A firm which comes into existence by a verbal agreement is entitled to be registered under section 26A of the Indian Income-tax Act, 1922, if on the date of the application for registration the terms and conditions of the partnership have been reduced to writing and the application for registration has been accompanied by such an instrument.

MAHAJAN, J.

1. This case has come to this court on a case stated by the Income-tax Appellate Tribunal, Delhi Bench, under section 66(1) of the Indian Income-tax Act, 1922, on an application by the assessee.

2. The assessee, Messrs. Naider Mal and Sons, was a joint Hindu family firm carrying on the business of dealing in brass on wholesale basis in the name and style of Messrs. Naider Mal Jagdish Prasad, and held three-fourth share in Ramesh Metal Works at Jagadhri. This business was partitioned and it was resolved to carry it on partnership basis. The parties entered into an oral agreement of partnership on the 23rd of March, 1947. The terms of this oral agreement were reduced to writing on the 2nd July, 1948, under a duly executed instrument of partnership. It is not disputed that the partnership instrument was executed during the relevant accounting year, i.e., 1948-49. An application under section 26A of the Act was made to the Income-tax Officer for registration of this firm for the assessment year 1949-50. This application was rejected by the Income-tax Officer on the 30th of November, 1949, on the ground that there was no genuine partnership. An appeal was taken to the Appellate Assistant Commissioner of Income-tax, who also rejected the same and upheld the order of the Income-tax Officer. A further appeal was taken to the Income-tax Tribunal, which on the question of fact held that the partnership was formed by a verbal agreement, but the registration was refused on the ground that the firm had not been constituted under an instrument of partnership as required by section 26A of the Act but under an oral agreement. An application was made to the Tribunal under section 66(1) of the Act praying that the following questions of law that arose out of the Tribunals orders be referred to the High Court :

"(i) Whether in the circumstances of the case of the Income-tax Appellate Tribunal could legally refuse the registration of the assessees firm under section 26A of the Income-tax Act and Income-tax Rules made thereunder ?

(ii) Whether the Income-tax Appellate Tribunal could legally refuse to allow the registration of a firm on the ground that a formal partnership deed was written some time after the partnership firm had come into existence although the deed was executed during the previous year in question ?

(iii) Whether there is any evidence on record to substantiate a finding by the Tribunal to the effect that there was nothing to suggest that it was the intention of the parties from the commencement to have these partnership relations governed by a written agreement ?"

3. This application was allowed by the Tribunal on the 30th of January, 1953, and the following question has been referred to the High Court for decision :

"Whether a firm which comes into existence by a verbal agreement is entitled to be registered under section 26A, if on the date of the application for registration the terms and conditions of the partnership have been reduced to writing and the application for registration has been accompanied by such an instrument ?"

This reference came up for hearing before the honble the Chief Justice and Dulat, J., on the 12th of August, 1958, and in view of the conflicting decisions of this court, Dheer and Sons v. Commissioner of Income-tax, Ramji Dass Rikhi Ram v. Commissioner of Income-tax, Padam Parshad Rattan Chand, v. Commissioner of Income-tax, the matter was referred to a larger Bench.

4. Before dealing with the question referred to, it will be advisable to set out the relevant provisions of the Act and the Rules made thereunder as they stood during the relevant assessment year.

"Section 26A : (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.

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