1. This appeal has been filed by the assessee against the order dated 9-4-1981 of the AAC, by which he confirmed the order dated 19-2-1980 passed by the ITO under Section 185 of the Income-tax Act, 1961 ('the Act'), rejecting the claim of the assessee for the benefits of registration under the Act.
2. The assessee-firm was constituted by a partnership deed dated 14-6-1976. with effect from 1-4-1976. Shri V.R. Joshi was carrying on the business or profession of income-tax practitioner individually and by the aforesaid deed of partnership dated 14-6-1976, he took his daughter, a graduate of the Bombay University, as a partner in his professional firm giving her a ten per cent share in the profits of the firm. The asssesee firm applied for registration under Section 185, The ITO refused to grant registration to the assessee-firm on the ground that the daughter of Shri V.R. Joshi, namely, Miss B.V. Joshi, was not competent to practise as an income-tax practitioner under Section 288 of the Act. According to the ITO, both the partners of the assessee-firm were not professionally qualified to carry on the business of the firm, and so the basic requirement for granting registration was not fulfilled. In this view of the matter, he rejected the claim of the assessee.
3. The assessee appealed to the AAC, and contended that its claim should have been accepted. The AAC held that the daughter of Shri V.R.Joshi was not qualified to represent under Section 288 and so, the firm constituted by the deed dated 14-6-1976 was not in consonance with the spirit underlying the provisions of Section 288. In this view of the matter, he confirmed the action of the ITO, and dismissed the appeal.
4. Shri N.R. Mulla, the learned representative for the assessee, urged before us that the action of the revenue authorities were not justified. He pointed out that the only objection taken by the ITO against registering the firm under the Income-tax Act was that both the partners were not qualified to carry on the profession of the firm. He stated that it is not necessary for creating of valid partnership that all the partners should be equally qualified technically to carry on the business or profession of the firm unless it is so required under any other Act. His point was that under Section 4 of the Partnership Act, 1932, it is not necessary that each and every partner should be technically qualified to carry on the business or profession of the firm. The reason is that any one of the partners ca n act on behalf of all of them. The idea that all the members of a professional firm should be equally qualified to carry on the profession comes from certain other statutes regulating the conduct and practice of certain other professions, like professional practitioners in medicine, accountancy or law. They are governed by the Chartered Accountants Act, 1949, Indian Advocates Act, 1964, etc. This extra requirement under the Professional Acts is not necessary if the business or profession carried on by a firm is not governed by any of those Professional Acts.
In the instant case, the assessee-firm was acting as an income-tax practitioner under Section 288. Its partners were neither Chartered Accountants nor advocates. So, they were not governed by the aforesaid Professional Acts. The only thing that has to be seen is whether a valid partnership firm in the eye of law came into existence by the deed dated 14-6-1976. Shri NR. Mulla urged that such a valid partnership came into existence by the said deed.
5. Shri D.R. Chawla, the learned representative for the department, on the other hand, supported the order of the AAC. He stated that there are only two partners in the assessee-firm, and only one of them is qualified for carrying on the activities of the firm, consequently, he contended, there could be no firm with only one partner competent to carry on the business of the firm.
6. We have considered the contentions of both the parties as well as the facts on record. We find force in the contentions raised for the assessee. As stated earlier, the only ground on which the claim of the assessee has been rejected is that the deed dated 14-6-1976 did not bring into existence ' a partnership which is valid in the eyes of law, because all the partners were not technically qualified to carry on the business of the firm. In our opinion, the above argument given by the revenue authorities for rejecting the claim of the assessee is not at all sound. Section 2(13) of the Act defines 'business' as including 'trade, commerce or manufacture'. This definition of business does not specifically include profession but it is an inclusive definition.
Section 2(23) defines a 'partnership' as having the same meaning as assigned to it under the Indian Partnership Act, 1932. Section 4 of the Indian Partnership Act, 1932 defines a firm to be a relationship between persons who have agreed to share the profits of a business carried on by all or by some of them on behalf of all. One of the essential ingredients of a valid firm under the Partnership Act is that the firm should carry on business. The term 'business' is defined under Section 2(b) of the Partnership Act as including profession or vocation. Thus, the activity of carrying on a profession can be regarded as 'business' within the meaning of Section 4 of the Partnership Act, 1932. The assessee before us is evidently engaged in the profession of acting as income-tax practitioner. This activity is evidently a professional activity and so it comes under the definition of business, under the Partnership Act. Consequently, a valid partnership as per Section 4 of the Partnership Act was created by the aforesaid deed. By virtue of Suction 2(23) of the Income-tax Act, it also becomes a valid firm for the purpose of Income-tax Act. Hence, we do not see any infirmity or illegality in the partnership-firm evidenced by the deed dated 14-6-1976. The requirement that all the partners of a professional firm should have the requisite professional qualification applies to those firms whose profession comes under other statutes. As pointed out by the learned representative for the assessee, those professions were law, medicine, accountancy, etc. As stated earlier, the assessee-firm before us is not engaged in any such profession, the conduct of which is regulated by a different statute.
The mere fact that one of the partners cannot appear before the income-tax authorities under Suction 288 will not make the firm invalid in the eye of law. For the purpose of the Partnership Act, it is enough if a single partner is qualified to carry on the activity of the firm.
The other partners can be financing partners or dormant partners. Thus, we do not find any legal bar for constituting the firm evidenced by the deed dated 14-6-1976. We, therefore, vacate the orders of the ITO and the AAC and direct that the benefits of registration under Section 185 be granted to the assessee-firm.