M. S. MENON C.J. - This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922. The question referred reads as follows :
'Whether, on the facts and in circumstances of the case, the assessee-firm should have been granted registration under section 26A of the Income-tax Act, 1922, for the assessment year 1961-62 ?'
Section 26A consists of two sub-sections. Sub-section (1) provides :
'Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual share of the partners, for registration for the purpose of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.'
and sub-section (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.'
Rules 2 to 6B of the Indian Income-tax Rules, 1922 -framed by the Board of Inland Revenue in exercise of the power conferred by section 59 of the Indian Income-tax Act, 1922 - deal with registration of firms. Kanga sums up the conditions of registration embodies in those rules as follows :
'(1) On behalf of the firm an application should be made to the Income-tax Officer by such persons and at such times and containing such particulars and being in such form and verified in such manner as are prescribed by the Rules.
(2) The firm should be constituted under an instrument of partnership.
(3) The instrument must specify the individual shares of the partners.
(4) The partnership must be valid and genuine and must actually exist in the terms specified in the instrument.' (The Law and Practice of Income-tax, 4th edition, volume 1, page 647).
These provisions make it clear that the jurisdiction of the Income-tax Officer is confided - as stated by the Supreme Court in Commissioner of Income-tax v. Sivakasi Match Exporting Co. and in Commissioner of Income-tax v. Abdul (A.) Rahim & Co. - to the ascertaining of two facts, namely, (1) whether the application for registration is in conformity with the Rules made under the Act, and (2) whether the firm shown in the document presented for registration is a bogus one or has no legal existence. In the former case, the Supreme Court said :
'A combined effect of section 26A of the Act and the Rules made thereunder is that if the application made by a firm gives the necessary particulars prescribed by the Rules, the Income-tax Officer cannot reject it, if there is firm in existence as shown in the instrument of partnership. A firm may be said to be not existence if it is a bogus or not a genuine one, or if in law the constitution of the partnership is void. The jurisdiction of the Income-tax Officer is, therefore, confided to the ascertaining of two facts, namely, (i) whether the application for registration is in conformity with the Rules made under the Act, and (ii) whether the firms shown in the document presented for registration is a bogus one or has no legal existence.'
and in the latter :
'It is settled law that if a partnership is a genuine and valid one, the Income-tax Officer has no power to reject its registration if the other provisions of section 26A of the Act and the Rules made thereunder are complied with.'
The partnership deed is reproduced as appendix 'A' to the statement of the case. The Tribunal does not find that the partnership was not genuine and valid, or that there has been any non-compliance with the provisions of the Act and the Rules.
The two reason mentioned by the Tribunal for the refusal of registration are the non-maintenance of accounts and the non-payment of interest on a sum of Rs. 25,000 advanced to the firm by one of its two partners. Neither of the reasons stands scrutiny.
The firm has been assessed as an unregistered firm. And, even though it had not kept any account, the return submitted has been accepted and an assessment made on its basis. Counsel for the assessee drew our attention to paragraphs 6 of the partnership deed which says :
'If any partner with the consent in writing of the other partner advances any sum of the firm over and above his due contribution to the capital, the same shall be a debt due from the firm to the partner advancing the amount and shall carry interest at 9% per annum.'
and submitted that, as there was no consent in writing of the other partners to the advanced of Rs. 25,000, no interest was admissible, and that was the reason for its non-payment.
Apparently, there has been some misunderstanding on the basis of the summary of the conditions of registration mentioned in R. C. Mitter and Sons v. Commissioner of Income-tax. In that case the Supreme Court said that the essential conditions that should be fulfilled before a firm is entitled to registration are :
'(1) That the firm should be constituted under an instrument of partnership, specifying the individual shares of the partners;
(2) that an application on behalf of, and signed by, all the partners containing all the particular as set out in the Rules, has been made;
(3) that the application has been made before the assessment of the income of the firm, made under section 23 of the Act (omitting the words not necessary for our present purpose), for that particular year;
(4) that the profits (or loss, if any) of the business relating to the previous year, that is to say, the relevant accounting year, should have been divided or credited, as the case may be, in accordance with the terms of the instrument; and lastly,
(5) that the partnership must have been genuine, and must actually have existed in conformity with the terms and conditions of the instrument.'
The above decision was based, as the decision itself makes it clear, on the Indian Income-tax Rule, 1922, as they existed before the extensive amendments of 1952. Before the amendments the application for registration should state :
'We do hereby certify that the profits (or loss, if any) of the previous year were divided or credited as shown in Section B of the Schedule and that the information given above and in the attached Schedule is correct.' (The underlining is ours.)
'That the profits (or loss, if any) of the business relating to the previous year, that is to say, the relevant accounting year, should have been divided or credited, as the case may be, in accordance with the terms of the instrument.'
The provision after the amendment of 1952, the provision applicable, is in the following terms :
'We do hereby certify that the profits (or loss, if any) of the previous year were/will be divided or credited as shown in Section B of the Schedule and that the information given above and in the attached Schedule is correct.' (The underlining is ours.)
The application for registration in this case was made on 7th July, 1960, that is, before the close of the accounting period on 31st March, 1961, and all that the application could possibly say was :
'We do hereby certify that the profits (or loss, if any) of the previous year will be divided or credited as shown in Section (B) of the Schedule and that the information given above and in the attached Schedule and that the information given above and in the attached Schedule is correct.'
It is not dispute that this has been done.
We are unable to see anything in the order of the Tribunal which will sustain the refusal of registration. It follows that the question has to be answered in the affirmative, that is, in favour of the assessee and against the department. We do so, but without any order as to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (5) of the section 66 of the Indian Income-tax Act, 1922.
Question answered in favour of the assessee.