1. An application was made by a firm for registration and the firm relied on a deed of partnership dated the 16th of January, 1948. The Income-tax Officer registered the firm under section 26A, but he refused to recognise the partnership for the previous year for assessment purposes for the assessment year 1947-48. The previous year was from the 5th November, 1945, to the 24th October, 1946. The Appellate Assistant Commissioner confirmed the decision of the Income-tax Officer and the Tribunal has reversed the decision and directed the Income-tax Officer to register the firm for the assessment year 1947-48. The Commissioner has come before us contesting this direction.
2. Now, the facts of the case are that a partnership deed was executed on the 27th June, 1947, and this was a partnership deed in relation to a firm which started business from the 19th March, 1945. It is not disputed that this firm was in existence during the accounting year 5th November, 1945, to 24th October, 1946. This partnership deed on the face of it showed six partners. Partners 1, 2, 3 and 6 are genuine persons; partners shown as 4 and 5 it is admitted by the assessee, are not genuine persons. Partner 4 is described as 'Dayaram Gangabishan Agarwal, aged about 25, caste Agarwal, occupation business, resident of Dehu Road'; and partner 5 is described as 'Shrichand Ramkishan Agarwal, aged about 20, caste Agarwal'. In the partnership deed the share of these partners is shown as follows : that of partner 4 as eight annas and that of partner 5 as two annas. The partnership deed is signed, it is also admitted by the assessee, by Gangabishan in the name of partner 4 and by Shrichand in the name of partner 5. The case of the assessee was that Dayaram and Gangabishan were cousins and Shrichand and Ramkishan also were cousins, and that there was an understanding between Dayaram and Gangabishan on the one hand and Shrichand and Ramkishan on the other to divide the profits coming to the shares of Dayaram Gangabishan and Shrichand Ramkishan; and it is also admitted by the assessee that only one of the two cousins Gangabishan has signed on behalf of Dayaram Gangabishan and Shrichand and on behalf of Shrichand Ramkishan.
3. Before we consider the question of the proper procedure to be followed in this case, let us deal with the deed of partnership itself. Under section 26A an application has to be made 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. Therefore, the instrument of partnership which has got to be relied upon by the assessee for the purposes of registration of the firm must specify the individual shares of the partners. This is necessary because once a firm is registered, under section 23(5), although the assessment is made on the firm, the profits allocated to each of the partners have go to be shown in the income of each of the partners and each of the partners is assessed to tax and not the registered firm. Therefore, it is quite clear that, if this deed of partnership had been relied upon for the purposes of registration of the firm, which this partnership deed brought into existence and which was in existence in the year of account, then the partners as shown by this deed of partnership were not only partners 1, 2, 3 and 6, but also partners 4 and 5. Now admittedly there is no such individual as Dayaram Gangabishan and no such individual as Shrichand Ramkishan. Therefore, for the purposes of section 23(5) the Income-tax Officer would have proceeded to assess the share of the profit coming to partners 4 and 5 in their individual assessments. Now, that would have been impossible, because however hard the Income-tax Officer might have tried he could never have discovered any individual by the name of Dayaram Gangabishan or by the name of Shrichand Ramkishan. What is urged by Mr. Mehta is - and that seems to be the view of the Tribunal also - that there is nothing to prevent a person signing in a different name; and what Mr. Mehta says is that Gangabishan, who signed for partner 4, and Shrichand, who signed for partner 5, were real individuals and they should be looked upon as the partners and section 23(5) can be given effect to in the case of these two partners. Now we can understand a case were a man has an alias and he is known both by his own name and by the name of the alias, and it may be open to the person to use his alias in a partnership deed and sign in the name of that alias. But that is not the case here. Nobody suggests that Gangabishan is known to the world as Dayaram Gangabishan and Shrichand is known to the world as Shrichand Ramkishan. The very case of the assessee is that Dayaram and Gangabishan represent two different individuals who had agreed to share the profits and Shrichand and Ramkishan also represent two individuals who had agreed to share the profits. What Mr. Mehta says is that it is open to a partner to have a sub-partner and therefore there is nothing wrong if Gangabishan agreed to share his profits with his cousin and Shrichand agreed to share his profits with Ramkishan. But it is difficult to understand why if the real partners were Gangabishan and Shrichand, and if Dayaram and Ramkishan were merely sub-partners, Gangabishan and Shrichand did not come on the record in the deed of partnership in their own names. Therefore, there is considerable force in the contention of the Department that the partnership really consisted of eight partners and not six and the deed of partnership merely gave the names of six partners and not the names of eight partners. Therefore, whichever way one looks at this deed of partnership, it does not satisfy the conditions of section 26A and therefore, in our opinion, it cannot be registered under the provisions of that section.
