Narayana Pai, J.
1. In respect of the assessment for the two years 1952-53 and 1953-54, the claim was made by the concern called by City Tobacco Mart, that it was a partnership entitled to registration under section 26A of the Indian Income-tax Act, 1922. According to the case, the partnership which was constituted by a written instrument was to consist of five partners, namely :
(1) H. Mohamed Khan,
(2) Mohurunnisa Begum,
(3) N. Mohamed Khan,
(4) H. Gaffar Khan,
(5) Mirza Habibulla Baig.
2. Out of these, number 2 is the wife of number one, and number 3, the son of number one. Number 4 and 5 were employees under number one. The capital was to be contributed only by the first two in the sum of Rs. 6,00,000 by the former and Rs. 55,500 by the latter.
3. The assessing authority, the Income-tax Officer, refused registration. In the personal assessment of H. Mohamed Khan, he also held that the sum of Rs. 55,500 shown as capital contribution by the wife was in fact not her money, but a contribution by the husband himself.
4. Upon Appeal, the Appellate Assistant Commissioner accepted the finding that the capital contribution shown as having been made by the wife was, in truth, contribution by the husband himself. But upon further investigation into the attendant circumstances and relevant facts and after recording sworn statements of the parties concerned, he felt satisfied that the other members of the partnership had in fact been admitted as partners, although till the date of the constitution of the firm some of them had been working only as employees of the first partner. He, therefore, thought that it was a case in which registration under section 26A could be granted in respect of the partnership composed of partners Nos. 1 and 3 to, 5 omitting No. 2.
5. Both the assessee and the department were dissatisfied with this order and both of them went on appeal to the Appellate Tribunal, before which the department succeeded. The Tribunal came to the conclusion that there was no genuine partnership at all deserving of registration or capable of being registered under section 26A of the Act.
6. The Tribunal having refused to refer any question of law to the High Court on an application made to it by the assessee under sub-section (1) of section 66, the assessee mode this court for a direction to the Tribunal under sub-section (2) off the said section. This court, accepting the contention of the assessee that a question of law did arise out of the order of the Appellate Tribunal, directed the Tribunal to refer to this court, together with a statement of the case, the following question of law :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right on the material before it in holding that the firm constituted under the partnership deed dated March 12, 1951, is not a genuine firm ?'
7. The present reference is one made pursuant to that direction.
8. The Tribunal gave two principal reasons in support of its conclusion :
(i) that the finding accepted by the first two authorities that what appeared to be capital contributed by the wife was really the contribution by the husband, was sufficient to make out that the wife did not acquire the status of a partner; (ii) that the overriding power given to the first two status of a partner; (ii) that the overriding powers given to the first two partners in clauses (2) and (4) of the deed of partnership were such as to destroy the character of partnership.
9. The first reason is no longer available in view of the decision of the Supreme Court in Commissioner of Income-tax v. A. Abdul Rahim & Co. Their Lordships distinctly state that the fact that one of the partners may be a benamidar of another partner is by itself insufficient to deprive the benamidar of the status of a partner in relation to other partners. Just as a person may be a partner in a firm on behalf of the joint family or as manager of a joint family, and his capacity as manager of the joint family is a capacity limited to the ascertainment of rights as between him and the members of his family and not to any extent bringing about a change in the ordinary contractual relationship of partner between him and other partners, so also the fact that as between two person one is a benamidar and the other the real owner need not have any bearing on the relationship of either or both of them with the other persons constituting the firm.
10. This clarification of the principle by the Supreme Court makes it impossible to rely upon the first reason to hold against the genuineness of the firm.
11. The clauses of the partnership deed depended upon by the Tribunal read as follows :
'(2). The business assets shall belong exclusively to the first and second partners in the proportion of the capital investments and the working partners shall have a right in the assets only to the extent of any unpaid credit of their share of profit in the accounts. It is open to the first and second partners to take in more partners and to change the share of the profit of the working partners as agreed to herein.....
