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1991 Supreme(Cal) 86
High Court Of Calcutta
Ajit Kumar Sengupta, Shyamal Kumar Sen
HIND STEEL CORPORATION - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 116 Of 1982
Decided On : 02/18/1991
A firm is not entitled to registration under Section 184 of the Income-tax Act, 1961, if the individual shares of the partners are not specified in the instrument of partnership.
Headnote:
INCOME TAX - Registration of firm - Individual shares of partners not specified in instrument of partnership - Deed of rectification executed after close of accounting year - Whether firm entitled to registration - Held, no.
Fact of the Case:
The assessee, a firm, applied for registration under Section 184 of the Income-tax Act, 1961, for the assessment year 1972-73. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal refused registration on the ground that the individual shares of the partners were not specified in the instrument of partnership.
Finding of the Court:
The court held that the firm was not entitled to registration because the individual shares of the partners were not specified in the instrument of partnership, as required by Section 184 of the Income-tax Act, 1961. The court further held that a deed of rectification executed after the close of the accounting year could not be taken into account for the purpose of registration.
Issues: Whether the firm was entitled to registration under Section 184 of the Income-tax Act, 1961, for the assessment year 1972-73.
Ratio Decidendi: The court relied on the Supreme Court decisions in N. T. Patel and Co. v. CIT and Parekh Wadilal Jivanbhai v. CIT. In N. T. Patel and Co. v. CIT, the Supreme Court held that registration under Section 26a of the Income-tax Act, 1961 (the predecessor of Section 184) confers a benefit on the partners which they would not be entitled to but for the section and that a person seeking relief under that section must bring himself strictly within the terms of that section. In Parekh Wadilal Jivanbhai v. CIT, the Supreme Court held that there was specification of the individual shares of the partners within the meaning of Section 26a where the partnership deed contained a clause providing that the capital of the partnership would be divided into equal shares among the partners and that the profits and losses would be shared equally.
Final Decision: The court answered the question in the reference in the affirmative and in favor of the Revenue.
( 1 ) PURSUANT to the direction of the Supreme Court in Civil Appeal No. 216 of 1982, the following question of law has been referred to this court for the assessment year 1972-73 under Section 256 (2) of the Income-tax Act, 1961 :"whether, on the facts and in the circumstances of the case, the firm of Hind Steel Corporation was entitled to be registered under Section 184 read with Section 185 of the Income-tax Act, 1961, for the assessment year 1972-73 "
( 2 ) SHORTLY stated, the facts are that the Income-tax Officer, vide his order dated December 22, 1973, under Section 185 of the Income-tax Act, 1961, has refused registration, inter alia, with the following observations :". . . Therefore, this clause cannot, by any stretch of imagination, be taken for the allocation clause. It merely records the intention of the partners to continue the business. The fact remains that the partnership deed is not particular on the question of allocation of profit or loss. The other arguments of the authorised representative boil down to the point that, constructively, with reference to surrounding facts, viz. , previous partnership was an equal partnership and that the accounts show equal allocation of the profits amongst the partners and that Form No. 11a shows them as equal partners, there is no doubt that the partners are intended to be equal under the deed. But I cannot agree with the authorised representative. In so far as the partnership deed omits to provide for the allocation of both profit and loss, the deed itself is invalid and there cannot be any partnership validly constituted ultra vires the law of partnership. Registration is not, therefore, granted to the firm. "
( 3 ) THE said finding of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner, vide his order dated July 14, 1977.
( 4 ) THEREAFTER, the matter was further agitated by the assessee before the Tribunal by way of second appeal. The Tribunal also confirmed the order of the Appellate Assistant Commissioner.
( 5 ) SINCE no one appeared for the assessee, at our request, Mr. Poddar has appeared and made submissions before this court. Section 184 provides that an application for registration of a firm for the purposes of the Income-tax Act, 1961, may be made to the Income-tax Officer, if the partnership is evidenced by an instrument and, secondly, the individual shares of the partners are specified in that instrument. Clause 5 of the partnership deed in the present case shows that there is no provision in respect of the shares of the partners. As a matter of fact, there was no deed of partnership but, in the deed of dissolution, the shares of the continuing partners have not been specified. A deed of rectification was made on December 26, 1973, after the close of the relevant accounting year in question which specified the shares of the continuing partners. The question is whether in the absence of the individual shares of the partners being specified in the instrument, the deed of rectification can be taken to be effective for the purpose of registration under the Income-tax Act, 1961. A similar question came up for consideration before the Supreme Court in N. T. Patel and Co. v. CIT [1961] 42 ITR 224.
( 6 ) IN that case, an application was made under Section 26a of the Income-tax Act, 1961, for the registration of a firm (for the assessment year 1955-56) constituted by a deed of partnership dated March 29, 1954. In the course of the assessment proceedings, the Income-tax Officer pointed out that there was no specification of the shares of the partners in the deed. Thereupon, a deed of rectification was executed on September 17, 1955, after the close of the accounting year which recited that an error had crept in typing the partnership deed and that the parties had agreed to rectify the error by adding a new Clause (Clause 20a) to the deed specifying the shares in which the profits and losses of the firm should be apportione
