AI Structured Summary
Not yet generated for this judgment
Judgment
M.S. Menon C.J.
This is a reference by the Income Tax Appellate Tribunal, Madras Bench, u/s 66(1) of the Indian Income Tax Act, 1922. The question referred is :
Whether having regard to the division of the profits among all the fourteen persons as if they were partners from the beginning though their right to such shares came into existence by a deed entered into in the middle of the accounting year, incorporating the terms of the earlier deed, registration was rightly refused ?
The instrument of partnership with which we were concerned is dated 1-2-1957. It forms annexure A to the statement of the Case.
Section 26A of the Indian Income Tax Act, 1922, deals with the procedure for the registration of firms. It says:
(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.
(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and if shall be dealt with by the income tax officer in such manner as may be prescribed.
The application for registration in this case was made on 17-2-1957. It is not contended that the application was not in proper form or that it was not filed in proper time.
The registration was refused by the income tax Officer and the Appellate Assistant Commissioner on the ground that the instrument of partnership did not specify the individual shares of the partners of the firm. The Tribunal rejected this conclusion. It accepted the assessee''s contention and said:
The argument of the learned counsel for the assessee is that the profit-sharing ratio of each of the partners is clear, from a reading of the deed dated 1-2-1957 in conjunction with the earlier deed dated 12-2-1948 which formed an annexure thereto and ascertainment of the shares is only a question of arithmetic. We see force in this argument. The deed dated 1-2-1957 shows how the capital has been divided and when we see the annexed deed dated 12-2-1948, it is clear that the net profits are divisible in proportion to the share capital of each of the partners. In these circumstance, it cannot be said that the profit sharing ratios have not been set out in the instrument of partnership.
The tribunal, however, justified the refusal of registration on an entirely new ground. It said:
The position is that the profits have been actually divided between the partners in a way different from how it is set out in the deed. We have, therefore, to hold that the firm is not entitled to registration.
As stated in P. A. RAJU CHETTIAR AND BROTHERS Vs. COMMISSIONER OF INCOME TAX, MADRAS., :
There can be no doubt upon the authorities that the income tax Officer is entitled to examine when an application for registration of a firm is made whether the partnership is genuine, whether each of the partners mentioned therein is a real partner, whether the shares are specified properly, whether the shares specified are Teal ones and whether the profits which are to be distributed under the deed will truly be the profits of those particular individuals. If he finds that there is no genuineness with regard to any of these things it is open to him to reject the application on the ground that there is no genuine partnership brought into existence by the deed.
The Tribunal does not hold that the partnership was not genuine, and in the absence of such a finding we fail to understand how registration could have been refused in this case.
It follows that the question referred has to be answered in the negative and in favor of the assessee. We do so.
No costs. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income Tax Act, 1922.