A sub-partnership is as it were a partnership within a partnership: it presupposes the existence of a partnership to which it is itself subordinate. An agreement to share profits only constitute a partnership between the parties to the agreement if, therefore, several persons are partners and one of them agrees to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constitute what is called a sub-partnership, that is to say it makes the parties to it partners inter se; but it in no way affects the other members of the principal firm.

Ramaswami, J.

1. In this case the assessee is a partnership firm constituted under a deed of partnership dated 15-9-1944. The partners were Renu Bala Devi and Ratilal Manishankar Dave each having eight annas share. The object of the partnership was to carry on the business of coal mining and to deal in coal and coke. One of the clauses of the partnership deed was that neither of the partners should mortgage or charge his share in the assets or profits of the firm without the consent of the other partner. Later on, on 23-11-1945, there was another deed of partnership executed as between Ratilal Manishankar Dave and five other persons who were Deochand A. Mehta, Raja Khengarji, Shamji Mandan, Mulji Goabhai and Talewar Ram. By this document, it was agreed that eight annas share in the profits of the first partnership would be divided between the six partners who are mentioned in the second partnership deed. It was agreed that Ratilal Manishankar Dave would get two annas share and Deochand A. Mehta would get another two annas share, and the other four partners would be granted a share of one anna each. We are concerned in this case with the four assessment years, 1945-46, 1946-47, 1947-48 and 1948-49. For these assessment years, applications were made by the two partners Renu Bala Devi and Ratilal Manishankar Dave under Sec.26A, Income Tax Act, for registration of the partnership constituted under the first deed dated 15-9-1944.

The Income-tax Officer rejected these applications on the ground that the names of all the seven partners were not mentioned in the applications. The Income-tax Officer took the view that the partnership deed of 15-9-1944 did not correctly represent the persons who were the partners of the firm, or the correct shares held by the partners. The assessee firm preferred an appeal to the Appellate Assistant Commissioner, who allowed the appeal and ordered that the firm should be registered for all the years in question. The Appellate Assistant Commissioner considered that the second partnership agreement of 23-11-1945 did not affect the first partnership constituted on 15-9-1944 between Renu Bala Devi and Ratilal Manishanker Dave. The Income-tax Department appealed to-the Appellate Tribunal against the order of the Appellate Assistant Commissioner, and the ground of appeal was that the deed of partnership dated 15-9-1944 did not give a correct picture of the manner in which the profits of the business were actually shared. The appeal was dismissed by the Appellate Tribunal who affirmed the order of the Appellate Assistant Commissioner on the ground that there was nothing to show that Renu Bala Devi was a party to the second deed of partnership, or that she had knowledge thereof.

2. In these circumstances, the Income-tax Appellate Tribunal has referred the following question of the law for the determination of the High Court:

"Whether in the circumstances, the assessee firm constituted under the deed of partnership dated 15-9-1944 was registerable under Sec.26A, Indian Income-tax Act, in the assessment year 1945-46, 1946-47, 1947-48 and 1948-49 respectively?"

3. On behalf of the Income-tax Department, Mr. R. J. Bahadur put forward the argument that the second deed of partnership was retrospective in effect and one of the clauses of that partnership deed was that the six partners would be entitled to a share of the assets and also of the profits with retrospective effect from the 15-9-1944. The argument of learned Counsel was that the second deed of partnership must be read as a part and parcel of the first partnership deed, and, therefore, the application for registration made by the assessee did not give a correct picture of the manner in which the profits of the partnership were actually shared. In my opinion, the contention advanced by the learned Standing Counsel is not valid. It is the admitted position that Renu Bala Devi was not a party to the second document of partnership which was entered into