P.K. Tare, C.J.
1. The Income-tax Appellate Tribunal, under Section 256(1) of the Income-tax Act, 1961, has referred the following question for our opinion :
'Whether, on the facts and circumstances of the case, the assessee-firm is entitled to registration under Section 26A of the Indian Income-tax Act, 1922, for the assessment year 1959-60?'
2. The facts leading to the present reference are as follows : There was a Hindu undivided family carrying on business under the name of M/s. Malwa Knitting Works till March 31, 1958. On April 1, 1958, there was a partial partition between the family members and on that very day, a partnership was formed, which with effect from that date carried on the former family business. The partners of the firm were Shri Jagdishrai, advocate, his younger brother, Shri Amritlal, and their mother, Smt Satyawatibai. This partnership firm applied for registration for the assessment year 1959-60, which was refused by the Income-tax Officer, the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal. On a request by the assessee, the present reference was made by the Appellate Tribunal to this court.
3. This case had come up before us on an earlier occasion when by order dated April 6, 1973, we called for an additional statement from the Appellate Tribunal. The reason was that the matter was not governed by the Advocates Act, 1961, and it was wrongly assumed by the taxing authorities that the said Act was applicable to the instant case of registration of the petitioner-firm for the assessment year 1959-60. At that time the Bar Councils Act, 1926, was in force. Therefore, it, was found necessary to call for an additional statement as the Bar Councils Act, 1926, did not put a total ban against an advocate owning some interest either in a family business or a partnership business. The ban was against his active participation in such a business. Therefore, the' Appellate Tribunal was required to ascertain from the material on record whether Shri Jagdishrai, advocate, had actively participated in the affairs of the partnership business or whether he was a mere sleeping partner.
4. In pursuance of the order of this court dated April 6, 1973, the Appellate Tribunal has submitted the additional statement of the case. It is true that in the additional statement there is no specific finding to the effect that Shri Jagdishrai, advocate, did not participate in the affairs of the business, but the kind of finding recorded by the Appellate Tribunal in the additional statement is to that effect. What the Appellate Tribunal now finds is that there was an affidavit on record filed by Shri Jagdishrai, advocate, that he never participated in the business of the firm. That affidavit was not controverted on behalf of the department. It is true that the terms of the partnership deed provided a clause, which authorised Shri Jagdishrai, advocate, to act on behalf of the firm as also to actively participate in the business. But that clause, as is obvious, remained a dead letter throughout and, even according to the additional statement of the Appellate Tribunal, Shri Jagdishrai, advocate, did not actively participate in the business of the firm. We may note the actual finding recorded by the Appellate Tribunal as follows :
'Therefore, it cannot be held on the evidence as it stands that the object of the firm is such as to defeat the provisions of the Bar Councils Act. As the registration to the assessee-firm has been refused only on this ground, the necessary finding as a result of the above discussion, would be that as there is no evidence to prove that the carrying out of the business of the firm would defeat any of the provisions of the Bar Councils Act, the assessee-firm would be entitled to the benefits of registration.'
5. In view of the specific finding, we are of the opinion that the facts stand amply established that although the clauses of the partnership empowered Shri Jagdishrai, advocate, to act on behalf of the firm or to actively participate in its business, the said clauses remained a dead letter and Shri Jagdishrai, advocate, never participated in the business of the firm. The suggestion of the learned counsel for the department was that the partnership deed would be rendered illegal in such a matter. We are unable .to accept the suggestion. Suppose, if Shri Jagdishrai; advocate, had actively participated in the business of the firm, the partnership itself would not have been rendered illegal. But, at the most, he would have made himself liable for disciplinary action under the Indian Bar Councils Act, 1926. Even under that Act an advocate could not actively participate in the affairs of the business, but he could certainly be a sleeping partner in such business. Therefore, it is not possible to hold that merely because there was a clause in the partnership deed empowering Shri Jagdishrai, advocate, to act on behalf of the firm or to actively participate in the business of the firm, the partnership itself would be rendered illegal. In this view of the matter, there can be no doubt that the petitioner-firm was entitled to registration for the assessment year 1959-60.
6. As a result of the discussion aforesaid, we would answer the question as follows:
'That, on the facts and in the circumstances of the case, the assessee-firm was entitled to registration under Section 26A of the Indian Income-tax Act, 1922, for the assessment year, 1959-60.'
7. Let the case be returned to the Income-tax Appellate Tribunal to take further action in accordance with the opinion recorded by us above. Further, we direct that there shall be no order as to costs of the present proceedings.