N.V. Iyengar, J.
1. This is a reference by the Income Tax Appellate Tribunal, Madras Bench under Section 66(1) of the Indian Income-Tax Act and the question raised is :
'Whether the assessee is entitled to relief under Section 26-A of the Indian Income-Tax Act for the Accounting year 1125 M. E. relevant for the assessment year 1951-52'.
The assessee was the firm of Sulaiman Hassan and Sons, Alleppey. They claimed registration for assessment year 1951-52, accounting year 1125 by application dated 21-9-1951. The application mentioned the names of the three partners and stated that they shared the profits one-third in the Rupee each and were admitted to the partnership in the year 1125 M. E. but without exact date being given.
An instrument of partnership dated 8-11-1126 accompanied the application and a similar instrument dated 15-9-1125 was also produced by the applicants on 21-3-1952. Both these documents did not mention that they took effect from date previous to what they bore. They also provided that one-forth share of the profits and losses appertained to the heirs of a deceased partner (Clause 4) and subject only to that provision, the net profits of the partnership will be 'divided between the partners hereto and they shall share all losses also in the same proportion' (Clause 5).
The Income Tax Officer, Alleppey, before whom the application was made refused registration because according to him, there was no instrument of partnership operative and effective for the rele-vant year 1125 M. E, and Cl. 4 of the instrument of partnership as to allocation of profit and loss to the deceased partner's heirs also stood in the way. In appeal by the assessee, the Appellate Assistant Commissioner, Trivandrum, sanctioned registration.
In his view the non-mention of the date of commencement of the partnership in the application or of the restrospective operation of the instruments of partnership as from 1-1-1125 were not of much consequence in the matter. In further appeal by the Department, the Appellate Tribunal concurred with the Income-tax Officer and restored his order refusing registration.
In the Tribunal's view there were two fatal defects which stood against the applicants, viz., (1) the non-specification of the beginning of 1125 as the date of commencement of the partnership, in the instrument offered for registration, and (ii) the omission to specifically refer to equality inter se the partners, of profit and loss, in Clause 5 of the instrument.
2. Learned counsel for the applicants urged that the details as to the duration found lacking in the partnership deed was one for supplementary evidence and such evidence had been furnished by the earlier instrument of 1125 and as regards the question of the extent of shares, the defect, if at all, was cured by Section 13 of the Partnership Act providing for equality, subject to contract.
3. Now Section 26-A, runs as follows:
'Section 26-A (1)--Application may be made to the Income Tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tux.
(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and it shall be dealt with by the Income Tax Officer in such manner as may be prescribed'.
Rule 3 of the Rules made under Section 59, provides that the application for registration shall be made in the form annexed to that Rule and shall be accompanied by the original Instrument of Partnership under which the firm is constituted, together with a copy thereof. It is clear from a mere reading of the above provision that firstly, the firm sought to be registered should be constituted under the instrument of Partnership and secondly that the instrument must specify the individual shares of the partners.
As regards the first requisite as to the constitution of the firm there is a controversy whether the word 'under' is an inappropriate expression for the word 'by'. Chagla, C. J., and Tendolkar, J., in Dwarkadas Khetan and Co. Bombay v. Commr. of Income Tax Bombay City, Bombay : 29ITR903(Bom) before the Bombay High Court have expressed the view that there is no inappropriateness in the expression 'under' so that there was nothing wrong in law in a partnership deed recording the existence of a partnership which has already come into existence.
In R. C. Mitter and Sons v. Commissioner of Income Tax : 28ITR698(Cal) , Chakravarthi C. J. and Lahiri, J. of the Calcutta High Court thought otherwise and said that when a partnership deed is executed, the partnership can only come into existence in the future and that the partnership deed cannot record the fact of a preexisting partnership. We are inclined respectfully to agree with the view of the Bombay High Court.
But even so, the partnership deed relied on by an applicant for registration must record the anterior date on which the partnership was constituted. To the extent therefore that it is conceded that the instrument offered for registration is silent on this matter, the first requisite cannot be said to be satisfied.
4. Learned counsel referred to the observations of Rankin, C. J., in In Re, Ramalal Murlidhar : AIR1931Cal682 :
'No doubt whether we look to the Act or to Rules made thereunder, there must be a firm constituted under the instrument; but when we come to ask ourselves what is sufficient to satisfy the requirement of the firm being constituted under the Instrument, I am not prepared to say with the Commissioner that it is implied that a complete instrument only is intended to be valid for registration, that is to say, an instrument which does not require supplementing by other evidence but contains in itself the complete agreement constituting the partnership and by itself solely operates to create the partnership'.
The master that was sought to be supplemented in that case was only the existence of one more partner of the firm besides those who had executed the instrument, that was offered for registration, when that partner assented to the deed and also joined in the application for registration. But this is not a case of that type.
5. Taking up the next question as to the non-mention of the extent of profits in the instrument of partnership. This exact question arose in Khimji Walji & Co. v. Commissioner of Income Tax, BSO : 25ITR462(Patna) . It was held there :
'The provisions as to the specification of the share of each partner in the partnership deed enacted under Section 26A of the Indian Income Tax Act, 1922, and in the application form prescribed under Rule 3 of the Income Tax Rules are mandatory in nature and unless these provisions are strictly complied with, the partnership firm is not entitled to get itself registered under the provisions of Section 26A. Registration of firms under the Income Tax Act is not a general right but is a mere privilege given to the firm in order to enable the individual partners to get the benefit of the lower rates of assessment applicable wherever such rates are lower than the rate applicable to the total income of the firm computed as a whole. If a firm desires to take advantage of this privilege, it must conform strictly to the requirements of Section 26A and the rules made under Section 59.' We respectfully agree.
6. Mr. Rama Jyer for the Department urged that the instrument of 1126 relied on could not subserve the purpose of Section 26A also because it was executed beyond the year 1125 for which registration is sought. And he referred to the observations of Rowlett, J. in Waddington v. O' Challaghan (1931) 16 Tax Cas 187 as extracted in Mohamed Rowther & Co. v Commissioner of Income Tax : 30ITR747(Mad) ;
'When people enter into a deed of partnership and say that they are to be partners as from some date which is prior to the date of the deed, that does not have the effect that they were partners from the beginning of the deed. You cannot alter the part in that way. What it means is that they begin to be partners at the date of the deed, but then they are to take accounts back to the date that they mention as from which the deed provides that they shall be partners'.
The argument is that even if the 1126 deed had referred to 1-1-1125 as the date when the partnership commenced, it would still not be sufficient. But weare not called upon to decide this question in this case.
7. It follows, therefore, that the applicants arenot entitled to get registration of their firm. Thereference is therefore answered against the assesseeand in the negative, The assessee will pay the costsof this reference. Counsel's fee Rs. 100.