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1969 Supreme(Cal) 90
HIGH COURT OF CALCUTTA
DEB, SABYASACHI MUKHERJI
SHANKER TOBACCO STORES - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 147 Of 1964
Decided On : APRIL 17, 1969
A.K.MAZUMDAR, AJOY MITRA, Biswarup Gupta
A partnership deed must be clear and specific in order to be eligible for registration under Section 26A of the Indian Income-tax Act, 1922.
Headnote:
INCOME TAX - Registration of firm under Section 26A of the Indian Income-tax Act, 1922 - Conditions for registration - Partnership deed vague and uncertain - No specification of individual shares of profit and loss - Registration refused.
Fact of the Case:
The assessee-firm applied for registration under Section 26A of the Indian Income-tax Act, 1922. The Income-tax Officer and the Appellate Assistant Commissioner refused registration. On appeal, the Tribunal upheld the refusal on the ground that the partnership deed was vague and uncertain and did not specify the individual shares of profit and loss of the partners.
Finding of the Court:
The Tribunal was right in holding that the registration under Section 26A of the Indian Income-tax Act, 1922, could not be granted to the firm.
Issues: Whether the Tribunal was justified in upholding the decision of the income-tax authorities refusing registration of the firm under Section 26A of the Indian Income-tax Act, 1922.
Ratio Decidendi: The partnership deed was vague and uncertain and did not specify the individual shares of profit and loss of the partners. This made it impossible to determine the amount of profit and loss and, as such, specification of the individual shares of profit and loss of the partners could not be made from the deed itself.
Final Decision: The answer to the question referred to this court is, therefore, in the affirmative. The revenue is entitled to the costs of this reference including the costs of the 1st date of hearing, 4th of February, 1969, and the subsequent date of hearing.
( 1 ) THIS reference was heard by us on the 4th February, 1969, None appeared for the applicant on that occasion. After hearing the counsel for the revenue we delivered judgment on that day. Thereafter, the matter was mentioned before us by the learned counsel appearing for the assessee and it was prayed that as through inadvertence the counsel could not appear on that date he should be given an opportunity to make his submissions. We gave him such opportunity and this judgment is being delivered in supersession of the judgment we delivered on the 4th February, 1969.
( 2 ) THIS was a reference under Section 66 (2) of the Indian Income-tax Act for the determination of the following question:"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the registration under Section 26a of the Indian Income-tax Act could not be granted to the firm ?"
( 3 ) THE application for registration of the firm under Section 26a of the Indian Income-tax Act was refused by the Income-tax Officer. On appeal, the Appellate Assistant Commissioner held that the assessee-firm was not entitled to registration. There was a further appeal before the Tribunal. The Tribunal after going through the facts of this case observed that there was a specific provision in the instant case that the partners would have to introduce capital in proportion to their profit sharing ratio, but the deed of partnership did not specify as to what would be the capital of the firm. The deed of partnership, on the basis of which registration was sought, the Tribunal was of the opinion, was vague. The Tribunal further held that the contribution by the partners in the form of capital could also not be determined with any degree of certainty. The Tribunal was of the opinion that it was not possible to determine what would be the amount introduced by the partners on which interest had to be charged and debited to the profit and loss account. Therefore, the Tribunal held that the profit as well as the distribution thereof among the partners was uncertain and vague. From those facts the Tribunal came to the conclusion that the firm was not entitled to registration under Section 26a of the Indian Income-tax Act, 1922.
( 4 ) THE question that requires consideration in the instant reference is whether the Tribunal was justified in upholding the decision of the income-tax authorities. In the order of the Tribunal the Tribunal has referred to the fact that the income-tax authorities had observed that the amount introduced in the books of the firm in the names of the partners were not in their profit sharing ratio and during the accounting period in 1960-61, no account was earmarked as capital, and interest was charged on the entire balance standing to the credit of the respective partners and that no interest was charged during the accounting period for 1959-60. Registration was refused by the income-tax authorities on the ground that the terms of the instrument had not been given effect to by the partners. It was contended by the learned counsel for the assessee before the Tribunal that inasmuch as the income-tax authorities had not doubted the genuineness of the firm the fact that there was a slight variation in the proportion of the capital introduced by the partners from their profit sharing ratio, did not invalidate the partnership. It was further contended that the fact that no interest had been charged in the second year on the capital introduced could not be considered against the assessee as the same was mutually agreed to amongst the partners themselves. It was further urged that introduction of capital was not a sine qua non for the constitution of a partnership. The Tribunal on a consideration of the terms of the deed of partnership came to the conclusion that the partnership deed was vague and the computation of the profit as well as distribution thereof among the partners would be completely vitiated in vi
