Commissioner of Income Tax vs Naidu''s Bar and Restaurant

K. Jagannatha Shetty, Actg. C.J.

This is a reference u/s 256(1) of the income tax Act, 1961 (''the Act''). Question referred for opinion of this Court is:

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal is right in law in granting registration to the firm even though clause 15 of the instruments of partnership curtailed power of two of the partners to terminate the partnership and seek dissolution?

At the outset, it is necessary to peruse clause 15 of the instrument of partnership which has been held as an impediment by the revenue for grant of registration.

Clause 15 in the deed of partnership in question reads as follows:

That in case, any of the second and third partners intend retiring from the business three months'' notice of their intention to do so should be given to the other partners. On such retirement, second and third partners are entitled to take only the amount outstanding to their credit at the time of retirement. Any of the second and third partners have no right to force a dissolution of the firm.

By no stretch of imagination the above clause can be said to be invalid. Parties are entitled to contract in the above terms. There is no dispute as to the genuineness of the firm. If clause 15 is not invalid, the deed of partnership is also valid.

The Tribunal was, therefore, justified in granting registration to the firm.

We, therefore, answer the question in the affirmative.