1. This is one of those references where the Income-tax Department has taken much too technical a view of the income-tax law. The question that arises is with regard to the registration of a firm, and the brief facts are that there was a Hindu undivided family consisting of S. A. Manvi, the father, and S. S. Manvi and C. S. Manvi, the sons. The joint Hindu family continued up to March 31, 1945, and it was disrupted on April 1, 1945. Then the father and the two sons entered into a contractual partnership. S. S. Manvi, the elder of the two sons, died on March 18, 1947, and it appears that the partnership was continued, the widow of S. S. Manvi stepping into the shoes of her deceased husband and representing the interest of her three minor sons. The partnership deed was executed on April 8, 1948. On the strength of this partnership deed the partnership was registered for the assessment years 1946-47, 1947-48, and 1948-49. In 1949-50, the Income-tax Officer refused to register the firm, and on appeal the Appellate Assistant Commissioner differed from the Income-tax Officer, but the Tribunal concurred with the decision of the Income-tax Officer, and the first reference arises from the decision of the Tribunal. On this decision being given, the Commissioner of Income-tax reviewed the decision of the Income-tax Officer for the year 1948-49, and canceled the registration. From that decision an appeal was preferred which came ultimately before the Tribunal, and the Tribunal held that the cancellation of registration was not justified. That gives rise to the second reference before us, viz., Reference No. 11 of 1954. But substantially the question that we have to consider in both the references is the same-whether on the facts and circumstances of the case the firm constituted by the partnership deed of April 8, 1948, should have been registered
2. There is no dispute between the assessee and the Department that there was a genuine partnership. It is admitted that a firm came into existence on the disruption of the joint family on April 1, 1945. Nor is it disputed that the partners of that firm were the father and the two sons. It is also not disputed that on the death of the elder son the partnership was not dissolved but continued. In the partnership deed there is this obvious error that it fails to account for the earlier history of this partnership, and it states that the partnership which is referred to in the partnership deed came into existence on the April 1, 1945. That is not strictly correct because, as already pointed out, the partnership that came into existence on April 1, 1945, was a different partnership from the partnership referred to in the partnership deed of April 8, 1948. The partnership deed of April 8, 1948, refers to three parties as constituting the partners. One is the father S. V. Manvi, the second is the younger son C. S. Manvi, and the third is described in this was - 'the names of the three minor sons by minor guardian mother Mrs. Manvi.' Clause 5 of the partnership deed provides that the shares of the parties both in profits and losses in the said concerns shall be equal; and clause 8 provides that the relation of the parties shall be governed by; the Indian Partnership Act of 1932. The partnership deed is signed by the father and son and by the mother on behalf of the minor sons.
3. Now, the view taken by the Income-tax Officer was that the registration should be refused as the individual shares of the minor had not been specified. The Income-tax Officer seems to be right on the state of the law that section 26A requires that the instrument of partnership which constitutes the firm should specify the shares of the partners and if minors are admitted into the benefits of the partnership then the shares of the minors must be shown. Unfortunately, it is not possible, in view of the law, to take the common sense view that why you have three minors shown as having been admitted into the benefits of a partnership and these three minors represent their father's interest and when the share of the father is specified as one-third, it is merely a matter of arithmetical calculation to determine what the specific share of each of the three minors is. Very often common sense and income-tax law are things apart and we will be going in the teeth of authorities if we were to prefer common sense to the technical aspect of income-tax law. But whatever that may be, we will assume for the purpose of this reference that the view of the Income-tax Officer was justified in law that the shares of the minors, if they were admitted into the partnership, not being specified, the firm could not be registered. But it may be pointed out that there is a patent contradiction in the order of the Income-tax Officer, because earlier in the order he says that the partnership deed which is dated April 8, 1948, mentions the names of the minor sons represented by their mother as the partner in place of the late S. S. Manvi. Therefore, the view taken by the Income-tax Officer is that the party that became the partner was the mother, although she may have represented the minor sons. If that be the true position, then very different considerations arise for our decision. The Appellate Assistant Commissioner also took the view that the widow was the partner and inasmuch as her one-third share was specified there was no difficulty in registering the firm. When it came to the Tribunal, the Tribunal did not deal with the question of shares not being specified, the only ground on which the Income-tax Officer had refused registration. The Tribunal went on an entirely different ground and the ground was that the partnership deed sought to give retrospective effect to the partnership as from April 1, 1945, when the partnership in fact did not exist and therefore registration could not be granted to the assessee. Now, no one has suggested that the partnership did not exist. It is common ground that the partnership existed and the firm was a genuine firm. If the Tribunal intended to convey by this observation that the partnership deed being executed on April 8, 1948, retrospective effect could not be given to it, then the Tribunal was overlooking the fact that the registration was being sought for the year 1949-50, and the partnership deed would be retrospective only to the extent of the first eight days of April. Further, as far as this registration was concerned, the Tribunal had nothing whatever to do with the partnership as it was constituted before March 18, 1947. After March 18, 1947, the partnership was the partnership as shown in the partnership deed. But the Tribunal unfortunately did not have before it a recent decision of this court in Dwarkadas Khetan & Co. v. Commissioner of Income-tax where we have pointed out that there is nothing in law to prevent a partnership deed being executed after a firm actually comes into existence. All that section 26A requires is that the firm must be constituted under an instrument of partnership and not by an instrument of partnership, and so long as there is an instrument of partnership, which is put forward for the purpose of the registration of the firm, it does not make the slightest difference as to when that instrument of partnership was executed.