4. Before we part with this reference, it is necessary to say a few words about the proper procedure to be followed in the case of registration of firms. Curiously enough, in this case the firm relied on the deed of partnership of the 16th of January, 1948. That partnership came into force on the 25th October, 1946, and there the four partners are correctly described as Dayaram, Gangabishan, Shrichand and Ramkishan they are our old friends partners 4 and 5 of the partnership deed of the 27th June, 1947. Here they are correctly described as four individuals. But this deed of partnership has nothing whatever to do with the firm which is to be registered for the purposes of section 26A. Under section 26A the firm that has to be registered is the firm which has to be assessed for the previous year. As already pointed out, the previous year of the assessee was 5th November, 1945, to 24th October, 1946. Therefore, if the assessee relied on the partnership deed of the 16th January, 1948, this was not the instrument of partnership which constituted the firm which was in existence and which had to be registered and which had to be assessed in the year of account. Now it is true, as we shall presently point out, that for certain purposes the firm which is in existence in the assessment year is also to be pointed out by the assessee for certain purposes of the Department. For instance, under section 26, if there is a change in the firm after the year of account and that change has come about in the year of assessment, then the assessment has to be made on the firm as constituted at the time of making the assessment. The reason for it is that under that very section not only the partners who constituted the firm in the year of account are liable to pay tax, but also the partners who constituted the firm at the time of making the assessment. Therefore, when we look at the rules and the forms which have been prescribed under section 26A, sub-section (2), the Department requires information both with regard to the firm which was in existence in the year of account and also with regard to the firm which was in existence in the year of assessment. But although information with regard to the firm which was in existence in the year of assessment may be necessary, primarily for the purposes of section 26A itself the only firm which has got to be registered is the firm which was in existence in the year of account; because, as already pointed out, it is only with regard to the firm in existence in the year of account that the Income-tax Officer is concerned for the purposes of assessment under section 23(5). Now, if there is any practice which is being followed, as Mr. Mehta suggests, of only giving particulars by relying on an instrument of partnership which constitutes the firm in existence in the year of assessment, in our opinion that practice is wholly erroneous. An application for registration should be made on the basis of an instrument of partnership which constitutes a firm in existence in the year of account. For the purpose of indicating to the Department which firm was actually in existence in the year of assessment, it may be necessary, if the earlier firm has changed or ceased to exist, to give further particulars. In such a case, it may be necessary also to rely on another instrument of partnership which has brought the new firm into existence in the year of assessment. Therefore, the proper procedure for the assessee to have followed in this case was to have relied first on the deed of partnership of 27th June, 1947, as constituting the firm in existence in the year of account and he should also have relied on the partnership deed of the 16th January, 1948, for showing which firm was in existence in the year of assessment. But curiously enough the assessee only relied on the partnership deed of the 16th January, 1948, and not on the partnership deed of the 27th June, 1947. Strictly, he is not entitled to registration of any firm under the partnership deed of the 16th January, 1948, because no firm came into existence under that partnership deed which would be relevant for the purpose of the accounting year. But we have not taken this technicality into consideration and we have considered the validity of the deed of partnership of the 27th June, 1947.
5. We may also point out that the Income-tax Officer was in error in passing the order that he did. If he registered the firm under section 26A, then he could not proceed to say that he would not recognise the partnership for the previous year for assessment purposes for the assessment year 1947. If the partnership was registered at all under section 26A, it could only be for the purpose of the previous year, namely, the year of account. By this order he gives effect to section 26A in the first sentence, and in the very next sentence he denies to the assessee the benefit of section 26A. But this again is a pure technicality, because what in effect the Income-tax Officer held is that he refused to recognise the firm for the year of account and in effect he refused registration to the firm for the year of account.
6. The first question which has been submitted to us is : 'For the assessment year 1947-48 which firm is required to be registered under section 26A of the Indian Income-tax Act, i.e., whether the firm constituted under the deed of partnership dated 27th June, 1947, or the firm constituted under the deed of partnership dated 16th January, 1948 ?' Our answer is, in view of our judgment. 'The firm constituted under the deed of partnership dated 27th June, 1947'.
7. With regard to the second question, as it is framed, the Tribunal seems to be under the impression that, if there is no legal bar to the registration of a firm, a firm can be registered under section 26A. Now that is a clear fallacy. An oral partnership is a valid partnership in law. We dare say that the partnership deed of the 27th, June, 1947, brings into existence a legal partnership. But we are not concerned here with the law of partnership or the law of contract. We are concerned with the Income-tax Act and the real question is whether the firm which was constituted under the partnership deed of the 27th June, 1947, was a firm which could be registered under section 26A. Therefore, we will re-draft the question to read : 'Whether the firm constituted by the partnership deed of the 27th June, 1947 could be registered under section 26A ?' and our answer to that question is in the negative.
8. Question (3) is : 'Whether the profits of S.Y. 2002 were liable to be apportioned in accordance with the provisions of section 26(1) of the Act ?' This is a consequential question and it must follow, in view of our answers to questions (1) and (2), that the answer to this question should be in the negative.
9. Assessee to pay the costs.
10. Reference answered accordingly.