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SUPREME COURT OF INDIA
C.A.Vaidialingam : P.Jaganmohan Reddy
K.D.Kamath And Company
Versus
Commissioner Of Income-tax, Bangalore
Case No. : 1242 of 1968
Date of Decision : 10/11/71
Partnership Act – Section 4, 14 – Indian Contract Act – Section 27 – Indian Income-tax Act, 1922 – Sections 26 – Partnership – Registration – Appeal, by special leave, raises the question whether the deed, and marked Ex. A is an Instrument of Partnership on the basis of which the appellant firm is eligible to be granted registration under S. 26-A of the Indian Income-tax Act, 1922 – Held, It should he remembered that so far as outside world is concerned, so long as parties Nos. 2 to 6 are held out as partners of this firm, as has been done under the partnership deed, their acts would bind the whole partnership. – Provision in clause (9) in our opinion, is only an inter se arrangement entered into by the partners, in and by which, the working partners have agreed not to raise loans or pledge the firms interest. – There is no contract to the contrary in the partnership deed that the assets brought in by party No. 1, do not belong to the partnership. – It is his further contention that under S. 14, those assets will belong to the partnership, in which case, it will be open to any partner, as agent of the other partners to pledge the firms interest or raise loan for partnership purposes. – This right, according to the counsel is restricted by clause (9) and that clause negatives the theory of agency. – Contention of counsel cannot be accepted. S. 14 of Partnership Act itself clearly shows that provisions contained therein are subject to the contract between the parties – Court have already held that the provision regarding the control and management vesting in party No. 1 is not by itself destructive of the theory of partnership. Clause (9), itself shows that the theory of agency is recognised. – But the parties, by mutual agreement, have placed a restriction on working partners right to borrow on behalf of the firm or pledge the firms interest without the written authority of the principal partner. – From a perusal of the clauses in the document which the Bombay High court had to consider, it is clear that the business continued to be the proprietary concern of one single individual, namely, the father. – Court have already indicated that there is an agreement for sharing the profits and losses and that even though vast powers of control and management have been given to K. D. Kamath, the managing partner, the business was being carried on by the said managing partner, on behalf of all the partners. – These conditions fully satisfy the requirements of the definition of "partnership" under S. 4 of the Partnership Act. – Court is of the opinion that all the ingredients of partnership are satisfied under partnership deed, and that view of High court that appellant-firm cannot be granted registration under S. 26-A of Income-tax Act for assessment year 1959-60, cannot be sustained – Appeal Allowed
C.A. VAIDIALINGAM, J.
(1) THIS appeal, by special leave, raises the question whether the deed, dated 20/03/1959, and marked Ex. A is an Instrument of Partnership on the basis of which the appellant firm is eligible to be granted registration under S. 26-A of the Indian Income-tax Act, 1922 (hereinafter to be referred as the Income-tax Act).
(2) THE appellant is a firm consisting of six partners and the partnership was constituted under the document, dated 20/03/1959. The business of the partnership, as recited in the deed, is stated to have been carried on in partnership from 1/10/1958. The partnership was registered under the Indian, Partnership Act; 1932, (hereinafter to be referred as the Partnership Act) on or about August 11, 1959. For the assessment year 1959-60, corresponding to the previous year ending 31/03/1959,-the appellant filed an application to the Income-tax Officer, A Ward, Dharawar under Section 26-A for registration of the partnership in the name of M/s. K. D. Kamath and Company. The Income-tax Officer, by his order, dated 28/09/1960. declined to grant registration on the ground that there was no genuine partnership brought into existence by the deed of 20/03/1959 and that the claim of the firm having been constituted is not genuine. The said officer further held that the business should be held to be the sole concern of K. D. Kamath. For coming to this conclusion, the Income-lax Officer has mainly relied on Clauses 8, 9, 12 and 16 of the partnership deed. Though the Income-tax Officer has used a loose expression that there is no genuine partnership, the sum and substance of his finding is that there is no relationship of partners inter se created under the said document.
(3) MR. S. K. Iyer, learned counsel for the Revenue, has also clarified the position before us by slating that the Department is not challenging the genuineness of the document. According to the learned counsel, the stand taken by the Revenue is that no legal relationship of partners has been brought. about as between the parties to the document, In short, his contention is that the arrangement evidenced by Ex. A is not that of partnership as understood in law.
(4) ON appeal by the asiessee, the Appellate Assistant Commissioner on 5/05/1961, confirmed the order of the Income-tax Officer. According to the Appellate Assistant Commissioner no partnership has been brought about by the deed, dated 20/03/1959, and that the business continues to be the proprietary concern of K. D. Karnath. In coming to this conclusion the appellate authority has laid special emphasis on Clause 12 of the deed.
(5) THE assessee carried the matter in further appeal I. T. A. No, 3220 of 1961-62 (Assessment year 1959-60) before the Income-tax Appellate Tribunal, Bombay bench B. The Appellate tribunal, after a reference to the relevant clauses in the partnership deed, came to the conclusion that the two essential requirements as laid down by the courts for determining whether there is a partnership, namely, an agreement between the parties to share profits and each of the parties acting as agent of all, are fully satisfied in this case. In this connection the tribunal placed reliance on the decision of the Bombay High court in Balubhai Gulabdas Navlakhi v. Commi-ioner of Income-tax, Bombay, and distinguished an earlier decision of the same court reported in Umarbhai Chandhhai v. Commissioner of Income-tax, Bombay City. Ultimately, the Appellate tribunal held that the partnership deed makes it clear that profits and losses are to be shared between the parties and that. subject to the over-riding authority of K. D. Kamath, the other partners could act for the firm. In this view, the Appellate tribunal held that the; deed does create a rejationship of partners inter se between the parties thereto and directed the Income-tax Officer to register the firm under Section 26-A of the Income-Tax Act.
(6) THE Commissioner of Income-tax, Ba
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