1. This is a Reference by the Income-tax Appellate Tribunal at ,the instance of the Commissioner of Income-tax, Calcutta. The facts concerned can shortly be stated as follows : For many years a business known as Gopal Pure Oil Mills was owned by a Hindu undivided family the members of which were Gostha Behari Sadbukhan and his three nephews, Sarat Chandra Sadhukhan, Rabindra Nath Sadhukhan aud Panchkari Sadhukhan. Up to and including the year of assessment, 1941-1942, this business was assessed as a Hindu undivided family. On 29-10-1912 an application was made to the Income-tax Officer under Section 26A(1), Income-tax Act, to register a deed of partnership. The Income-tax Officer refused to register it. The deed of partnership is dated 15-6-1942, made between Gostha Behari of the first part, Sarat purporting and stating as representative of himself and his brothers Rabindra and Panchkari of the second part and three other persona Amulya Charan Samanta, Jugal Krishna Das and Kartic Chandra Pramanik, who were, and had been for many years, employees of the-business. The deed recites that the parties, which clearly means Gostha Behari and Sarat, had been carrying on the business jointly till the end of the year 1345 B.S. corresponding to 13-4-1939, and for better management of the business the parties agreed to carry on the business as partners. The shares in the. partnership are divided as to Gosto 5 as. 6 ps., Sarat 5 as. 6 ps., Amulya 2 as. 9 ps., Jugal 1 anna 3 ps. and Kartick 1 anna. The Income-tax Officer was not satisfied that previous to the execution of the partner, ship deed the business had been the subject of partition amongst the members of the family above mentioned and he refused to register the deed of partnership and assessed the profits of the business on the basis of a Hindu undivided family.
2. An appeal by the assessee was dismissed by the appellate Assistant Commissioner on 23-6-1943 but a further appeal was allowed by the Appellate Income-Tax Tribunal by their order dated 11-12-1913. The Commissioner of Income-tax being dissatisfied with this order obtained a reference under Section 66 of the Act from the Appellate Tribunal for the following question to be answered by this Court:
Whether the relationship between the five persons as evidenced by the deed dated 15-6-1942 is one of the partnership under the Partnership Act, 1932, or in the alternative 'Is there any legal impediment to the recognition of the partnership'.
3. It is common ground that before the deed of partnership could have been made between Gosta and Sarat and the other three parties, in respect of the business, that property of the joint Hindu family would require previously to have been partitioned.
4. Section 25A(1) of the Act, provides:
here, at the time of making an assessment under Section 23 it is claimed by or on behalf of any member of a Hindu family hitherto assessed as undivided that a partition has taken place among the members of such family, the Income-tax Officer shall make such enquiry thereinto as he may think fit, and if he is satisfied that the joint family property has been partitioned among the various members or groups of members in definite portions he shall record an order to that effect.
Provided that no such order shall be recorded until notices of the enquiry have been served on all the members of the family.
Sub-section (8) ibid provides:
Where such an order has not been passed in respect of a Hindu family hitherto assessed as undivided such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family.
