1. The assessee firm consisting of six partners was constituted by the deed of partnership, dated 29th March, 1954, which came into effect from 1st April, 1954. The specific provision in the earlier deeds of partnership for the division of profits in proportion to the capital contributed by each of the partners was unfortunately omitted to be included in the deed, dated 29th March, 1954. This omission was noticed in the course of the proceeding before the Income-tax Officer, when the firm applied for registration under Section 26-A of the Income-tax Act for the assessment year 1955-1956. The year of account had ended on 31st March, 1955. On 17th September, 1955, the partners executed another document, which was supplemental to the deed of partnership, dated 29th March, 1954, and which provided:
The parties hereto agree to rectify that error though the same subject-matter is clear from Clauses 11, 34 and 41-A of the deed, dated 29th March, 1954. We hereby agree that for purpose of clarification the following clause shall be added as Clause 20-A in the Partnership instrument, dated 29th March, 1954. The parties hereto shall be entitled to shares in the profits and losses of the firm in proportion to the contribution of the capital of each of the partners and whenever fresh capital is required for the business, each partner shall be liable to contribute the additional capital in the same proportion as the paid-up capital referred to in Clause 4 of the deed, dated 29th March, 1954.
2. Non the less the registration was refused for the assessment year 1955-56 and the decision was eventually confirmed on appeal by the Tribunal.
3. Under Section 66(1) of the Act, the Tribunal referred to this Court:
Whether the assessee firm is entitled to registration under Section a6-A of the Income-tax Act for the assessment year 1955-56.
4. Learned Counsel for the assessee urged again before us the contention rejected by the Tribunal, that even without Clause 20-A added to the terms of the partnership on 17th September, 1955, the deed, dated 29th March, 1954, satisfied the requirements of Section 26-A, and that it specified the individual shares of the partners. Learned Counsel submitted that Clauses 4, 11, 34 and 41-A of the deed, dated 29th March, 1954, it may not be necessary to set them out - led to the inference, that was made explicit in Clause 20-A which was subsequently added, that the profits were to be apportioned among the partners in proportion to their contribution of capital Clause 4 only specified the contribution of capital. Clauses 11, 34 and 41-A each provided for a contingency other than the division of the normal profits of the firm, in relation to the capital subscribed under Clause 4. The Tribunal was right in holding that without Clause 20-A there was no specification of the individual shares of the partners. It is not, therefore, necessary for us to decide in these proceedings, whether an inference that could be drawn from the other terms of the deed of partnership would satisfy the test of specification of the shares prescribed by Section 26-A of the Act.
5. We are, however, unable to agree with the Tribunal that the deed of partnership, after it had been rectified by the further deed, dated 17th September, 1955, still failed to specify the shares of the individual partners. The provision in Clause 20-A read with Clause 4 was specific enough to satisfy the requirements of Section 26-A. But that specific provision was made only on 17th September, 1955, i.e., after the close of the year of account relevant to the year of assessment. Did that satisfy the requirements of Section 26-A to enable the assessee to obtain the statutory right of registration in the year of assessment is the question.
6. In Shaik Mahomed Rowther & Co. v. Commissioner of Income-tax : 30ITR747(Mad) , the deed was executed on 22nd July, 1949, but it purported to give effect to the dissolution of the partnership as on 28th March, 1949. The principle applicable to constitution of partnership as laid down by Rowlatt, J., in Waddington v. O'Callaghan (1931) 16 T.C. 187, was extended to partnership by a Division Bench of this Court, and it was held that the date of the dissolution was 22nd July, 1949, however the rights inter se the contracting parties were regulated.
7. In Waddington v. O'Callaghan (1931) 16 T.C. 187, Rowlatt, J., held:
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 die beginning of the deed. You cannot alter the past 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 the accounts back to the date that they mention as from which the deed provides that they shall be partners.
8. The learned Counsel for the assessee relied on Commissioner of Income-tax v. Shantilal Vrajlal and Chandulal & Co. : 31ITR903(Bom) . In that case an application for registration of the firm was made in August, 1951, in respect of the years of account which ran from 2nd November, 1948 to 21st October, 1949 on the basis of a deed of partnership, dated 26th October, 1950, which itself was beyond the year of account which had ended on 21st October, 1949. The assessees made a second application on 12th September, 1951 and produced an agreement of that date which satisfied the requirements of Section 26-A of the Act. On these facts the learned Judges allowed the application for registration; they held that even the second application, dated 12th September, 1951, which satisfied the requirements of Section 26-A of the Act, was enough to grant the registration sought under Section 26-A. This Court has not shared the view taken by the Bombay High Court see also Dwarakadas v. Commissioner of Income-tax, Bombay City : 29ITR903(Bom) , that the requirements of Section 26-A are satisfied when the deed of partnership came into existence after the year of account. With all respect to the learned Judges of the Bombay High Court we see no reason to depart from the principle that underlay the decision of this Court in Shaik Mohomed Rowther v. Commissioner of Income-tax : 30ITR747(Mad) .
9. In our opinion, what Section 26-A of the Act requires is the factual existence-in the year of account of an instrument of partnership, which further specifies the individual shares of the partners. It is only then that the statutory right of registration can be claimed and registration can be granted in the relevant year of assessment. That test the assessee unfortunately failed to satisfy. There was no doubt a deed of partnership in existence in the year of account 1954-1955 But that deed itself did not specify the shares of the individual partners. The specification of shares was only on 17th September, 1955, though that left intact the constitution of the partnership under the earlier deed, dated 29th March, 1954. The effect was that the requirements of Section 26-A were satisfied only on 17th September, 1955, but that was beyond the year of account. That the rectification effected' on 17th September, 1955, governed the rights and liabilities inter se as from 1st April, 1955, could in no way enlarge their statutory right under Section 26-A of the Act. As we have already pointed out, for the purpose of Section 26-A there was a specification of shares only on 17th September, 1955.
10. The Tribunal, in our opinion, was right in refusing registration in the year of assessment 1955-1956. We answer the question in the negative and against the assessee. The assessee will pay costs of this reference. Counsel's fee Rs. 250.