MESSRS. KHEMJI WALJI AND CO. vs COMMISSIONER OF Income Tax, BIHAR AND ORISSA.

MANOHAR LALL, J. - u/s 66(1) of the Indian Income Tax Act the Appellate Tribunal at the instance of the assessee had referred the following question to us :-

"Whether the provisions of rule 3 of the Indian Income Tax Rules as amended in 1939 are ultra vires being beyond the competence of the rule making powers conferred by Section 26A(2)."

The assessee, Messrs. Khemji Walji and Co., Jharia, made an application u/s 26A of the Act in the prescribed form for registration but as the profits of the previous year were not dividend or credited as required by section B of the Schedule to rule 3 it was held that the application was defective, and hence registration was refused. The argument of the assessee was that by clauses 3 and 14 of the partnership deed it was specifically provided that there shall be not distribution of profits unless the dues of second party by way of sums advanced and interest thereon are paid in full and therefore, he was within his right in not dividing the profit and was not bound to comply with that part of rule 3 which requires him to state that the profits had been divided. He also relied upon the definition in Section 2(6B) of the Act which provides that the words firm, partner and partnership have the same meanings respectively as in the Indian Partnership Act (Act IX of 1932). These contentions were overruled by the Income Tax authorities and by the Appellate Tribunal who held that the rules framed u/s 26A have the statutory force by reasons of the provisions of Section 59 and are not ultra vires.

After we heard the learned counsel for the assessee at some length it became clear that the real question of law had not been formulated for our decision. The assessees contention before us was that the provisions of rule 3 as amended in 1939 were fully complied with by the assessee and that he was not bound to distribute the profits against the terms of the partnership deed.

Our attention was drawn to a number of cases which dealt with a similar situation which arose under the provisions in the Act as they stood before the amendment in 1939.

In Kikabhais case, it was held that the assessees application for registration was wrongly refused on the ground that the partners had no intention then or in future to divide or credit the profits and, therefore, the prescribed certificate as to division of profits submitted by them was incorrect. The question formulated in that case was "whether the three Shia Bohra brothers of Raipur, i.e., Kika Bhai Ibrahimji, and Taher Bhai, who are living, messing and carrying on business jointly, who keep no accounts of the income made during the year, who keep no accounts of the income made during the year, who keep no separate ledgers in their books of accounts for themselves, who gave no intention to do so in future and who have no intention to divide their profits, could be declared a registered firm u/s 2(14) of the Income Tax Act." The answer to the question as given by the High Court was that three brothers were entitled to become a registered firm u/s 2(14) of the Act.

In Commissioner of Income Tax, Burma v. Seth Mangoomal Lunidasingh, the question formulated for the decision of the High Court was "whether the document dated the 17th October, 1937, is an instrument of partnership legally registrable u/s 26A read with rules 2 to 6."

In my opinion, as was done in the two cases referred to above, the real question for decision is whether the assessee is entitled to have the partnership registered u/s 26A of the Act. The question which has been framed at the instance of the assessee is merely academic and does not arise for decision because even if we hold that the impugned rule is ultra vires the assessee will get no relief. Accordingly I would refrain from giving an answer to the question.

It is needless to observe that it will be open to the assessee to raise the real question or questions for decision in any future year. In the circumstances there will be no costs of this Court. The fee of Rs. 100 deposited by the assessee will be retained by the Commissioner.

FAZL ALI, C.J. - I agree.

Reference not answered.