4. Now, in the second reference the Tribunal has taken an entirely different view. It has expressed its view in favour of registration because according to it the widow was the partner and the widow represented the minor sons in the partnership. We are inclined to take the view that the latter view of the Tribunal is the correct view. Let us go back to the partnership deed and see whether the view taken by the Tribunal is justified. In the application for registration the three partners that are shown are the father, the son and the widow. This is very significant. The minors are not shown as partners and the share of each of the three partners is shown as being equal and being one-third each. It is perfectly true that effect could only be given to this application provided the partnership deed is in conformity with what is stated in the application and the proper approach to the matter is to see whether the partnership deed supports the application made by the assessee. Now, frankly, we must concede in favour of Mr. Joshi that the partnership deed is capable of the construction that it was not the widow who became the partner but that the minors were admitted to the benefit of the partnership. But that is not the only view possible. If the other view is possible, then we must accept it because it is in keeping with with the application made by the assessee themselves and it is in conformity with view taken by the Income-tax Officer, and the Appellate Assistant Commissioner in the first reference and by the Tribunal in the second reference. We would, therefore, hesitate to take a contrary view unless that view was the only possible view on a construction of this document.
5. Mr. Joshi has strongly relied on the fact that in Dwarkadas Khetan & Co. v. Commissioner of Income-tax a minor was made a partner, the minor signed the partnership deed, so also did his guardian, the minor was liable for losses, and what we held was that in law a minor could not become a partner, he could only be admitted to the benefits of the partnership, and Mr. Joshi wants us to apply the principle of that decision to the facts of this case. Now, it would be an error to construe one particular document in the light of another document construed in another case. We must construe this document on its own language and in the context of the circumstances in which it was executed. So that when we look at the document, we find that the shares of the partners are described as equal, not only in profits but also in losses. It is obvious that under the partnership law a minor cannot be made liable for losses in a partnership; he could only be admitted to the benefits of the partnership. It may be possible for us to say, as this clause stands, that we must rule out the possibility of parties intending that minors should be liable to pay losses in view of the partnership law and we must hold that this is a case where the minors were admitted into the benefits of the partnership. But in clause 8 it is specifically stated that the relation of the parties shall be governed by the Indian Partnership Act. So the parties were aware of the partnership law and we must assume that they were cognisant of the fact that minors could not be made liable for losses. The document is executed by the mother undoubtedly on behalf of her wards and she is also described as the guardian of the minors in the recital clause. From all this it appears that it was the widow who became the partner, undoubtedly representing her wards. But that was a matter between her and her wards. As far as the other partners were concerned and as far as the world outside was concerned it was she who was the partner and not the minors. In law it is quite possible for a guardian to become a partner and to be liable for profits and losses, although the question as to how far wards are bound by any losses incurred by the guardian may be entirely a different question. It is also possible to take the view that if a guardian were to say 'My ward shall be liable both for profits and losses', she cannot make her ward liable but she makes herself liable and thereby constitutes herself the partner. It seems to us that is the position. It is the mother who enters into the partnership, executes the partnership deed, holds herself liable both for profits and losses, and therefore in the eye of the partnership law she becomes the partner. It may be that any profits that she may make might belong to her wards. It may also be that for any losses she might incur she herself may be liable and not her wards. But that is not the question with which we are concerned as far as the income-tax law is concerned. Therefore, in our opinion, taking all the circumstances into consideration, the view subsequently taken by the Tribunal is the right view as to the true construction of this partnership deed. The right view is that it was the widow who became a partner with the other partners, although she may have represented her minor sons. In that view of the case, the instrument of partnership is in conformity with section 26A. The names of the partners are shown and also the shares are specified and the partnership deed does not suffer from any defect which would entail non-registration of the firm.
6. Mr. Joshi is right that strictly the question submitted to us in the first reference is not a proper question. The question was whether the order of the Income-tax appellate Tribunal was legal because it took into consideration the question of the existence or otherwise of the partnership when the only ground of appeal was whether the firm would be registered on the ground that the shares of the minors were not specified. This is not really the controversy between the parties. The real controversy between the parties is whether under the circumstances and on the facts of the case the Tribunal was justified in upholding the decision of the Income-tax Officer in refusing to register the firm under section 26A We raise that question and answer in the negative.
7. In the second reference the question raised is whether the commissioner was competent to direct the Income-tax Officer to modify the order of assessment by substituting the said status of unregistered firm and to determine and collect the tax payable by the; unregistered firm as provided in law. Mr. Palkhivala concedes that the question as raised must be answered in favour of the Commissioner. It will be noticed that the Commissioner has not raised any question in this reference as to the merits of the decision of the Tribunal which, as already pointed out, was against the Commissioner, inasmuch as the Tribunal held that the Income-tax Officer should have registered the firm. We will therefore answer the question in the second reference in the affirmative.
8. No order as to costs in both the references.
9. References answered accordingly.