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Commissioner of Income Tax Vs. Chakkiath Bankers - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberI.T.R. No. 40 of 1999
Judge
Reported inII(2003)BC486; (2003)182CTR(Ker)424; [2003]261ITR292(Ker); 2003(1)KLT765
ActsCompanies Act, 1956 - Sections 11, 11(1), 11(4) and 11(5); Banking Regulation Act, 1949 - 5; Indian Partnership Act; Money Lenders Act
AppellantCommissioner of Income Tax
RespondentChakkiath Bankers
Advocates: P.K. Raveendranatha Menon, Sr. Adv. and; George K. George, Adv.
Excerpt:
..... - we have perused the orders of the assessing officer as well as the two appellate authorities. the tribunal, however, referred to the provisions of section 11(1) of the companies act and held that since the partnership firm was registered under the indian partnership act and also obtained licence under the money lenders act the requirements of section 11(1) are satisfied and, therefore, the assessee firm is entitled to registration. 7. in fact the tribunal has rightly understood this position and held that since the assessee firm is registered under the indian partnership act besides holding licence under the money lenders act the provisions of section 11 of the companies act is satisfied. we are perfectly in agreement with the interpretation placed by the tribunal on..........assessing authority refused to grant registration on the ground that the assessee is engaged in banking business and, therefore, it is hit by the provisions of section 11 of the companies act. this view of the assessing officer was affirmed in appeal by the commissioner of income tax (appeals). however, the tribunal in further appeal by the assessee cancelled the order of the two authorities and held that the assessee is entitled to registration.3. shri. george k.george, standing counsel for the revenue submits thai the assessee firm is admittedly having more than 10 partners and as per partnership deed itself the business of the assessee, inter alia, is banking business. the standing counsel further submitted that since the number of partners exceeded 11 and since the partnership.....
Judgment:

G. Sivarajan, J.

1. The following questions of law are referred for decision by this Court pursuant to the directions issued by this Court in the judgment dated 9.3.1998 in O.P. No. 15726 of 1997 at the instance of the revenue:

1. Whether, on the facts and in the circumstances of the case and also in view of the fact that the assessee is accepting deposits etc., the Tribunal is right in law and fact in holding that the assessee is only a money lender and 'is not carrying on the business ofbanking'?

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under the Income Tax Act?

2. The respondent assessee is a partnership firm with more than 10 partners but less than 20 engaged, inter alia, in 'banking' business. This firm was originally constituted as per a partnership deed dated 16.4.1975 and the firm was granted registration under the Act upto the assessment year 1980-81. However, when the assessee had made an application in form 11A after reconstitution of the firm the assessing authority refused to grant registration on the ground that the assessee is engaged in banking business and, therefore, it is hit by the provisions of Section 11 of the Companies Act. This view of the assessing officer was affirmed in appeal by the Commissioner of Income Tax (Appeals). However, the Tribunal in further appeal by the assessee cancelled the order of the two authorities and held that the assessee is entitled to registration.

3. Shri. George K.George, standing counsel for the revenue submits thai the assessee firm is admittedly having more than 10 partners and as per partnership deed itself the business of the assessee, inter alia, is banking business. The standing counsel further submitted that since the number of partners exceeded 11 and since the partnership firm is engaged in banking business, Section 11(1) of the Companies Act squarely attracted which provides that a partnership firm which has more than 10 partners is not entitled to carry on banking business unless it is registered under the Companies Act. The standing counsel accordingly submitted that the Tribunal had decided the question erroneously.

4. Though notice was served on the respondent assessee, there is no appearance for the assessee. We have perused the orders of the assessing officer as well as the two appellate authorities. We find that the assessing officer had rejected the application for registration in view of the provisions of Section 11 of the Companies Act read with Section 5(b) of the Banking Regulating Act, 1949. The first appellate authority has also taken the same view. The Tribunal, however, referred to the provisions of Section 11(1) of the Companies Act and held that since the partnership firm was registered under the Indian Partnership Act and also obtained licence under the Money Lenders Act the requirements of Section 11(1) are satisfied and, therefore, the assessee firm is entitled to registration.

