Judgment

SHAH J.: The appellants who are a firm carrying on business in cloth at Secunderabad applied on June 30, 1955, for registration under S. 26-A of the Indian Income-tax Act, 1922, for the assessment year 1956-57. The following persons were, it was recited in the application, partners, having share in the profits and losses in proportions specified against their names:-

1. M/s. Kylasa Sarabhaiah a firm consisting of the following partners:

(a) Kylasa Veeresalingam

(b) Kylasa Nagendrarao

Rs. As. Ps.

(c) Kylasa Madhusudhanarao 0-6-9

2. Mahendrakar Narayanarao .. 0-3-3

3. Nune Vittayya .. 0-2-6

4. Pottupalli Chaudrayya .. 0-2-6

5. Pande Ramayya .. 0-1-0

For facility of reference we will call No. 1 "the yarn shop."

The Income-tax Officer rejected the application, and his order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal. The Tribunal held that because in the deed of partnership benefits to which certain minors were admitted and particulars "about the distribution of profits or losses in the manner in which the firm wanted the same to be distributed" were not specified, and because by the deed of partnership the Yarn Shop was introduced as a partner in the firm, the privilege of registration under S. 26-A must be denied to the firm. The High Court of Andhra Pradesh recorded on the following question referred under S. 66(1) of the Income-tax Act:

"Whether on the facts and circumstances of the case, the assessee is entitled to registration under S. 26-A of the Income-tax Act?" a negative answer.

3. Section 26-A of the Indian Income-tax Act, 1922, provides :

"(1) Application may be made to the Income-tax Officer" on behalf of any firm constituted under instrument of partnership, specifying the individual shares of the partners, for registration for the purpose 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 certain 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. "

By securing registration under the Act, the partners of the firm obtain a benefit of lower rates of assessment and no tax is directly charged on the income of the firm. This is an important benefit to which the partners of a registered firm become entitled as a consequence of registration and if it is intended to secure that benefit, requirement of S. 26-A and the rules framed under the Act must be strictly complied with. Rule 2 framed under S. 59 requires that the application shall be signed by the partners (not being minors) personally, and prescribes the period within which the application shall be made for the year in question. Rule 3 provides that the application shall be made in the prescribed form and shall be accompanied by the original instrument of partnership under which the firm is constituted. By R. 4 it is provided that if on receipt of the application, the Income-tax Officer is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership, and that the application has been properly made, he shall enter in writing at the foot of the instrument or certified copy, as the case may be, a certificate in the prescribed form. by R. 6 the certificate of registration may be renewed for subsequent years.

4. Registration of the firm may be obtained on an application to the Income-tax Officer on behalf of any firm, if the firm be lawfully constituted under an instrument of partnership which specifies, the individual shares of partners and the Income-tax Officer is satisfied that there is or was a genuine firm in existence as shown in the instrument. If the conditions are fulfilled, the Income-tax Officer has no power to reject the application. Undoubtedly, the application must strictly be in conf