JAGADISAN J. - The question raised in this reference application under section 66 of the Indian Income-tax Act is whether the refusal to register the firm constituted under an instrument dated 2, 1952, between the partners of a firm called V.M. Periasami Chettiar & Co. and one Palaniappa Kandar, by the department and the Tribunal under section 26A of the Act is proper. It is somewhat strange that though the language of the Act and the rules governing registration of firms is fairly lucid and plain, quite a large number of cases raise the dispute between the assessee and the revenue on the question of the registrability of the firm concerned. The frequency of such disputes suggests that the assessees do not generally realise that the benefit of registration under the Act is a privilege which can be availed of only on the strict fulfilment of the requirements of law. We must also observe that the department is over-punctilious in considering applications for registration of firms and is not averse to refuse registration quite readily in a facile manner. If the partnership sought to be registered is a genuine partnership and is not a mere make-believe affair and if it is evidenced by an instrument in writing specifying the shares of the partners and if the partners have distributed their profit or loss in accordance with their sharing ratio, the department is bound to direct registration. If, however, the partnership is not genuine or the requirements of law are not fully complied with by the assessee, the department should refuse registration unhesitatingly. By such refusal the department does not lay itself open to any blemish or charge, because of its insistence on the letter of the law being complied with. The brief facts of this case are as follow :
V. M. Periasami Chettiar & Co. is a firm of partnership consisting of five partners. They were dealing in cotton at Tiruppur and it will be convenient to refer to this partnership as the Tiruppur firm. Under an instrument of partnership dated October 2, 1952, the five partners of the Tiruppur firm and one Palaniappa Kandar formed themselves into a firm of partnership to carry on the business of purchase and sale of paddy and rice at Erode. We shall refer to this partnership firm as the Erode firm. The partners of the Tiruppur firm together contributed a capital of Rs. 10,001 and Palaniappa Kandar contributed an equal amount towards the capital of this partnership. The partners agreed to authorise Palaniappa Kandar, one of themselves, to manage the business and to maintain proper accounts. The profit or loss of this venture was to be shared equally by the members of the Tiruppur firm as one unit getting an eight annas share and Palaniappa Kandar getting the other eight annas share. The allotment of eight annas share to the partners of the Tiruppur firm was made collectively without specifying the individual shares of each one of these five partners. The partnership instrument was signed by all the six members, namely, the five partners of the Tiruppur firm and Palaniappa Kandar. On January 22, 1954, V.M.P. Srinivasan, son of V.M. Chettiappa, one of the partners of the Tiruppur firm, was admitted as an additional partner in the Erode firm. On the same day a new deed of partnership was executed by the seven partners of the Erode firm. For the first time on June 30, 1953, the Erode firm divided the profits into two halves and credited one half, namely, Rs. 20,133-11-6 to the partners of the Tiruppur firm collectively and the other half to the ledger folio of Palaniappa Kandar. It appears that the Tiruppur firm divided the profits earned from the Erode firm amongst its partners along with its other profits in accordance with the shares of the partners in the Tiruppur firm.
For the assessement year 1954-55, the corresponding previous year being the year ended June 30, 1963, the partners of the Erode firm applied under section 26A of the Act for registration. Along with the application, copies of the two deeds, the first dated October 2, 1952, and the second dated January 22, 1954, were filed. The Income-tax Officer refused registration on the ground that the individual shares of the partners of the Tiruppur firm had not been specified in the partnership deeds. There was an appeal to the Appellate Assistant Commissioner but he, however, dismissed the appeal. The appellate authority took the view that for purposes of allocation of profits the partners of the Tiruppur firm were treated as one group while in fact the partnership sought to be registered was put forward as a partnership of the members of the Tiruppur firm together with another, Palaniappa Kandar. The Appellate Assistant Commissioner observed that the two deeds of partnership are silent regarding the individual shares of the partners of the Tiruppur firm, and that it was a vital defect which rendered the application for registration unsustainable. On a further appeal to the Income-tax Appellate Tribunal the decision of the department was affirmed. The Tribunal substantially agreed with the contention of the department that there was no specification of the shares of the individual partners of the firm sought to be registered. The Tribunal, at the instance of the assessee firm, has referred the following question to this court under section 66(1) of the Ac : 'Whether the assessee firm is entitled to registration under section 26A of the Act for the assessment year 1954-55?'
In our opinion this question has to be answered against the assessee, particularly in view of our decision in A.S.S.R. Guruswami Chettiar v. Commissioner of Income-tax. We are unable to distinguish the facts in this case from the facts of the case decided in A.S.S.R. Guruswami Chettiar v. Commissioner of Income-tax. Mr. S. Swaminathan, learned counsel for the assessee, frankly conceded that the present case is indistinguishable from A.S.S.R. Guruswami Chettiar v. Commissioner of Income-tax. But he, however, urged with great pertinacity that our previous decision requires reconsideration. We have heard Mr. Swaminathan fully and we are not persuaded to change the view taken by us in that decision.
