Skip to content


Commissioner of Income-tax, Bombay North Vs. Shantilal Vrajlal and Chandulal Dayalal and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 68 of 1956
Judge
Reported in[1957]31ITR903(Bom)
ActsIncome Tax Act, 1922 - Sections 26A
AppellantCommissioner of Income-tax, Bombay North
RespondentShantilal Vrajlal and Chandulal Dayalal and Co.
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateB.A. Palkhivala, Adv.
Excerpt:
.....firms as partners of firm - 2nd partnership firm set rights and correct infirmity attached to 1st partnership deed - it showed constituent members of two firms - held, partnership deed which existed in year of account can be registered under 2nd partnership deed. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay - application filed by respondent earlier before delhi high court for appointment of certain individual as arbitrator had become infructuous because of..........partnership deed recited that the two partners who were referred to in the earlier partnership deed, chandulal dayalal and messrs. shantilal vrajlal & co., were firms and the share of chandulal dayalal of 4 annas and the share of messrs. shantilal vrajlal & co. of 4 annas was the share of the firm, and the partnership also recited who the partners of chandulal dayalal were and what their shares in the partnership of chandulal dayalal were. similarly, the partners of messrs. shantilal vrajlal & co. whereas the first partnership deed was signed by chandulal dayalal, and jadhavji chhaganlal on behalf of shantilal vrajlal & co., nanalal mohanlal and keshavlal revashanker, the second partnership deed was signed by all the partners of chandulal dayalal, shantilal vrajlal & co., nanalal and.....
Judgment:

Chagla, C.J.

1. This reference arises out of an order of the Income-tax Officer, which was confirmed by the Appellate Assistant Commissioner, rejecting the application of the assessee for the registration of a firm. The Tribunal reversed the decision of the Appellate Assistant Commissioner and the Commissioner has come of this reference.

2. The assessment year of the firm is 1950-51 and the relevant year of account is S. Y. 2005 which corresponds to the period 2nd November, 1948, to 21st October, 1949. The application for registration was made on the 18th August, 1951, and that application was supported by a partnership agreement dated 26th October, 1950. In that partnership deed four partners were shown, viz., Messrs. Chandulal Dayalal & Co., Messrs. Shantilal Vrajlal & Co., Patel Nanalal, and Desai Keshavlal, and the share of each of these partners was shown as 4 annas. The partnership deed also recited that this partnership was continued in S. Y. 2006 but the share of the partners was altered and the alteration was that Chandulal Dayalal was given a share of 6 annas, Messrs. Shantilal Vrajlal & Co. was given 4 annas, Nanalal Mohanlal was given 3 annas, and Desai Keshavlal was given 3 annas. No order was made by the Income-tax Officer on this application. The assessee made a second application on the 12th September, 1951, and he produced another partnership deed of that date. This partnership deed recited that the two partners who were referred to in the earlier partnership deed, Chandulal Dayalal and Messrs. Shantilal Vrajlal & Co., were firms and the share of Chandulal Dayalal of 4 annas and the share of Messrs. Shantilal Vrajlal & Co. of 4 annas was the share of the firm, and the partnership also recited who the partners of Chandulal Dayalal were and what their shares in the partnership of Chandulal Dayalal were. Similarly, the partners of Messrs. Shantilal Vrajlal & Co. Whereas the first partnership deed was signed by Chandulal Dayalal, and Jadhavji Chhaganlal on behalf of Shantilal Vrajlal & Co., Nanalal Mohanlal and Keshavlal Revashanker, the second partnership deed was signed by all the partners of Chandulal Dayalal, Shantilal Vrajlal & Co., Nanalal and Keshavlal.

