S.T. Desai, J.
1. A joint Hindu family consisted of one Ramniklal Sunderlal, his wife and his two sons. It appears that in March 1948, they partitioned some of the joint family properties and on 25th January, 1949, entered into an agreement of partnership between them. The partnership was to derive income from certain of the partitioned properties and was given the firm name of Messrs. Ramniklal Sunderlal. It is mentioned in the agreement that income derived from certain properties shall be divided by all the partners in equal shares and that income from leases also will be divided between the partners in equal shares. The work pertaining to courts, offices, recovery of rents etc., was agreed to be done by the father Ramniklal with the consent of the other partners. Later on there is a clause which says :
'This firm shall be entitled to carry on this partnership business and over and above this business any other business with the consent of all the partners.'
2. The assessment year is 1953-54. Neither in the relevant year nor in the years previous to that there was any dealing in land at all by the partnership. The only dealing was recovery of rent of the partitioned lands and the expenditure incurred towards the same was in respect of maintenance of a motor car and payment of telephone charges. In the assessment year 1948-49 this partnership was registered under section 26A. For a few years thereafter also the partnership was recognised by the Income-tax authorities and was registered as a firm. For the assessment year 1953-54, however, the Department revised the objection that this was not a partnership because it did not carry on any business. The Income-tax Officer refused registration and assessed the assessee as an association of persons. The income was assessed under section 12 of the Act.
3. The Appellate Assistant Commissioner as well as the Tribunal upheld the decision of the Income-tax Officer and the assessee has now come to this court on this reference.
4. The question we are called upon to determine is :
'Whether on the facts and in the circumstances of the case, the assessee can be said to be carrying on business and whether it is entitled to the benefits of registration under section 26A ?'
5. It has been argued before us by Mr. Palkhivala, learned counsel for the assessee, that in this case there is much more than joint tenancy or tenancy in common or joint property or common property. It is said that there is an agreement to carry on a business, that a business was carried on the that the agreement itself shows that there was the element of agency. It has been pointed out by learned counsel that it is not one piece of land but there are several plots of land in Ahmedabad City which have been let out to a number of mills which pay ground rent to the partnership. Expenses have to be incurred in the management of the affairs of the business of the partnership and the expenses are in respect of the maintenance of a motor car and payment of telephone charges. The third factor to which our attention has been drawn is that in the assessment year 1950-51 the assessee was assessed on an income of Rs. 99 from speculation in shares.
6. Now, it is true that there is here an agreement which is one of the essential elements of the existence of a partnership. We shall take it that the element of agency and authority is also there. The partnership agreement recites that Ramniklal Sunderlal would attend to the work of the business pertaining to courts, offices and recovery of rents with the consent of the other partners. But it is extremely difficult to see as to where is the business and what is that business. An owner of a property who derives income by letting out the same to a number of tenants cannot substitute a partnership between himself and his wife and children by dividing the property among all of them and by simply calling the co-owners, members of a partnership firm, nor can he do so by describing the writing as a deed of partnership. A relationship of this nature would require some management and the element of agency may not be difficult to establish, but what would be lacking in an agreement of this nature would be the existence of a business. The definition of a partnership in the Partnership Act stresses three necessary elements of a partnership, viz., agreement, the existence of a business which must be carried on by all or any of the persons concerned and the elements of agency and authority. An agreement to carry on business at a future date does not result in partnership. It is prime requirement that there must be the actual carrying on of a business before partnership can be said to have resulted.
7. It is stated in the course of the argument that there is here a deed of partnership which sets out the shares of the partners. The question whether the relationship of partners does or does not exist in not one of form but of substance. It is one of the real intention and contract of the parties, which intention must be gathered from all the facts and circumstances of the case. It is not a matter merely of the expressed intention of the parties. Persons who have described themselves as partners have been held not to be so; and persons who have not described themselves as partners have been held to be partners by applying the tests very briefly stated above.
8. Section 2(1) of the English Partnership Act states a proposition which is at times very useful in dealing with cases of joint owners or part owners of property. That sub-section is as under :
'Joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.'
9. It is true that the distinction between co-ownership and partnership is sometimes not easy to determine and at times is rather obscure when the co-owners employ their property with a view to profit and cases do arise where it is not easy to decide as to when the employment of the property with a view to profit constitutes 'carrying on a business'. No definite rule can be expected or laid down since the word 'business' covers a very wide field of human activity and the definition of 'business' affords very little assistance when dealing with difficult cases. One practical guide is furnished by the case of Smith v. Anderson, to which our attention has been drawn by Mr. Palkhivala. In that case, the learned Master of the Rolls observed :
'Anything which occupies the time and attention and labour of a man, for the purpose of profit is business.'
10. In that case the Master of the Rolls also observed that the word 'business' must be taken in a sense in which any man of business would use that word. The argument to learned counsel has not gone to the length of suggesting that the writing and the mode of dealing between the assessee, his wife and his two sons would be viewed by any man of practical sense or by a commercial man as a business. If two joint-owners of a house agree that one of them should have the general management and provide funds for the necessary repairs so as to render the property fit for the habitation to tenants and agree to divide the net rent between them, It cannot be said that they are carrying on a business or that they have become partners. We do not intend to be understood to suggest that there may not be partnership between the owners of a property. There can be partnership between the owners of a property if they deal with the same in such a manner as to amount to carrying on of a business. The test to determine whether co-owners sharing profits of any property are partners or not is to inquire whether there is really a common business and whether the business is being carried on by one or more of them, acting for all. In such a case the court has to ascertain the real intention and contract of the parties not merely from the writing itself but from the whole facts of the case. As was observed by Lord Justice Lindley in a well-known case : 'look at the facts; look at the evidence; look at the accounts; look at the way in which the parties acted; and see what is the proper inference from all that.....; co-owners keep accounts on a totally different footing.' Now, we have linked at the facts of this case as also the evidence and we fail to see the existence of any business between the assessee, his wife and his two sons, who signed the partnership agreement.
11. For the reasons given by us, our answers to the question will be that the assessee cannot be said to be carrying on business and it is not entitled to the benefits of registration under section 26A.
12. Assessee to pay the costs.
13. Reference answered accordingly.