TaxTMI 
TaxTMI 
1957 (5) TMI 3
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....achines and produced rice from paddy. There was another company known as the Burma Co. Ltd. (hereinafter referred to as "Burma"). This company also had a few rice mills. It never purchased paddy or sold rice. All the shares of this company were held by Steels, who were also its managing agents. On or about November 29, 1928, an agreement was entered into between the Steels, Burma and Ellermans to provide for the amalgamated working of the Burma rice business in Burma and London of all the three companies under the management of Steels. The combined business of Steels, Burma and Ellermans was referred to therein as "the Combination". All stocks of Burma rice and by-products in hand at 30th November, 1928, were excluded from this agreement and remained the property of the individual owners to be disposed of by them as they thought fit and the entire business in Burma hitherto carried on by Ellermans was to be taken over and managed by Steels as from 1st December, 1928, and conducted from Steels' offices in London, Rangoon and other Burma branches in Steels' name solely and in conjunction with the whole of the rice business of all descriptions of Steels and Burma and Steels were to ....
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....ion for registration was signed by two partners, Steels and Ellermans, whereas the partnership deed showed that it was a partnership of three partners and that the individual shares of Steels and Burma were not shown separately. The assessee preferred an appeal to the Income-tax Appellate Tribunal (Calcutta Bench) and by its order dated the 20th February, 1951, the Tribunal held that although the agreement entered into on November 29, 1928, showed that the three companies would carry on the whole of their Burma rice business on amalgamation, on an examination of the agreement it would appear that the companies which formed the partnership were really Steels and Ellermans ; and Burma which was a hundred per cent. subsidiary of Steels had hardly anything to do with the Combination. In its order the Tribunal observed : " In order to determine whether there was a partnership we have to look into the surrounding circumstances also under section 6 of the Partnership Act and reading the document as a whole and considering the fact that it was drawn up in 1928, and also taking into account the profit and loss account of the Burma Co., for the years ending November, 1941, November, 1942....
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....al shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (2) 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." Rule 2 of the Indian Income-tax Rules, 1922, prescribes : " Any firm constituted under an instrument of partnership specifying the individual shares of the partners may, under the provisions of section 26A of the Indian Income-tax Act, 1922 ............. Such application shall be signed by all the partners (not being minors) personally, or in the case of a dissolved firm by all persons (not being minors) who were partners in the firm immediately before dissolution and by the legal representative of any such partner who is deceased ..............." In order that an application for registration be entertained by the Income-tax Officer and the partnership registered for the purpose of the Act, it is necessary that the application s....
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....er purchased paddy or sold rice, (iii) that no share of the profits of the Combination had ever been paid to or received by Burma and (iv) that in the carrying out of the agreement the only earnings of Burma had been by way of milling hire paid by Steels to Burma. We shall at the appropriate place consider the bearing of these facts and circumstances on the question arising for our determination. Turning now to the agreement dated 29th November, 1928, we find in the first instance that it is an agreement entered between three parties, viz., Steels, Burma and Ellermans, to provide for the amalgamated working of the Burma rice business in Burma and London of Steels, Burma and Ellermans under the management of Steels. The entire business in Burma rice hitherto carried on by Ellermans is to be taken over and managed by Steels as from 1st December, 1928, and conducted from Steels' offices in London, Rangoon and other Burma branches in Steels' name solely and in conjunction with the whole of the rice business of all descriptions of Steels and Burma. Steels are to conduct the said business in such manner as they in their absolute discretion shall think fit. The combined business of Stee....
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....settlement of which specific provision has been therein made, the same is to be decided by arbitration in accordance with the provisions of the Arbitration Act, 1889 (clause 13). It is further declared that in entering into the agreement and making the arrangements thereby contemplated, the parties intend to work their respective businesses jointly and give mutal assistance to each other and secure greater economy in working (clause 14). The agreement is signed not only by Steels and Ellermans but also by one James Kilgour Michie for and on behalf of Burma. The clauses of the agreement hereinabove set out would, if there was nothing more, spell out a partnership between the Steels, Burma and Ellermans. The relationship which has been brought into existence between the three parties is a relationship between partners who have agreed to share the profits of a business carried on by all or any of them acting for all within the meaning of the definition of partnership given in section 4 of the Indian Partnership Act, 1932. Even if the definition of partnership which was contained at the relevant date in section 239 of the Indian Contract Act (IX of 1872) be taken into account, the re....
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....r bankers in connection with bills and drafts (clause 11b). (10) The right to have their London office drawn upon for a fair share of clean drafts (clause 11c). (11) A specific provision made in clause 14 for the protection of their interests. These are specific provisions made in favour of Ellermans under the terms of the agreement none of which obtains so far as Burma is concerned. It is therefore urged that Burma could not be a partner along with Steels and Ellermans in the Combination. It has, however, to be noted that Burma was a subsidiary company of the Steels and all the hundred per cent. shares of Burma were owned by the Steels. Steels were moreover the managing agents of Burma. The relationship between Steels and Burma was thus a relationship between a parent company and a subsidiary company and even though in law they were separate entities they were in reality one and the same. There was no conflict of interests at any time between Steels and Burma, and Steels who were the managing members of the Combination were expected not only to look after their own interests but also the interests of Burma. The Ellermans on the other hand were strangers who became members of t....
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....agreed under clause 3a of the agreement to have a joint share in the profit or loss of the Combination along with Steels and also agreed that whatever came to their joint share should be received by the Steels and that is why clause 3a provided for the actual division of the profit or loss between the Steels and Ellermans. The fact that no provision was made for the receipt of any share by Burma in the profit or loss falling to the joint share of Steels and Burma does not necessarily mean that Burma had no share in the Combination. There is no ambiguity whatever, nor is there any mystery or mistake in the provision contained in clause 3a in regard to the distribution of the profit or loss of the Combination. As a matter of fact, clause 3a definitely points to the conclusion that Burma was a partner along with Steels and Ellermans in the Combination. On a true construction of the agreement dated 29th November, 1928, we have, therefore, come to the conclusion that Burma was a partner along with Steels and Ellermans in the Combination and had a joint share with the Steels in the profit or loss of the Combination. It was entitled to terminate the partnership by giving notice to the o....
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....ombination and there could not be any independent purchase of paddy or sale of rice by Burma after the Steels assumed and carried on the management of the business of the Combination. The circumstance that no share of the profits of the Combination had ever been paid to or received by Burma has been already explained above. The Steels and Burma had a joint share amongst themselves which was roughly two-thirds of the total profit or loss of the Combination. All the hundred per cent. shares of the Burma were owned by Steels and if as a result of internal arrangement between themselves the Steels appropriated to themselves all the profits which came to the Steels and Burma jointly in the Combination, that was certainly not a circumstance which would go to show that Burma was in fact no partner in the Combination. The further circumstance that in the carrying on of the agreement, the only earnings of Burma had been by way of milling hire paid by Steels to Burma, again is of no consequence. So far as the books of account of the Combination were concerned it does not appear that there was any payment by the Combination to Burma at all of the milling charges and if by some arrangement bet....