3. Now, it is to be borne in mind that it is not the Department's contention that the partnership which existed in S. Y. 2004 was not a genuine partnership. But the objection taken to registration is a purely technical one and the first objection is that there can be no partnership between individuals and firms. What is pointed out is that in the first partnership deed the partners shown were two individuals Nanalal and Keshavlal and two firms Chandulal Dayalal and Shantilal Vrajlal & Co., and on the strength of a Supreme Court decision reported in Dulichand Laxminarayan v. Commissioner of Income-tax. Mr. Joshi argues that such a partnership cannot be registered under the Indian Income-tax Act. It is perfectly true that the Supreme Court has pointed our that a firm is not a person and that a firm cannot enter into a partnership with an individual because the partnership Act requires that the contract of partnership must be constituted by persons deciding to carry on a partnership. Therefore, to the extent that this partnership deed set out as partners two firms and two individuals, the firm constituted under the partnership deed could not be registered. But it will be incorrect to suggest that the Supreme Court has laid down that the constituent members of a firm cannot enter into a partnership with an individual. Therefore, although Messrs. Chandulal Dayalal and Messrs. Shantilal Vrajlal & Co. could not enter into a partnership with Nanalal and Keshavlal, there was noting in law to prevent the constituent members of Messrs. Chandulal Dayalal and Messrs. Shantilal Vrajlal & Co. from entering into a partnership with Nanalal and Keshavlal. This is exactly what is shown to have happened in the second partnership deed on the 12th September, 1951, because there we have as partners not the firm of Chandulal Dayalal and the firm of Shantilal Vrajlal & Co., but the constituent members of Messrs. Chandulal Dayalal and Messrs. Shantilal Vrajlal & Co. Mr. Joshi says that the first partnership truly reflected the position as it existed in the year of account, and the second partnership deed does not, and this he urges from the fact that in the books of account of the firm the partners shown are Messrs. Chandulal Dayalal & Co. and Messrs. Shantilal Vrajlal & Co. and the other two individuals, and Mr. Joshi's contention is that a subsequent partnership cannot be permitted to alter the exact situation that prevailed in the year of account. In our opinion, the second partnership deed does not in any way lager the actual situation. It sets right and corrects the infirmity which attached to the first partnership deed. What the first partnership deed set out was the correct position, viz., that the partners of the firm were Nanalal, Keshavlal, Messrs. Chandulal Dayalal & Co. and Messrs. Shantilal Vrajlal & Co. From a commercial point of view the two partners were Messrs. Chandulal Dayalal & Co. and Messrs. Shantilal Vrajlal & Co. Business men still look upon firms as legal persons, but in view of the Supreme Court decision this deed suffered from this infirmity that it did not set out the constituent members of these two firms who were the real partners and not the firms, and this infirmity was removed by the second partnership deed which set out the constituent members of the two firms. Therefore, in our opinion, the partnership which existed in the year of account can be registered under the second partnership deed which sets our the names of all the partners which constituted the partnership.

4. The second contention urged by Mr. Joshi is that in the books of account the profits have not been taken to the accounts of the constituent members, nut have only been taken to the account of the two firms Messrs. Chandulal Dayalal & Co. and Messrs. Shantilal Vrajlal & Co. and the two other individual partners, and our attention is drawn to the form of application has got to certify that the profits or loss, if any, of the previous year were divided or credited as shown in section (B) of the Schedule and that the information given above and in the attached Schedule is correct. Now section (B) of the Schedule deals with the particulars of the apportionment of the income, profits or gains and when we turn to the Schedule the shares of the constituent partners of Messrs. Chandulal Dayalal and Messrs. Shantilal Vrajlal & Co. are shown, and Mr. Joshi is right that in the books of account no separate accounts have been opened of the constituent partners of these two firms. But in our opinion it is a pure technicality. On the facts contained in the second partnership deed it is clear that although in the books of account the profits are allocated to the two firms, the profits belong to the constituent partners of those two firms, and it is clear how those profits are to be divided between the constituent partners of Messrs. Chandulal Dayalal and Messrs. Shantilal Vrajlal & Co. Therefore, if the books of account show what share of profit was allocated to the firm of Messrs. Chandulal Dayalal and to the Firm of Messrs. Shantilal Vrajlal & Co., it is merely a matter of arithmetical computation to find our what profits were credited to the constituent partners of the two firms. In our opinion, The Tribunal was right in the view that it took that the partnership constituted by the second partnership deed should have been registered by the Income-tax Officer.

5. Therefore, we will answer the first question submitted to us in the negative. The second question does not arise.

6. The Commissioner to pay the costs.

7. Reference answered in the negative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //