The main legal point established in the judgment is that for a partnership deed to be valid, partners must be able to act as agents of all partners, as required by section 4 of the Indian Partnership Act.

Hegde, J.—This is reference under section 66(1) of the Indian Income Tax Act, 1922 (to be hereinafter referred to as the "Act"). The question of law referred to us is :

"Whether, on the facts and in the circumstances of the case, Messrs. K. D. Kamath & Co. could be granted registration under section 26A of the Act for the assessment year 1959-60 ?"

2. The learned judge set out the statement of case which ran as follows :

The assessee is a firm consisting of six partners, (1) K. D. Kamath, (2) N. G. Kamath, (3) S. D. Kamath, (4) D. J. Mohite, (5) S. G. Joshi and (6) Y. B. Kate. The assessment year is 1959-60 and the corresponding previous year is the year ended March 31, 1959. The partnership is constituted under a deed dated 20th March, 1959, and it is recorded in the deed that the business of the partnership was being carried on in partnership form 1st October, 1958. The partnership was registered under the partnership Act on or about 11th August, 1959. Clauses 8, 9, 12 and 16 of the partnership deed are reproduced below for facility of reference.

"8. That the party No. 1, i.e., Shri K. D. Kamath, who is the principal and financing partner and by virtue of his having the long-standing experience in the line of business together with the technical knowledge of engineer, shall have the full right of control and management of the firm's business and in the best interests of the firm, it is thus decided and agreed upon among all partners that all the working partners from Nos. 2 to 6 shall always work according to the instructions and directions given from time to time by Shri K. D. Kamath, in the actual execution of works and in any other matter connecting thereof, pertaining to this partnership business. The decision of the principal partner on the aspect of taking any new business or giving tenders for new works, shall always vest with him whose decision shall be final and binding upon all the working partners.

9. That it is also agreed among the partners that no working partner or partners is/are authorised to raise loan for and on behalf of the firm or pledge the firm's interest directly or indirectly and such act shall not be binding on the firm, except under the written consent of the principal partner.

12. That in the course of the business or during the existence of the firm's business, the principal partner has reason to believe that any working partner or partners is/are not working conductive to the best interests of the firm, the principal partners shall have a right to remove such a working partner or partners from the partnership concern and in such an eventuality, the outgoing working partner or partners shall have only the right to the profit or loss up to the date of his retirement, as may be decided by the principal partner in lump sum either by paying or receiving regard being had to the progress of the business or otherwise up to the date of retirement, only on the completed works.

16. Thus subject to the provisions herein mentioned and laid down and made thoroughly known by each of the parties to this agreement with sound mind and body, the firm's affairs be carried on for mutual gain and benefit and if any questions which may arise or occur touching to the conduct or management or liability of the firm, the same shall be amicably settled among the parties with the consent of the principal partner, whose decision in the matter shall be final and binding on all partners."

3. A copy of the partnership deed is made annexure "A" and forms part of the case.

4. The Income Tax Officer refused to grant registration to the firm under section 26A of the Income Tax Act for the assessment year 1959-60. He placed reliance on the provisions of clauses 8, 9, 12 and 16 of the partnership deed and held that the partners were not in enjoyment of the full share of profits and that the Government department and them municipality were not aware of the constitution of the firm. His order is made annexure "B" and forms part