V.S. Desai, J.
1. Messrs. Dastur Dadi & Co., a partnership firm of K. J. Dastur, D. F. Daruwala and B. N. Reporter, was constituted under an instrument of partnership dated 18th September, 1951. In this partnership Dastur and Daruwala has each six annas' share and the third partner Reporter has a four annas share in the rupee. The firm has been registered by the Income-tax Officer up to the assessment year 1954-55. On the 31st of March, 1954, B. N. Reporter, one of the partners of the firm, retired from the partnership and the partnership business was thereafter continued by K. J. Dastur and D. F. Daruwala, sharing the profits equally. Applications for registration of the firm for the assessment years 1955-56 and 1956-57 were filed by the firm on the 6th of July, 1955, and 8th of May, 1956, respectively, and on the said applications the Income-tax Officer, treating the old firm as continued by the two continuing partners after the retirement of third partner, granted renewal registration for the assessment years 1955-56 and 1956-57. It appears that on the 4th of February, 1956, an indenture was executed between B. N. Reporter on the one hand, and K. J. Dastur and D. F. Daruwala on the other hand relating to the retirement of B. N. Reporter from the firm on the 31st of March, 1954. The object of this indenture was to settle the accounts of the partnership and the claims of the outgoing partner up to 31st March, 1954, the date of his retirement. Some time about the 26th of November, 1959, the Commissioner of Income-tax acting under powers conferred upon him under section 31B of the Indian Income-tax Act, issued notice to the assessee firm to show cause why renewal of registration granted to it by the Income-tax Officer for the assessment years 1955-56 and 1956-57 be got cancelled and the Income-tax Officer directed to assess the assessee as an unregistered firm. In the proceedings which followed on the said notice, on the 16th of December, 1959, the Commissioner of Income-tax cancelled the registration granted by the Income-tax Officer and directed him to assess it as an unregistered firm, for the relevant assessment years empowering him also to modify the assessment orders, which he has passed against the assessee for the said assessment years. In cancelling the registration the Commissioner took the view relying on the contents of the indenture dated 4th February, 1957, between Reporter on the one hand and Dastur and Daruwala on the other, that the old firm has stood dissolved with effect from the 31st of March, 1954, and even if after the dissolution of the said firm two of the three partners of the firm had continued the business as partners, there was no instrument of the said partnership in writing specifying the individual shares of the continuing partners. The requirement of section 26A that there must be an instrument in writing specifying the individual shares of the partners was, therefore, not satisfied and the firm consequently not entitled to registration. From the decision of the Commissioner, the assessee took an appeal to the Income-tax Appellate Tribunal. The Tribunal did not agree with the view taken up the Commissioner that the original partnership had been dissolved on the 31st of March, 1954. According to the Tribunal the original partnership deed had provided that there would be no dissolution of the firm on the retirement or death of any one of its partners and the retirement of Reporter on the 31st on March, 1954, therefore, had not the effect of dissolving the firm. According to the Tribunal, therefore, it was a case of one of the partners retiring from the firm, which was continued thereafter by the continuing partners. The Tribunal did not agree with the view expressed by the Commissioner that the indenture of the 4th February, 1957, indicated that there was a dissolution of the old firm on the 31st of March, 1954. The Tribunal, however, found that although the old partnership firm now consisting only of two of the partners continued after 31st March, 1954, there was no instrument of partnership which specified the individual shares of the partners of the said continued firm after the 31st of March, 1954. According to the Tribunal, therefore, the Commissioner was right in holding that there being no instrument of partnership specifying the individual shares of the partners, no registration could be granted to the firm under section 26A of the Indian Income-tax Act. Thereafter, on an application by the assessee under section 66 (1), the Tribunal has referred the following question to this court :
'Whether, on the facts and in the circumstances of the case, registration of the firm was rightly refused ?'
2. In our opinion, the question must be answered in the affirmative and against the assessee. As observed by the Supreme Court in N. T. Patel & Co. v. Commissioner of Income-tax :
'Registration under section 26A of the Act confers a benefit on the partners which the partners would not be entitled to but for section 26A. The right can be claimed only in accordance with the statue which confers it and a person seeking relied under that section must bring himself strictly within the terms of that section. The right is strictly regulated by the terms of that statue. Unless the instrument of partnership specified the individual shares of the partners, the instrument of partnership would not conform to the requirements of section 26A.'
3. In the present case the instrument of partnership dated 18th September, 1951, by clause 5 thereof specified the shares of the three partners as follows :
Shri K. J. Dastur ... 6 annasShri D. F. Daruwala ... 6 annasShri B. N. Reporter ... 4 annas
Clause 14 of the instrument provided that the retirement or death of a partner would not dissolve the partnership and clause 15 provided that in the event of death of retirement of any partner and in the event of the surviving or continuing the said partnership business thereafter, the goodwill of the business would be regarded as part of the partnership assets and its value would be calculated and dealt with in the manner provided in the said clause. There was no clause in this instrument, which provided specifically the shares of the surviving or continuing partners after the death or retirement of any one of them. Clause 5, which specifically mentioned the individual shares of the partners of the firm, no doubt held good till the 31st March, 1954, but on one of the partners retiring on the said date, the shares of the remaining two partners after the said date could not be said to have been specified under the said clause in the continued partnership business.
