1. This is a reference under sub-section (1) of section 66 of the Act and it arises out of the rejection of application under section 26A of the Indian Income-tax Act for getting the alleged partnership constituted under a partnership deed of 28th October, 1955, registered.
2. The facts material in brief are : We are here concerned with the assessment years 1956-57 and 1957-58. One Mehdi Hasan Laljee and his wife, Bai Jenubai, were carrying on a business in partnership, Mehdi Hasan having 14 annas' share and Jenubai having two annas' share therein. The income from this partnership, however, was being assessed in the hands of Mehdi Hasan as an individual. According to the applicant no objection to this procedure was raised by Jenubai in view of the provisions of section 16 of the Act. On 25th June, 1949, Mehdi Hasan made a will in respect of his 14 annas' share in the partnership business. Clause 13 of the will, which is material for the purpose of this reference, is in the following terms :
'My trustees shall told my share in the said business upon trust for my sons in equal shares and upon each son of mine attaining the age of majority he shall elect whether he shall become a partner in the said business and if and when each son of mine intimates to trustees in writing his desire to become a partner in the said business he shall be admitted as such partner forthwith. Till such time as each son of mine attains majority and elects to become a partner, his share of profits of the said business shall be accumulated. The share of profits of each son shall be handed over to each son on his attaining majority whether or not he elects to be a partner.'
3. Mehdi Hasan Laljee died on 9th November, 1949, leaving behind three sons, all minors at that time. Upon the death of Mehdi Hasan Laljee, assessment was made on Bai Jenubai in her capacity as legal representative of Mehdi Hasan Laljee, but that appears to be only for that year. Thereafter, the assessments up to the year 1957-58 were made on the executors appointed under the will in the status of an association of persons. Assessment orders for the years 1953-54 to 1957-58, however, appear to have been set aside by the Tribunal in order to determine the correct status in which the executors should be assessed. One of the sons of Mehdi Hasan Laljee by name Hadi Mehdi Hasan attained majority on October 20, 1955. Thereafter, on 28th of October, 1955, a deed of partnership has been executed by Jenubai and Hadi Mehdi Laljee (the son, who had attained majority) admitting the other two minor sons to the benefits of partnership. The profit-sharing ratio as stated in the deed was as under :
Bai Jenubai Mehdi Hasan ... Two annasHadi Mehdi Hasan ... Four annas eight piesThe two minor sons (who wereadmitted to benefits of thepartnership) each to the extent of ... Four annas eight pies.
4. For the assessment years 1956-57 and 1957-58 an application was made under section 26A of the Act to get the firm brought into existence under the partnership deed of October 28, 1955, registered under the said provisions. This application was rejected both by the Income-tax Officer as well as by the Appellate Assistant Commissioner. The further appeal taken by the Appellate Assistant Commissioner. The further appeal taken by the applicant before the Tribunal also failed. In dismissing the appeal the Tribunal observed :
'Ignoring this clause (clause 13), when only one of the sons had attained majority, the partnership deed between Jenubai and Hadi, the son who had attained majority, was entered into, admitting the minors to the benefits of the partnership. Manifestly, Jenubai and Hadi were incompetent to make any such contract of partnership contrary to the clear provisions of the will. The partnership could only have been entered into between the executors or trustees of the will for and on behalf of the minors and Jenubai and the major son. The executors or trustees are not made partners in this firm. The will does not even give the executors the power of admitting the minor to the benefits of partnership. The conditions are stringent. The minor must not only first attain majority, but before he can become a partner, he must intimate his desire to become a partner in the said business and then only can he become a partner.'
5. For these reasons the Tribunal dismissed the appeal. On an application made by the applicant under sub-section (1) of section 66 the following question has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the firm constituted under the instrument of partnership dated October 28, 1955, could be registered under section 26A of the Act ?'