(4) The business of the partnership shall be managed by H. Gaffar Khan, the working partner of the fourth part, with the assistance of the working partners of the third and fifth part, and in his absence by N. Mohamed Khan, the working partner of the third part, under the supervision of the first and second partners.
Regarding the fourth clause, the Tribunal itself does not seems to think that it would necessarily make any difference to the situation, because immediately after quoting the clause they state, 'we do not intend to say that person agreeing to enter into a partnership are not liberty to define their mutual rights and obligations in the way they like.' That is exactly what the law itself states in section 20 of the Partnership Act, according to which it is open to partners by contract between themselves either to extend or restrict the implied authority of any partner.
12. The two points for consideration in relation to clause No. (2) are :
'(1) Whether the exclusive rights of proprietorship reserved to the first two partners in the business assets of the firm have any effect on the rights of other partners assets of the firm have any effect on the rights of other partners as partners so as to deprive them of the status of a partner
(2) Whether the special right given to the first two partners to introduce new partners and change the share of profits of the working partners has a similar effect ?'
Obviously, the first provision need not have any such effect as stated above. Admittedly, the capital was contributed only by the first two partners according to the deed. The only argument on behalf of the department in that regard was that in the light of the finding that the wife's contribution also was made by the husband, we have only one capitalist-partner in this case and that, therefore, what is really said to be a right appertaining to the first two partners is in actual event a right belonging only to one partner. This is, in our opinion, a restatement of the argument rejected by the Supreme Court in the case cited above. Even otherwise, if there is nothing out of the way - and it is in fact not uncommon - to provide for special considerations in favour of a capitalist or a financing partner in protection of his financial or proprietary interest, it should make no difference whether there is only one such partner or more partners than one in a partnership.
13. The power given to the financing partners to introduce new partners may also, in one sense, be related to the same idea of protecting their financial and proprietary interests. What is of real importance is not the positive power given to the first two partners to introduce new partners, but the implied deprivation of a similar right in the other three partners. In the absence of such a provision, it would have been impossible to introduce new partners except on a common agreement of all the five partners; and because the majority in number is that of the working partners, there could always have been a possibility of a person not enjoying the confidence of the financing partners centering the partnership to the real or at least apprehended prejudice of the financing partners. Section 31 itself says that the ban against the introduction of partners without the consent of all is subject to a contract between the partners. Obviously, it is in the light of this provision of law that express contract of the type mentioned above was considered necessary or desirable. The power to change the shares of the profit of working partners as stipulated in the deed is not, in our opinion, to be regarded as a power to be exercised independently of the introduction of a new partner; it is really consequential upon the introduction of a new partner and quite necessary in such an event, because, according to the deed, the shares were :
First partner - four annas,
Second partner - two annas,
Third partner - four annas,
Fourth partner - four annas,
Fifth partner - two annas,
thus exhaustive of all the profits.
If the Tribunal had analysed the position in the manner we have done above, we do not think that it would have entertained the opinion that there is anything in the second clause which is destructive of the character of partnership. It also does not appear to us that any circumstance other than what is stated above was taken into account by the Tribunal to come to the conclusion that the partnership was not a genuine one. All that the Tribunal says is that 'taking into consideration all the relevant facts and the manner in which the rights and obligations of the persons inter se are defined.........', it was unable to say that the working partners were really partners.
14. In the light of the foregoing discussion, it becomes clear that not only was there no material in support or the conclusion of the Tribunal but that such material as there is points to the partnership being a genuine one rather than otherwise.
15. We, therefore, answer the question referred to us in favour of the assessee as follows :
On the facts and in the circumstances of the case, the Tribunal was not right, on the material placed before it, in holding that the firm constituted under the partnership deed dated March 12, 1951, is not a genuine firm; on the contrary, it should have held that the firm was a genuine one.
16. The assessee will have the costs of this reference. Advocate's fee Rs. 250.
17. Question answered in favour of the assessee.