An instrument of partnership must specify the individual shares of the partners in order to be eligible for registration under S. 26-A of the Income-tax Act, 1922.

Judgment

KAPUR, J. : This is an appeal against the judgment and order of the High Court of Judicature at Madras. The assessee is the appellant and the Commissioner of Income-tax is the respondent.

2. A partnership consisting of four persons was formed by a deed of partnership dated March 31, 1949. On July 27, 1951 another partner was taken into partnership and a new deed was drawn up. The previous partnership deed was considered as the principal deed. The new partnership like the old one was to end on March 31, 1954. On March 29, 1954, a new partnership was entered into and a sixth partner was taken and a new deed was executed. The new partner contributed Rs. 40,000 as his share to the capital but in the partnership deed no express provisions was made as to the manner in which profits and losses were to be divided between the partners. In order to rectify this, a deed of rectification was executed on September 17, 1955, which was after the close of the account year 1954-55. This deed recited that an error had crept in typing the partnership deed dated March 29.1954, by omitting to type Cl. 21 of the old partnership deed in the new deed. The parties had therefore agreed to rectify the error by adding Cl. 20-A as follows:-

"We hereby agree that for purpose of clarification the following clause shall be added as Cl .20-A in the Partnership instrument, dated 29th March, 1954:-

The parties shall be entitled to shares in the profits and losses of the firm in proportion to the contribution of the capital of each of the partners and whenever fresh capital is required for the business, each partner shall be liable to contribute the additional capital in the same proportion as the paid up capital referred to in Cl. 4 of the deed, dated 29th March, 1954 ."This is signed by all the partners.

3. Up to the end of assessment year 1954-55, the old firms i.e., the one constituted of four partners and the other constituted of five partners were registered under S. 26-A of the Income-tax Act (hereinafter termed the Act ). The appellant firm then applied for registration for the assessment year1955-56. The Income-tax Officer pointed out to the appellant firm that there was no specification of shares of the partners in the deed of partnership. Thereupon the appellant submitted the deed of rectification dated September 17, 1955, above mentioned and submitted that the original deed did specify the shares of the partners and the deed of rectification only clarified the position. But the registration was refused by the Income-tax Officer and an appeal taken against that order of the Assistant Commissioner was dismissed. Further appeal was taken to the Income-tax Appellate Tribunal which also failed. At the request of the appellant the following question was referred to the High Court for its opinion:-

"Whether the assessee firm is entitled to registration u/s 26-A of the Income-tax Act for the assessment year 1955-56."

The High Court held that under S. 26-A of the Act the factual existence in the year of account of an instrument of partnership was necessary, a requisite which, in the present case, was lacking and therefore the provisions of S. 26-A were not satisfied and that the specification of shares only took place on September 17, 1955, when the deed of rectification was executed. The question was therefore answered in the negative. Against this judgment and order the appellate has come in appeal to this court by certificate of the High Court.

4. It was contended that Cls. 9, 11, 34 and 41(a) sufficiently specified the shares of the partners and satisfied the requirements of the law. These clauses were as follows:-

Cl. 9. "Such extra contribution made by the partners shall be credited to the respective partners under an account called "Extra Capital Subscription Account and for the period of the utilisation of the whole or part thereof during the course of the year or years, it shall be treated as capital contribution only for the purpose of dividing pr