Learned counsel for the assessee submitted that the decision in A.S.S.R. Guruswami Chettiar v. Commissioner of Income-tax proceeded upon the view that a partnership arrangement should be evidenced only by one document, and that plurality of documents embodying the terms and conditions of the partnership would be fatal to the maintainability of an application under section 26A. It seems to us that the learned counsel has failed to appreciate the ratio of our previous decision. We did not consider in that case the position of a partnership firm embodying the terms and conditions of the partnership in several documents for the simple reason that it was not a relevant consideration in determining the question then in issue before us. The following observation contained in that judgment emphasises this aspect of the matter. 'A plain case where the partners of a firm embody the terms and conditions of the firm under several documents instead of one document cannot certainly help to resolve the problem now before us'. The words 'an instrument of partnership' occurring in section 26A of the Act has to be given a proper meaning. It may be that in a particular case where the partners of a firm execute several agreements between them for the conduct of the business of the firm all the documents might be treated as a composite integral whole despite the fact that the agreements themselves are actually engrossed in different documents or instruments. Where a partnership agreement is modified by a subsequent agreement between the partners, it is not as if that there are two documents embodying the terms of the partnership, but in substance there is only one agreement, which is the original agreement as modified by the subsequent agreement. Where the terms of the partnership as initially embodied in a document are supplemented by a subsequent deed between the parties, the supplementary deed has no individual existence and has necessarily to be read as part and parcel of the first agreement. Where the members of the partnership therefore enter into a series of arrangements or agreements between them by way of modification or supplementation of the original agreement, there is only one agreement though the terms and conditions are contained in several instruments as, necessarily, the contracting parties being the same and the subject-matter of the contract being also the same, the various instruments or deeds cannot each have an independent existence one apart from the other. As stated already the case of partners of a firm entering into agreements from time to time should not be confused with a case of the present description where the other document which is sought to be used as a supplement or adjunct to the document which forms the basis of registration is not between the same parties.
It is impossible to read the terms of the partnership of the Tiruppur firm into the terms of the deed constituting the Erode firm. There is no express reference to the deed constituting the Tiruppur firm in the deed which has constituted the Erode firm. There is no provision of law under which the two partnerships can be so assimilated as to make the terms of one agreement part and parcel of the terms of the other agreement. We agree with the finding of the Tribunal that in the absence of indication of the specific shares of the partners in the Erode firm except for the collective allotment of eight annas share to all the members of the Tiruppur firm the application for registration cannot be sustained.
Learned counsel for the assessee relied upon the decision of the Supreme Court in N.T. Patel & Co. v. Commissioner of Income-tax. In that case an application was made for registration of a firm for the assessment year 1955-56 on the basis of a deed of partnership dated March 29, 1954. The Income-tax Officer pointed out that there was no specification of the shares of the partners in that deed. This defect was cured by bringing into existence a deed of rectification executed on September 17, 1955, which was after the close of the account year. The recital in the rectification deed was that an error had crept in typing the partnership deed dated March 29, 1954. On a reference, the High Court held that under section 26A of the Act the factual existence in the year of account of an instrument of partnership specifying the individual shares was necessary and that requisite was lacking and, therefore, the provisions of section 26A were not satisfied. This decision was affirmed by the Supreme Court. We are unable to see the relevancy of this citation. Learned counsel for the assessee submitted that the rectification deed dated September 17, 1955, was taken into account and it was because of the fact this rectification deed was not in the year of account that registration was refused and that it was implicit in that decision that the two documents dated March 29, 1954, and September 17, 1955, could be taken and read together. It is enough to point out that in that case the rectification deed was brought about by the very persons who were parties to the previous document dated March 29, 1954. Both this court and the Supreme Court were of the view that the effective instrument of partnership was one that came into existence on September 17, 1955, as that alone contained the specification of the shares of the partners.
Reliance was next placed upon a decision of the Chancery Division in In re Cherrys Trusts. It was held in that case that under the Public Trusts Act, 1906, a corporate body empowered to undertake trusts within rule 30 of the Public Trustee Rules, 1912, can be appointed and has power to act as custodian trustee of real, leasehold or personal estate devised or bequeathed upon charitable trusts. Rule 30 of the Public Trustee Rules, 1912, was in these term : Any incorporated banking or insurance or guarantee or trust company or other body corporate for the time being empowered (by the Act of Parliament Charter memorandum of association deed of settlement or other instrument constituting it or defining its powers) to undertake trusts shall be entitled to act as custodian trustee....' The contention urged was no instrument within the meaning of the rule. That was negatived by Sargant J. in the following words at page 9 :
'I do not myself feel that difficulty at all. The Trustees under the two documents to which I have already referred had arranged that they and the individual successors whom they might have chosen to succeed them should undertake the trusts, and then the Charity Commissioners exercising the jurisdiction conferred on them under the Charitable Trustees Incorporation Act, 1872, constituted those persons a body corporate. To my mind the two deeds of trust and the order of the Charity Commissioners constituting that body as a body corporate formed together an instrument or instruments - of course the singular includes the plural - under which that body corporate was entitled to undertake trusts.'
We do not think that that case affords any assistance to us in considering the provisions of section 26A of the Income-tax Act.
We wish to point out that though we have proceeded on the footing that there was in fact a partnership constituting of seven members, having regard to the fact that that was the basis on which the department proceeded it ought not to be readily assumed by the department that in all cases where the signatories are the individuals the partnership constituted under the deed must necessarily be a partnership of the signatories. Whether the partnership is really one between a firm and other individuals, or is really a partnership of the individuals who signed the partnership agreement though some of the individuals together constitute another firm is a matter of construction of the particular document in question. If the substance of the agreement clearly indicates that the intention of the parties was that there should be a partnership of a firm along with an individual or individuals then such a partnership not being a valid partnership in law, the application for registration should be dismissed on that short ground. The instrument must be looked at and construed as a whole, each part of it being as important as the other. It will not always be safe to infer that there is a partnership of individuals from the mere fact that they have signed the instrument.
The decision of the Tribunal is correct. The reference is answered against the assessee, who will pay the costs of the department. Counsels fee Rs. 250.