, therefore, very important from the point of view of the Revenue that the Department should be apprised in time of the true constitution of the partnership, the names if the true partners and the precise shares of each of them in the partnership profits (or loss, if any). The very object of this provision will be defeated if the alleged partnership is not genuine, or if the true constitution of the partnership and the respective shares of the partner are not fully and correctly placed on record as soon as possible, for the purpose of assessment. In this connection, the provisions of section 28(2) of the Act are also worth noticing. That sub-section provides that if the Income-tax Officer or the appellate authorities under the Act are satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners, as shown in the instrument of partner-ship registered under the Act, and governing such distribution, and that any partner has concealed any part of his profits, the penalty prescribed therein may be imposed upon such a partne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the learned Judges ruled that the second partnership deed of September 12, 1951, which set out the names and shares of all the partners who constituted the partnership, could be registered in respect of the accounting year November, 1948, to October, 1949. This conclusion was arrived at without even a mention, far less a discussion, of the relevant provisions of the Act. Apparently the matter was not critically placed before the learned Judged, when they decided the second case. The conclusion in this case is, with all respect, apparently wrong in view of our conclusion that the instrument of partnership should have been in existence in the accounting year. 14. In the High Court of Punjab, the question was fully discussed in a judgment of a Division Bench, given by one of us (Kapur, J., as he then was), in the case of Kalsi Mechanical Works v. Commissioner of Income-tax. In that case, the firm had come into existence by a verbal agreement in June 1944. The deed of partnership was drawn up as late as May 9, 1949. The application for registration of the firm under section 26A for the assessment year 1949-50, was dismissed by the Income-tax authorities as also by the Tribunal. The Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed and for a particular assessment year. More or less to the same effect are two other Division Bench rulings of that High Court in Bery Engineering Co. v. Commissioner of Income-tax Delhi. and Income-tax Commissioner v. Messrs. Birdhi Chand Girdhari Lal. In all these cases in the Punjab High Court, the deeds came into existence later than the accounting year or the assessment year, and, therefore, could not have been registered. The actual decisions in these cases were correct, though there are obiter dicta to the effect that section 26A requires that the firm should have been created or set up by an instrument of partnership. 16. In the Patna High Court, the very same question was discusses at great length by a Division Bench of that court, presided over by Ramaswami, C.J., in the case of Khimji Walji & Co. v. Commissioner of Income-tax. The learned Chief Justice, after an elaborate examination of the relevant provisions of the Act, came to the conclusion in these terms : "It is necessary for the purpose of registration under section 26A that the partnership should be constituted by an instrument of partnership and that such a partnership as is constituted under an instrument ....