6. Mr. Pandit, who appears for the assessee, in the first instance, contends that there is a deed of partnership. That deed of partnership had been filed. The requirements of section 26A are, therefore, fulfilled and the income-tax authorities as well as the Tribunal were consequently in error in not registering the partnership. According to Mr. Pandit, we are not here concerned with the administration of the estate or with the will. If the interests of the minors have not been properly safeguard, the minor may, when they attain majority, sue the persons responsible therefore in damages. We find it difficult to accept this contention of Mr. Pandit. Mere existence of a deed specifying the individual shares of the partners by itself is not sufficient to claim registration of the firm under section 26A of the Act. But a further fact has also to be established, i.e., the firm has been constituted under the instrument of partnership. The necessary implications of the word 'constituted' is that it is validly constituted. Section 4 of the Partnership Act defines 'Partnership' and it reads :
''Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the 'firm name'.'
7. On this definition of 'partnership', it will be seen that it contains three factors : firstly, there must be an agreement entered into by all persons who are concerned with the formation of the partnership; secondly, there must be an agreement to share the profits of the business and, lastly, the business must be carried on by all or any of the persons concerned acting for all. All these factors must be present before a partnership can be said to be validly constituted. Now, here there is an agreement to share the profits of the business, which was being carried on at one time by Mehdi Hasan Laljee and his wife, Jenubai. It has to be seen whether the agreement to share profits of this business is an agreement entered into by all the persons concerned with the business. Having regard to clause 13 of the will, which we have reproduced above, it is clear that after the death of Mehdi Hasan Laljee, the persons concerned with the business were executors appointed under his will and the widow of Mehdi Hasan Laljee, Jenubai. On any of the sons attaining majority and if he consents to become a partner, the persons concerned with the business would be the executors, the widow and the major son, who consents to become a partner. On the date on which the deed of partnership has been executed, only one of the sons had become major. The trustees or the executors, therefore, continued to be concerned with the business so far as the shares of the other minors were concerned. According to the statement of the case, the executors have not joined as parties to the deed of partnership. Further, in our opinion, there is an implicit prohibition in clause 13 of the will to the admission of minors to the benefits of the partnership. That clause provides that till the minor attains majority and elects to become a partner, his share of profits of the business shall be accumulated and it is only after he attains majority he gets possession of the accumulated profits. That shows that till the minors of Mehdi Hasan Lalji attain majority, they could neither claim possession of the profits nor their share in the estate of the partnership. If, on the other hand, the minor is admitted to the partnership, he could exercise his right, he could get his share separated under sub-section (4) of section 30 of the partnership Act and that is exactly what clause 13 prevents him from doing. That being the position, in our opinion, the Tribunal was right in holding that the alleged partnership said to have been constituted under the deed of 28th of October, 1955, has not been validly constituted.
8. Mr. Pandit, however, contends that the will has neither been proved nor acted upon and, therefore, it was open to Jenubai and Hadi Mehdi Hasan to validly constitute a partnership and admit the minors to the benefits thereof. It is difficult to accept this contention : firstly, because it has not been raised before the Tribunal and, secondly, because from the statement of case it appears that the executors appointed under the will have been carrying on the business and it is against them that the assessment orders have been made including the assessments for the years 1953-54 to 1957-58 though these orders have been set aside by the Tribunal but only for the limited purpose of determined their status.
9. It is next contended by Mr. Pandit that Jenubai has been appointed as an executor under the will. She has signed the deed of partnership and, therefore, it should be taken that the executors have joined in the deed of partnership. Again, this had not been the contention, which had been raised before the Tribunal nor is there any material on record to show that Jenubai had signed the deed of partnership in her capacity as an executor. Nor it is known that Jenubai was the sole executor. On the other hand, the words 'my trustees' appearing in clause 13 of the will indicate that more than one person had been appointed executors or trustees under the will. Jenubai's signing the deed alone, therefore, would be of no consequence.
10. For reasons stated above, in our opinion, there is no force in any of the contentions raised by Mr. Pandit. The decision, on which reliance has been placed, has no relevance to the question which falls for consideration.
11. We, therefore, answer the question in the negative. The assessee shall pay the costs of the Commissioner.
12. Question answered in the negative.