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1953 Supreme(P&H) 136
PUNJAB & HARYANA HIGH COURT
Bhandari and D.Falshaw JJ.
Padam Parshad Rattan Chand Of Delhi
Versus
Commissioner Of Income Tax, Delhi Etc.
Civil Reference No. 22 of 1952,
Decided On : DECEMBER 3, 1953
A firm is entitled to be registered under Section 26A even if the partnership deed is executed after the commencement of business.
Headnote:
INCOME TAX - Registration of firm - Partnership deed executed after commencement of business - Whether firm entitled to be registered under Section 26A - Interpretation of "constituted under an instrument" - Held, yes.
Fact of the Case:
The assessee firm, Messrs. Padam Parshad-Rattan Chand, started business on 1-4-1947. On 10-4-1950, the partners executed a partnership deed specifying their shares in the partnership. An application for registration of the partnership under Section 26A(1) was made on the basis of this deed. The Income-tax Officer dismissed the application, and the Appellate Assistant Commissioner and the Appellate Tribunal upheld the dismissal.
Finding of the Court:
The court held that the firm was entitled to be registered under Section 26A. The court interpreted the words "constituted under an instrument" to mean "created or formed by a formal deed". The court held that the fact that the partners alleged in the deed that they had previously been partners for some time on the same terms did not debar the firm from registration under Section 26A.
Issues: Whether a firm which comes into existence by oral 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 is accompanied by such an Instrument?
Ratio Decidendi: The intention of the law is clear, that when partners do draw up an agreement by which their shares in the partnership profits are specified, they are entitled to have the partnership registered under the Act, and thus to have the individual shares of the partners assessed for income-tax.
Final Decision: The court answered the question framed for its decision in the affirmative.
Falshaw, J.
1. The following question has been referred to us under Section 63(1), Income Tax Act, by the Income Tax Appellate Tribunal (Delhi Bench) :
"Whether a firm which comes into existence by oral 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 is accompanied by such an Instrument?"
2. The facts are that the assessee firm Messrs. Padam Parshad-Rattan Chand of Delhi started business as from 1-4-1947, and in the course of the assessment for the year 1948-39 relating to the account year ending on 31-3-1948 an application was made for registration of a partnership under Section 26A(1) on the basis of a partnership deed executed by the two partners, Rattan Chand and Padam Parshad and specifying their shares in the partnership, on 10-4-1950.
This application was dismissed by the income-tax Officer on 26-5-1950, and an appeal against his order was dismissed by the Appellate Assistant Commissioner who apparently had before him two appeals relating both to the assessment years 1948-49 and 1949-50. The ground of dismissal was that the profits had not been distributed between the partners.
3. A further appeal was made to the Appellate Tribunal which apparently only related to the year 1948-49. This appeal was also dismissed, but on a different ground, namely that according to the deed itself the partnership business had been carried on since 1-4-1941 and therefore the partnership could not be deemed to be constituted under an instrument dated 10-4-1950 within the meaning of Section 26-A.
It was also held that such an instrument could certainly not apply to the account year ending in March 1948. The assessee firm thereupon moved the appellate Tribunal under Section 66 (1) with the result that the question set out above has been framed for our decision.
4. The learned counsel for the respondent has relied on a recent decision of Kapur J. and myself in -- Kalsi Mechanical Works, Nandpur v. Commissioner of Income-tax, Simla, AIR 1953 Punj 301 (A), as concluding the matter, but I find that the point involved in that case was somewhat different. The question framed there was:
"Whether a firm which is alleged to have come into existence by a verbal agreement in June, 1944, is entitled to be registered under Section 26A for the purpose of the assessment for 1949-50, where the instrument of partnership was drawn up only in May, 1949, after the expiry of the relevant previous year?"
We held in that case that for the purpose of registration of a firm under Section 26A it is necessary that the firm should be constituted by an instrument of partnership, and such a firm as is constituted under an Instrument of partnership should have been in existence during the accounting period and should not come into existence during the assessment year, and if it was not in existence during the accounting period, it cannot be registered so as to affect the liabilities of the partners for income-tax accruing during the accounting period. We therefore answered the question framed in the negative.
5. From this, it will be soon that all we decided in that case was that an instrument of partnership could not have retrospective effect for the purpose of assessing income-tax, and although the same question arose in the present case, it is clear that the question referred to us is a pure question of law, namely whether when in an instrument of partnership presented for registration under Section 26-A the previous existence of the partnership on the same terms is alleged, the partnership can be said to be constituted under instrument in question. In other words, the question is not what is the effect of the instrument on the assessees assessment for the particular year 1948-49, but whether the partnership can be registered so as to have effect in future.
6. Section 26-A provides that appli