4. It was argued by Mr. Mehta that the specification of the shares under clause 5 continued to determine the shares of the continued partners after the retirement of the third partner and inasmuch as those shares were equal, the shares of the continuing partners would also be equal and each of them would have eight annas share in the continued partnership business. Mr. Mehta has, therefore, argued that clause 5 of the instrument of partnership of 18th September, 1951, still governed the individual shares of the two continuing partners and the said instrument of partnership, therefore, was a proper instrument of the partnership as required under section 26A of the Income-tax Act specifying the individual shares of the two continuing partners of the firm.
5. Now, as we have pointed out, the shares of the two continuing partners in the partnership after the 31st March, 1954, cannot be six annas and six annas as specified in the instrument of partnership, because the said six annas shares of the two partners specified in the said partnership deed did not comprise the totality of the profits of the partnership, the remaining share of four annas being that of the third partner, Reporter. The shares of the partners now in the continued partnership would be eight annas each and that Mr. Mehta says is precisely so. Mr. Mehta, however, argued that the sharing of the profits in the ratio of 8 : 8 annas by the continuing partners is as a result of and in accordance with the specification contained in the original terms of partnership and that why the original instrument of partnership can be regarded as specifying the individual shares of the partners even in the continued partnership. The argument of Mr. Mehta proceeds thus : He says that the instrument of partnership specified the shares of Dastur and Daruwala as 6 annas each and that would indicate that they had both equal shares in the partnership business; the outgoing partner's share of four annas would, therefore, be divided between the continuing partners in the same proportion in which they held their shares and this would increase the individual partner's share to eight annas each in the new partnership business continued by the two partners. In the present case since the shares of both the continuing partners were equal as a result of the proportion in which they held the shares, the outgoing partner's share of four annas would also be divided in the said proportion. The same would also be the result by reason of section 13 of the Partnership Act, which provides that in the absence of a contract to the contrary, the shares of the partners in the profits of the partnership business will be equal. For the proposition that where from a partnership a partner retires, the remaining partners continue the partnership business, the share of the retiring partner in the profits would be divided between the continuing partners in the proportion of their shares in the partnership. Mr. Mehta has cited a decision reported in Mohammed Abdul Sattar v. Hafija Bibi. Mr. Mehta, therefore, says that the present shares of the partners in the partnership are eight annas each because of the specification contained in the instrument of partnership of 18th September, 1951, and, therefore, the said instrument of partnership specifies the provision of section 26A.
6. We do not think that we can accept the contention of Mr. Mehta that because from a given instrument of partnership either by aid of the provisions of section 13 of the Partnership Act or by inference drawn from some of the terms of the partnership, the shares of the partners in the continuing partnership could be fixed in the event in the event of a dispute between them by a court of law, the instrument could be regarded as one which specifies the shares of the individual partners within the meaning of section 26A. We have held in Parekh Wadilal Jiwanbhai, In re, that the words 'specifying the individual shares of the partners' in section 26A meant 'expressly and definitely mentioning the individual shares of the partners in the profits of the firm' and the section 13 of the Partnership Act, which provided that there being no agreement to the contrary in the deed the partners were entitled to share equally in the profits, could not be called in aid for the purpose of section 26A. Mr. Mehta argument, therefore, that the outgoings partner's share will be divided equally between the two continuing partners by reason of the provisions of section 13 of the Partnership Act and would thus constitute the share of each of the continuing partners as eight annas subsequent to 31st March, 1954, will not avail him for contending that the instrument of partnership of 18th September, 1951, specifies the individual shares of the continuing partners. In our opinion the argument that the clause in the original partnership specifying the shares of the two continuing partners in equal proportion will also aid in arriving at the conclusion that the retiring partner's share will also be distributed in the same proportion; thus making the original six annas share of each of the partners into a share of eight annas subsequent to the retirement of the third partner will not avail for the purpose of contending that the instrument of partnership of 18th September, 1951, the individual shares of the continuing partners. On the view that we have taken in In re Parekh Wadilal Jiwanbhai of the provisions of section 26A of the Indian Income-tax Act and in view of the observations of the Supreme Court in N. T. Patel & Co. v. Commissioner of Income-tax, to which we have already made reference, the instrument of partnership on which reliance has been placed in the present case cannot be said to be specifying the individual shares of the continuing partners as required under section 26A of the Indian Income-tax Act, so as to enable the assessee to obtain registration of the firm under the said provision.
7. Our answer to the question referred to us, therefore, is in the affirmative. The assessee will pay the costs of the Commissioner.
8. Question answered in the affirmative.