AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1959 (4) TMI 4
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....ofits of the partner ship business are stated to be as under : (a) Ramesh Chandra Mitter-40 per cent. of the nett profits. (b) Sudhir Chandra Mitter-30 per cent. of the nett profits. (c) Sukumar Mitter-20 per cent. of the nett profits. (d) Sushil Chandra Mitter-10 per cent. of the nett profits. 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 Bank, 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 26....
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....after having convinced himself that "constituted" could be equated with "created". He also found no difficulty in observing that "some of the paragraphs of the Form appear to be ill-adjusted to the provisions of the Act and the Rules". In the end, therefore, he concluded 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." 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 f....
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..... Income-tax Rules 2 to 6B lay down the details of the procedure for making an application for the registration of a firm, as contemplated under section 26A, quoted above. These Rules have been amended extensively in 1952, but we are concerned in this case with the Rules before those amendments. Rule 2 requires such an application to be signed by all the partners 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 constituted..." 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....
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.... have been divided or credited, as the case may be, in accordance with the terms of the instrument ; and lastly, (5) That the partnership must have been genuine, and must actually have existed in conformity with the terms and conditions of the instrument. It is clear from 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 provisions of the Act, set out above, do not present any serious difficulty except for the words "constituted under an instrument of partn....
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....period. such a deed should have come into existence on or before the commencement of the relevant accounting period. The other decision relied upon in the Bombay High Court had been given by a Division Bench of the Punjab High Court, reported in Padam Parshad Rattan Chand v. Commissioner of Income-tax, Delhi. On the other hand, it has been contended on behalf of the Revenue that in order to entitle a firm to be registered, 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. Miller & 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 I consti....
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....Legislature was to limit the registration of firms to only those which have been created by an instrument of partnership, is, with all respect, erroneous. The Proper way to construe the provisions of the statute is to give full effect to all the words of the relevant provisions, to try to read them harmoniously, and then to give them a sensible meaning. Hence, we have to consider, at the threshold, the question whether the words "constituted under 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 reduc....
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....e the words "constituted under" in that wider sense, we give effect to the intention of the Legislature of compelling a firm which had existed as a result of an oral agreement to enter into a document defining the terms and conditions of the partnership, so as to bind the partners to those terms, before they could get the benefit of the provisions of section 23(5)(a). Section 23(5)(a) confers a privilege upon partners who may find it more worth their while to be 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 of the true partners and the precise share 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 partners 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 notici....
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....ing year, whatever that year may have been, because the year 1946 was the starting year of the partnership. Hence, even the earliest assessment year, presumably the year 1947-48, would be governed by the terms and conditions of the written instrument of partnership aforesaid. The decision of the Bombay High Court was followed by the same Bench of that court in the case of Commissioner of Income-tax v. Shantilal Vrajlal & Chandulal Dayalal & Co. In the second case, 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 Judges, 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. In the High Court of Punjab, the question was fully discussed i....
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....d under the instrument as from the date of the instrument itself. The answer of the court to the question posed was that the firm could be registered not in respect of the assessment year for which the application had been made, but with effect from the date of the instrument. Apparently, the attention of the court was not drawn to the rules aforesaid, particularly, rules 2 and 3, which require that the application has to be made before the assessment is completed 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. In the Patna High Court, the very same question was discussed at great length by a Division Ben....