At the instance of the department of the Income-tax Appellate Tribunal in an application made under section 66(2) of the Indian Income-tax Act, 1922, has referred the following question of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income-tax authorities had erred in refusing renewal of registration to the firm under section 26A of the Indian Income-tax Act, 1922 ?'
The assessee is a partnership firm (Messrs. Shahzada Nand and Sons, Putlighar, Amritsar). Initially this was a Hindu undivided family concern. Its chief business was the selling agency of Oriental Carpets ., Amritsar. The joint Hindu family consisted of Sahib Dyal karta, and his three sons, Chaman Lal, Madan Gopal and Harbans Lal. Harbans Lal was a minor. On the March 31, 1945, this undivided family disrupted by reasons of a partition. On April 1, 1945, the outgoing members of the Hindu undivided family entered into a partnership to carry on the business of the selling agency which the Hindu undivided family was carrying on. The partners were Chaman Lal, Madan Gopal, Harbans Lal (minor), through the guardianship of Sahib Dyal and Shahzada Nand Charity Trust through one of its trustees. The capital of the partnership consisted of the amount that the contributed by the first three partners, in proportion to their shares in the profits and loses. There was no contribution by the trust. The trust was, however, entitled to one-anna share in a rupee in the profits. This share was fixed in deference to the wishes expressed by Sahib Dyal, the karta, who retired from, the Hindu undivided family business. The firm which started its business on the April 1, 1945, was granted registration under section 26A of the 1922 Act, and this registration was renewed from time to time up the year 1956. On the April 1, 1957, a fifth partner was added, namely Raj Mohan. In the meantime, Harbans Lal had become a major and, therefore, he too became a full-fledged partner. Thus, the shares of the four partners were fixed at three annas and none pies in a rupee. The share of the fifth partner, that is, the trust, continued to be the same. There was no other change in the terms and conditions of the partnership as originally constituted on the April 1, 1945. An application for registration of the newly constituted partnership was made on the April 1, 1957, and registration was granted. The renewal applications for registration of the said partnership for the assessment year 1959-60 and 1960-61 were also granted in due course. When it came to the assessment year 1961-62, the Income-tax Officer refused to grant the renewal. This the Income-tax Officer did on the ground that the share of profits given to Shahzada Nand Trust was not in accordance with the terms of the partnership deed. A further ground was also taken in the matter of refusal of renewal of registration that the element of mutual agency of partnership was lacking and that the interest had not been paid on the capital invested by the four partners. The Income-tax Officer, while coming to the conclusion that the share of the profit of Shahzada Nand Trust was not according to the deed of the partnership observed as follows :
'As per revised return the total income of the assessee for the year under consideration is Rs. 2,00,006. This includes interest of Rs. 2,699 allowed to M/s. Shahzada Nand Charity Trust at the rate of one anna share in a rupee; the share of profit of M/s. Shahzada Nand Charity Trust woks out to Rs. 12,331 in the balance income of Rs. 1,97,507 (Rs. 2,00,006 minus Rs. 2,699 allowed to M/s. Shahzada Nand Charity Trust). The assessee has, however, worked to the share income of M/s. Shahzada Nand Charity Trust at Rs. 8,326 only. The assessee was requested to explain how the share of M/s Shahzada Nand Charity Trust was worked out at Rs. 8,326. Vide his letter dated June 19, 1965, the assessee has stated that the share of profit of M/s. Shahzada Nand Charity Trust has been worked out after including interest income from the total income. During the previous year the assessee earned interest income of Rs. 64,096. Thus M/s. Shahzada Nand Charity Trust has not been given any share in this interest income. There is no clause in the partnership deed, which authorises the calculation of the share of profit of M/s. Shahzada Nand Charity Trust, after excluding interest income. It can, therefore, be said that the profit have not been distributed among the partners in accordance with the shares specified in the deed.'
The firm then preferred an appeal against the order of the Income-tax Officer refusing to renew the registration. This appeal was rejected by the Appellate Assistant Commissioner. A further appeal was taken to the Tribunal and the Tribunal allowed the appeal and directed renewal of registration. The department being dissatisfied moved an application under section 66(1) of the 1922 Act, asking the Tribunal to refer the question of law, namely. 'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income-tax authorities had erred in refusing renewal of registration to the firm under section 26A of the Indian Income-tax Act, 1922 ?' This application was refused by the Tribunal. The department then moved this court under section 66(2) asking that mandamus should issue to the Tribunal to refer the aforesaid question of law for the opinion of the court. This application was allowed and that is how the question of law has been referred for the opinion of this court. When the matter was posted before us for decision it transpired from the statement of the case that the Tribunal, while dealing with the appeal of the assessee, did not decide the question, though raised before it, that the share of profits of the trust had been paid to it in accordance with the partnership deed. Without a decision on this question by the Tribunal it is not possible for us to answer the question referred. The only court, therefore, open to us is to send back the case to the Tribunal for a finding on this question. The course we have adopted is justified by the decision of the Supreme Court in Commissioner of Income-tax v. Gurbux Rai Harbux Rai : 81ITR476(SC) . We, therefore, ask the Tribunal to decide the question whether the division of profits, so far as the trust is concerned, was in accordance with the partnership deed and thereafter submit a better statement of the case to this court so that the question of law that has been referred to us can be properly answered. The parties are directed to appear before the Tribunal on February 8, 1972. The Tribunal will then fix a date for the purpose. The costs will abide the event.