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1972 Supreme(P&H) 23
PUNJAB & HARYANA HIGH COURT
Commissioner Of Income-tax, Patiala
Versus
Shahzada Nand & Sons.
Income tax Reference No. 33 of 1971,
Decided On : JANUARY 18, 1972
The court cannot answer a question of law referred to it without a decision on a question of fact which is necessary for the determination of the question of law.
Headnote:
INCOME TAX - REGISTRATION OF FIRM - REFUSAL OF RENEWAL - SHARE OF PROFITS TO TRUST - WHETHER IN ACCORDANCE WITH PARTNERSHIP DEED - QUESTION OF FACT - REMAND TO TRIBUNAL.
Fact of the Case:
The assessee, a partnership firm, was granted registration under section 26A of the Indian Income-tax Act, 1922, which was renewed from time to time. However, the Income-tax Officer refused to renew the registration for the assessment year 1961-62 on the ground that the share of profits given to Shahzada Nand Trust was not in accordance with the terms of the partnership deed.
Finding of the Court:
The Tribunal, while allowing the assessee's appeal against the order of the Income-tax Officer, did not decide the question whether the share of profits of the trust had been paid to it in accordance with the partnership deed.
Issues: Whether the Tribunal was justified in law in holding that the income-tax authorities had erred in refusing renewal of registration to the firm under section 26A of the Indian Income-tax Act, 1922?
Ratio Decidendi: The court held that it was not possible to answer the question referred to it without a decision on the question whether the share of profits of the trust had been paid to it in accordance with the partnership deed. The court, therefore, remanded the case to the Tribunal for a finding on this question.
Final Decision: The court directed the Tribunal to decide the question whether the division of profits, so far as the trust is concerned, was in accordance with the partnership deed and thereafter submit a better statement of the case to the court so that the question of law that had been referred to it could be properly answered.
1. At the instance of the department of the Income-tax Appellate Tribunal in an application made under section 66(2) of the Indian Income-tax Act, 1922, has referred the following question of law for our opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income-tax authorities had erred in refusing renewal of registration to the firm under section 26A of the Indian Income-tax Act, 1922 ?"
2. The assessee is a partnership firm (Messrs. Shahzada Nand and Sons, Putlighar, Amritsar). Initially this was a Hindu undivided family concern. Its chief business was the selling agency of Oriental Carpets Manufacturers Private Ltd., Amritsar. The joint Hindu family consisted of Sahib Dyal karta, and his three sons, Chaman Lal, Madan Gopal and Harbans Lal. Harbans Lal was a minor. On the March 31, 1945, this undivided family disrupted by reasons of a partition. On April 1, 1945, the outgoing members of the Hindu undivided family entered into a partnership to carry on the business of the selling agency which the Hindu undivided family was carrying on. The partners were Chaman Lal, Madan Gopal, Harbans Lal (minor), through the guardianship of Sahib Dyal and Shahzada Nand Charity Trust through one of its trustees. The capital of the partnership consisted of the amount that the contributed by the first three partners, in proportion to their shares in the profits and loses. There was no contribution by the trust. The trust was, however, entitled to one-anna share in a rupee in the profits. This share was fixed in deference to the wishes expressed by Sahib Dyal, the karta, who retired from, the Hindu undivided family business. The firm which started its business on the April 1, 1945, was granted registration under section 26A of the 1922 Act, and this registration was renewed from time to time up the year 1956. On the April 1, 1957, a fifth partner was added, namely Raj Mohan. In the meantime, Harbans Lal had become a major and, therefore, he too became a full-fledged partner. Thus, the shares of the four partners were fixed at three annas and none pies in a rupee. The share of the fifth partner, that is, the trust, continued to be the same. There was no other change in the terms and conditions of the partnership as originally constituted on the April 1, 1945. An application for registration of the newly constituted partnership was made on the April 1, 1957, and registration was granted. The renewal applications for registration of the said partnership for the assessment year 1959-60 and 1960-61 were also granted in due course. When it came to the assessment year 1961-62, the Income-tax Officer refused to grant the renewal.
3. This the Income-tax Officer did on the ground that the share of profits given to Shahzada Nand Trust was not in accordance with the terms of the partnership deed. A further ground was also taken in the matter of refusal of renewal of registration that the element of mutual agency of partnership was lacking and that the interest had not been paid on the capital invested by the four partners. The Income-tax Officer, while coming to the conclusion that the share of the profit of Shahzada Nand Trust was not according to the deed of the partnership observed as follows :
"As per revised return the total income of the assessee for the year under consideration is Rs. 2,00,006. This includes interest of Rs. 2,699 allowed to M/s. Shahzada Nand Charity Trust at the rate of one anna share in a rupee; the share of profit of M/s. Shahzada Nand Charity Trust woks out to Rs. 12,331 in the balance income of Rs. 1,97,507 (Rs. 2,00,006 minus Rs. 2,699 allowed to M/s. Shahzada Nand Charity Trust). The assessee has, however, worked to the share income of M/s. Shahzada Nand Charity Trust at Rs. 8,326 only. The assessee was requested to explain how the share of M/s Shahzada Nand Charity Trust was worked out at Rs. 8,326. Vide his letter dated June 19, 1965, the assessee
