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1957 Supreme(SC) 62
SUPREME COURT OF INDIA
(From : Income Tax Ref. No. 40 of 1952, D/- 3-6-1953 - Cal.)
17th May, 1957.
BHAGWATI, S.K. DAS AND KAPUR JJ.
Steel Brothers and Co. Ltd., Appellants
Versus
Commissioner of Income Tax, Respondent.
Civil Appeal No. 217 of 1955.
Advocates appeared
Mr. Sukumar Mitra Sr. Advocate (M/s. S. N. Mukherjee and B. N. Ghosh Advocates with him), for Appellants; Mr. C. K. Daphtary, Solicitor General of India (M/s. G. N. Joshi and R. H. Dhebar, Advocates with him), for Respondent.
B.N.GHOSH, C.K.DAFTARY, G.N.Joshi, R.H.Dhebar, S.N.MUKHERJEE, SUKUMAR MITRA
A partnership 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.
Headnote:
INCOME TAX - Registration of partnership - Partnership deed - Construction - Whether Burma was a partner in the Combination along with Steels and Ellermans - Held, yes - 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.
Fact of the Case:
Prior to November 29, 1928, Steel Bros. and Co., Ltd. (Steels) and Ellerman's Arracan Rice and Trading Co., Ltd. (Ellermans) carried on trade in Burma rice and/or its by-products in Burma, in London and elsewhere inter alia through Burma and London Bullenger Rice Pool and the New General Rice Company Limited. Apart from the selling of rice, both these Companies had rice milling machines and produced rice from paddy. There was another Company known as the Burma Co. Ltd., (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 officers 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 conduct the said business in such manner as they in their absolute discretion should think fit. The profit or loss of the business of the Combination carried on at the under-mentioned places was to be shared by and divided between Steels and Ellermans in the following ratios: Rangoon Bassein Akyab Moulmein Steels & Burma 68% 68% 32% 72% Ellermans : 32% 32% 32% 28% (Cl. 3a) The rice mills belonging to Burma viz., Burma. Uppar Kanungtoe Mill in Rangoon, Burma Mill in Bassein and Burma's Martaban Mill in Moulmein were to be worked by the Steels for the purpose of the Combination. (Cl. 4a). The agreement was to take effect as from 1st December, 1928, and could be terminated on 30th November, 1930, or on any subsequent 30th November by any party giving notice to that effect to others not later than the preceeding 1st August. Cl. (12). The agreement was signed and the common seals of Steels and Ellermans were affixed thereto and it was also signed by one James Kilgour Michie for and on behalf of Burma.
Finding of the Court:
On a true construction of the Agreement dated November 29, 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 other partners as specified in Cl. 12 of the Agreement. It had also a right to refer all the disputes arising between the partners to be decided by arbitration in accordance with the provisions of the Arbitration Act, 1889. There was a sharing of the profit or loss of the business of the Combination and there was also an agency in so far as Steels were to manage and carry on the business on behalf of all the partners of the Combination. Thus all the ingredients of partnership were satisfied and it is futile to urge that the agreement was hybrid document which was a tripartite agreement so far as the business of the Combination was concerned and was a partnership agreement only between two partners, viz., Steels and Ellermans. There is not the slightest doubt whatever that Burma was a partner with Steels and Ellermans in the business of the Combination and the partnership which was entered into under the terms of agreement was a partnership between three partners, viz., Steels, Burma and Ellermans.
Issues: Whether on a proper construction of the deed of agreement dated November 29, 1928, and having regard to the relevant facts and circumstances of the case, the Tribunal was right in holding that the partnership was really between Steels and Ellermans and that therefore registration should have been allowed under S. 26-A of the Indian Income Tax Act.
Ratio Decidendi: The relationship 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 S. 4 of the Indian Partnership Act, 1932.
Final Decision: Appeal dismissed with costs.
Judgment
BHAGWATI, J. : This appeal with special leave is directed against a judgment and order of the High Court of Judicature at Calcutta delivered on a reference by the Income Tax Appellate Tribunal (Cal. Bench) under S. 66(1) of the Indian Income Tax Act (Act XI of 1922) hereinafter referred to as "the Act" whereby the High Court answered the referred question in the negative.
2. The facts leading up to this appeal may be shortly stated as under :
Prior to November 29, 1928, Steel Bros. and Co., Ltd. (hereinafter referred to as "Steels") and Ellerman s Arracan Rice and Trading Co., Ltd. (hereinafter referred to as "Ellermans") carried on trade in Burma rice and/or its by-products in Burma, in London and elsewhere inter alia through Burma and London Bullenger Rice Pool and the New General Rice Company Limited. Apart from the selling of rice, both these Companies had rice milling machines 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.
3. 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 officers 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 conduct the said business in such manner as they in their absolute discretion should think fit. The profit or loss of the business of the Combination carried on at the under-mentioned places was to be shared by and divided between Steels and Ellermans in the following ratios :
Rangoon Bassein Akyab Moulmein
Steels & Burma 68% 68% 32% 72%
Ellermans : 32% 32% 32% 28% (Cl. 3a)
The rice mills belonging to Burma viz., Burma. Uppar Kanungtoe Mill in Rangoon, Burma Mill in Bassein and Burma s Martaban Mill in Moulmein were to be worked by the Steels for the purpose of the Combination. (Cl. 4a). The agreement was to take effect as from 1st December, 1928, and could be terminated on 30th November, 1930, or on any subsequent 30th November by any party giving notice to that effect to others not later than the preceeding 1st August. Cl. (12). The agreement was signed and the common seals of Steels and Ellermans were affixed thereto and it was also signed by one James Kilgour Michie for and on behalf of Burma.
4. In connection with the assessments for the assessments years 1943-44 and 1944-45 the Combination (which is hereinafter referred to as "the assessee") made applications to the Income Tax Officer under S. 26-A of the Act for registration of their partnership said to be constituted of Steels and Ellermans. These applications were signed by the Steels and Ellermans only and were supported by a copy of the Agreement dated November 29, 1928, which was relied upon as the instrument of partnership of which registration was sought.
5. By two separate orders dated March 19, 1948, and March 31, 1949, the Income Tax Officer, District V. Calcutta, refused registration of the partnership on the ground (i) that the partnership was not constituted of Steels and Ellermans only but was constituted of those two parties and a third party, viz., Burma and that the partnership deed did not specify the sh
