A trust can enter into a partnership and a partnership firm can be registered under section 26A of the Income-tax Act, 1922.

1. THIS is a reference under section 66 (1) of the income-tax Act. I will presently state certain facts which will show that this reference has had an amazing career. Inspite of the fact that it was referred back to the Appellate Tribunal on two occasions by this High Court, the matter is still not on a satisfactory footing. In fact, we were strongly tempted to send it back again for a third time, but we agree with the submission made on behalf of the parties that the matter has lingered long enough and further extending its life would be tantamount to a miscarriage of justice. The facts are briefly as follows: The three Singhania brothers, Sir Padampat Singhania, Kamlapat Singhania and Lakshmipat Singhania carry on business at Kanpur under the name and style of Messrs. Juggilal Kamlapat. They have branches at various places. One such branch was a partnership business in hosiery carried on by the three Singhania brothers together with one Jhabarmal Saraf, at Belur near Calcutta, under the name and style of Messrs. Juggilal Kamlapat, Jhabarmal Saraf was taken in as a partner on the 29th November 1939. On 27th October, 1941 the three Singhania brothers created a trust known as the Kamla Town Trust principally for the welfare of the employees of the Juggilal Kamlapat cotton Spinning and Weaving Mills Ltd., of Kanpur. Members of the public have also been given certain rights under it. The three Singhania brothers became the first trustees. On 1st December, 1942 a deed of partnership was executed between Jhabarmal Saraf, and the three brothers as trustees of the Kamla Town Trust, by which they purported to constitute a fresh partnership, taking effect from the 27th March, 1942. On 2nd December, 1942 the three brothers executed a deed of relinquishment by which they relinquished all their right, title and interest tin all the assets and properties of the partnership firm constituted on the 29th November, 1939 in favour of Jhabarmal Saraf and themselves as the three first trustees of the Kamla Town Trust. The deed purported to give a retrospective effect to the relinquishment, from the 26th March, 1942. What in reality happened was as follows: Originally, the partnership was being carried on at Belur in Calcutta between the three brothers in their personal capacity and Jhabarmal Saraf. Later, it was decided that the entire income of the three brothers from this firm should be diverted to purposes for which the Kamla Town Trust was created. The way that this was sought to be effected was by creating a new partnership between the three brothers in their capacity as trustees and Jhabarmal Saraf, and the relinquishment by the three brothers of the interest in the assets and properties belonging to the original firm in favour of themselves as trustees and Jhabarmal Saraf. In short, as and from the 26th March, 1942 the three brothers in their personal capacity went out of the partnership firm and came back in their capacity as trustees. As such, they were bound to give effect to the purposes for which the Kamla Town Trust had been created. Sometime in 1942, an application was made for registration of this new partnership firm under section 26a of the Indian Income-tax Act, before the Income-tax Officer, North Circle, Calcutta. The income-tax Officer, by his order dated 12th March, 1948 rejected the application. The Income-tax Officer rejected the application on interalia the following grounds :-

1. The Trust was to introduce only Rs. 50,000/- as capital and the three Singhania Brothers were getting 3/4th share, for doing nothing', whereas Jhabarmal Saraff, who was to devote his whole time and attention to business was only to get a 4 as share. Such an agreement was 'unthinkable. '

2. THE Singhania brothers retired from this reputed firm without any consideration which sounds 'absurd'.

The relinquishment by the three brothers of their right to the entire goodwill of the firm without any consideration was a 'rare' thing in the busines