Back
1964 Supreme(Ori) 109
Orissa High Court
R.L.NARASIMHAM,R.K.DAS
Rao and Sons - Appellant
Versus
Commissioner of income Tax Bihar - Respondent
S. J. C. No. 40 of 1963
Decided On : 12/05/1964
D. Narasaraju and A. K. Rao, for Applicant; D. Mohanty, for Respondent.
The specification of the individual shares of the partners in the partnership deed is mandatory for registration under Section 26A of the Income-tax Act, 1922.
Headnote:
INCOME TAX - REGISTRATION OF FIRM - SPECIFICATION OF INDIVIDUAL SHARES OF PARTNERS - MANDATORY - PARTNERSHIP ACT, 1932, S. 13(B) - INCOME TAX ACT, 1922, S. 26A.
Fact of the Case:
The assessee firm, Messrs. Rao and Sons, applied for registration under Section 26A of the Income-tax Act, 1922, but the application was rejected by the Income-tax Officer on the ground that the individual shares of the partners, M. Subba Rao and his wife, Sita Debi, were not specified in the partnership deed.
Finding of the Court:
The court held that the registration under Section 26A of the Act was rightly refused by the Department as the individual shares of M. Subba Rao and his wife, Sita Debi, were not specified in the partnership deed.
Issues: Whether the registration under Section 26A of the Act was rightly refused by the Department on the ground that the individual shares of the partners, M. Subba Rao and his wife, Sita Debi, were not specified in the partnership deed.
Ratio Decidendi: The court held that the specification of the individual shares of the partners in the partnership deed is mandatory under Section 26A of the Act and the rules made thereunder. The court further held that the provisions of Section 13(b) of the Partnership Act cannot be relied upon to determine the individual shares of the partners for the purpose of registration under Section 26A of the Act.
Final Decision: The court answered the question in the affirmative and held that the registration under Section 26A of the Act was rightly refused by the Department.
Judgement
DAS, J. :- This is a reference under Section 66(1) of the Indian income Tax Act, 1922, wherein the income tax Appellate Tribunal has referred the following question of law to this Court.
"Whether in the facts and circumstances of the case, registration under S. 26A was rightly refused on the ground that the individual shares of the partners, M. Subba Rao and his wife, Sita Debi were not specified in the partnership deed."
2. The Firm Messrs. Rao and Sons, was constituted under an instrument of partnership dated 31-3-51. The names of the partners and their respective shares in the firm were described as follows :
(1) M. Venitateswar Rao . . . .Four annas
(2) M. Kartik Chandra Rao .. Four annas
(3) M. Satyanarayan Rao .. Four annas
(4) M. Subba Rao and his wife, Sita Debi .. .. Four annas
Partners 1, 2 and 3 are the sons of partners 4, M. Subba Rao and 5 his wife Sita Devi. At the time of the execution of the deed, Satyanarayan Rao was a minor. On 4-1-1952, he became major and signified his assent to remain a partner of the firm and thus the partnership deed was validated with effect from that date. Applications for the registration of the firm under Section 26A of the Income-tax Act, 1922 thereinafter referred to as the Act were made by the assessees for the assessment years 1954-55, 1955-56, 1956-57 and 1957-58, but the same were rejected by the income Tax Officer mainly on the ground that the share of M. Subba Rao and ills wife was not separately shown in the partnership-deed, but was jointly shown to be four annas.
Against the order of the Income-tax Officer, the assessee unsuccessfully carried appeals to the Appellate Assistant Commissioner as also to the Appellate Tribunal. The Tribunal relying upon a decision of the Supreme Court reported in Steel Brothers and Co., Ltd. v. Commr. of I. T., 33 ITR 1 : (AIR 1958 SC 315) held that the specific share of each of the partners, namely, M. Subba Rao and his wife Sita Debi, was not shown in the Instrument of partnership and hence the firm was not entitled to registration under S. 26A of the income-tax Act. During the pendency of the appeal before the Tribunal, the new Act (Income-tax Act of 1901) came into force. Under Section 297(1)(c) of the new Act any proceeding pending before any Income tax authorities was allowed to be continued under the provisions of the Act of 1922. Though an application was made by the assessee under S. 256(1) of the new Act (corresponding to S. 66 of the Act of 1922), the Tribunal treated the same as one made under Section 68 of the Act and referred the aforesaid question of law to this Court with a statement of facts of the case. The present reference is confined to the assessment year 1954-55.
3. From the deed of partnership it is clear that M. Subba Rao and his wife Sita Debi have jointly been allotted four annas share in the partnership concern, though the other share-holders have each been given a share of four annas. Clause (k) of the partnership instrument is relevant for the purpose and it runs as follows :
"(k) That in case of the death of cither of the partners 4 and 5 (M.S. Rao and Sita Devi) the survivor will be entitled to the whole of the share of partners 4 and 5, i.e., four annas."
None of the clauses of the instrument mentions a specific share being allotted individually either to M. Subba Rao or his wife. Clause (k) above quoted, makes it further clear that no specific share was meant to be given individually to either of the partners, and on the death of either of them, the survivor will be entitled to the full share of 4 annas. Between these two partners inter se there was no specification of share. Thus, there cannot be any doubt that so far as M. Subba Rao and his wife are concerned, the individual share of each of them has not been specifically stated in the deed.
4. Section 26A(1) of the Act requires that an application for registration may be made for the purpose of the Act by a firm constituted under the instrument of partnership