5. Let us now examine the provisions of Section 11 of the Companies Act and Section 5(b) of the Banking Regulation Act. Section 11 of the Companies Act reads thus:

'11. Prohibition of association and partnerships exceeding certain number.-

(1) No company, association or partnership consisting of more than ten persons shall be formed for the purpose of carrying on the business of banking, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian Law.

(2). No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian Law.

(3) This section shall not apply to a joint family as such carrying on abusiness; and where a business is carried on by two or more joint families, in computing the numbers of persons for the purpose of Sub-section (1) and (2), minor members of such families shall be excluded.

(4) Every member of a company, association or partnership carrying on business in contravention of this section shall be personally liable for all liabilities incurred in such business.

(5) Every person who is a member of a company, association or partnership formed in contravention of this section shall be punishable with fine which may extend to ten thousand rupees.'.

Section 5(b) of the Banking Regulation Act, 1949 reads as follows:-

'(b) 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.'

6. Let us assume for the moment that the assessee is engaged in receiving deposits and also in lending money and, therefore, the business of the assessee will fall within the definition of 'banking' in Section 5(b) quoted above. That apart, the partnership deed itself provides that the business of the assessee is 'banking'. Let us now examine the question as to whether the conduct of the banking business by the assessee is in violation of the provisions of Section 11 of the Companies Act as held by the assessing officer and affirmed by the Commissioner of Income Tax (Appeals). Section 11 of the Companies Act in so far as it relates to a partnership only says that no partnership consisting of more than ten persons shall be formed for the purpose of carrying on the business of banking unless it is registered as a company under the Companies Act or is formed in pursuance of some other Indian Law. Here it must be noted that Section 11 of the Companies Act deals not only with partnerships but also with company and association of persons. In the case of a company formed with more than ten persons if it wants to carry on banking business under Section 11 it must be registered under the Companies Act. If an association of persons consists of more than ten persons and if it wants to carry on business of banking it has to be registered under the Companies Act, or under the Money Lenders Act, Partnership Act or under any other Indian Law such as Travancore Cochin Literary, Scientific and Charitable Societies Registration Act or under the Societies Registration Act. So far as partnership is concerned it is governed by the provisions of the Indian Partnership Act. What is contemplated under Section 11 of the Companies Act is that in respect of a partnership with more than ten persons for carrying on banking business it must be formed under the Indian Partnership Act and consequently the partnership so formed must be registered under the Partnership Act. Sub-sections (4) and (5) of Section 11 of the Companies Act provides the consequences of contravention of the provisions of Sub-section (1) of Section 11. This shows that the provisions of Section 11(1) of the Companies Act is mandatory in nature and therefore if a partnership with more than ten persons carrying a banking business is not registered under the Indian Partnership Act such firm cannot be treated as a legally constituted firm. According to us this is the only purport of Section 11 of the Companies Act read with Section 5(b) of the Banking Regulation Act.

7. In fact the Tribunal has rightly understood this position and held that since the assessee firm is registered under the Indian Partnership Act besides holding licence under the Money Lenders Act the provisions of Section 11 of the Companies Act is satisfied. In other words the inhibition contained under Section 11 is not attracted. We are perfectly in agreement with the interpretation placed by the Tribunal on the provisions of Section 11 of the Companies Act and in holding that the assessee is entitled to the benefit of registration for this year. We think it is unnecessary to answer the first question referred to us in view of the interpretation placed by us on the provisions of Section 11 of the Companies Act. We accordingly decline to answer the first question. So far as the second question is concerned, we answer the same in the affirmative, i.e., in favour of the assessee and against the revenue.

I.T.R. is accordingly disposed of.

A copy of this judgment under the seal of this Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.


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