5. Learned Counsel on behalf of the asses-sees contended that the partnership deed shews there had been a partition of the business and it must and should have been taken by the Income-tax Officer, as he says, at its face value, and that the statements in it should have been accepted unless the Income-tax Officer could have found anything on materials or evidence to disprove what it says. To support the contention that the document shows that there was a partition with respect to the business, learned Counsel pointed out that Sarat was executing the document as representative of himself and his three brothers. This, it was contended, should establish, at any rate, sufficiently for the Income-tax Officer, that the business had been separated from the other assets of the family. Further in the document, learned Counsel argued, there is a recital that the parties, had been carrying on business jointly till the end of the year 1345, B.S.; from that it should have been accepted by the Income-tax Officer that on 13-4-1939, which corresponds to the date I have just mentioned in the Bengali Calender, that there was a partition. He argued that the later statement was evidence, -which should have been accepted, of such disruption. If that were correct then nothing would be easier for anyone than to place in piece of paper before the Income-tax Officer, who should be bound to accept what is stated in that paper and be obliged to act upon it. That is not, as I read Section 25(A) of the Act. That section requires that when a member of a Hindu family, hitherto assessed as undivided, alleges that a partition has taken place the Income-tax Officer shall make an order recording the contention if he is satisfied that there has been a partition. That does not mean that he must accept the ipse dixit of the person whose paper, I have mentioned, is placed before him. The proviso to Section 25A(1), is to the effect that no such order shall be recorded until notices of the inquiry have been served on all the members of the family. Clearly the section contemplates that when a claim of the nature with which we are how dealing has been made all those persons previously interested should be given an opportunity of attending before the Income-tax Officer to dispute it, if such be the case. In In re S.C. Mullick & Sons ('38) 6 I.T.R. 99 (107) (All.) it was held that though the recitals in a partnership deed may be evidence and even conclusive evidence as between the parties to it, the income-tax department is not bound to accept them as correct and can call upon the executants thereof to prove the facts recited therein. In the present case, there was no evidence of partition apart from the recital and statement in the deed of partner, ship, even assuming that that recital and statement bear the meaning for which learned Counsel for the assessee has contended. Nothing would have been easier than to have had some evidence of a previous partition, prior to the partnership deed having been executed.
6. In Jattu Shah Nathu Shah v. Commr. of Income-tax, Punjab and N.W.F. Provinces ('32) 6 I.T.C. 162 (167) (Lah.) two deeds were placed before the Income-tax Officer; in one of which there was a statement that the joint family had already been disrupted; in the other that the family had been divided since a long time. That was a case in which a decision under the provisions of Section 25A of the Act, was given and it was held that those bare statements in the two deeds were insufficient to establish a separation or partition of the property.
7. In my opinion there was nothing before the Income-tax Officer which would justify him coming to the conclusion that the business known as Gopal Pure Oil Mills had ceased to belong to a joint Hindu family, the members of which were an uncle and his three nephews. Until there had been a partition none of the members of the family could enter into a partnership with three strangers in respect of that business.
8. It is to be further observed that the Income-tax Tribunal, having arrived at a different, conclusion to that to which the Appellate Assistant Commissioner and the Income-tax Officer had come, I can see no reference in their order that notices should be given under the proviso to Section 25A(1) of the Act, to enable the other members of the joint family to appear and object to an order being made.
9. In my view the Income-tax Officer arrived at the correct decision and conclusion and that the reversal of his finding and also that of the Appellate Assistant Commissioner, by the Income-tax Tribunal was wrong. The questions which are referred are not too happily phrased but I answer the second alternative question 'Is there any legal impediment to the recognition of the partnership' in the affirmative.
10. It is established that the Income-tax Officer need not accept the deed of partnership offered to him for registration under Section 26A, Income-tax Act, or its recital as correct. For authority as to this, it is sufficient to refer to the case in Jattu Shah Nathu Shah v. Commr. of Income-tax, Punjab and N.W.F. Provinces ('32) 6 I.T.C. 162 (167) (Lah.). In that case in fact the Income-tax Officer on enquiry came to a finding against the declaration in the deed. The terms of the deed of partnership were set out from p. 165 onwards and the declarations that the family had been disrupted and that they were carrying on the business as two firms are to be seen from the translations of the partnership deeds there set out. It is for us in this Court to proceed on the facts found and put before us on the record and the statement of the case. In this particular case, it is evident from the findings of fact, from the Income-tax officer onwards, that there was, in fact, no partition of the Hindu undivided family business which previously to the application to register the partnership firm had been the owners of the same business. Section 5 of the Partnership Act, categorically provides that members of a Hindu undivided family are not partners. As soon therefore as it was shown to the Income tax authorities that it was one and the same business in respect of which an application is now being made to register as owners of the partnership firm which had previously been the property of the Hindu undivided family, it is clearly in the interest of justice that the Income-tax Officer should make an enquiry to ascertain not only that the persons seeking to be registered as new owners were agreeable to this course, but that the members of the Hindu undivided family who previously owned the business were also agreeable. This is provided for in Section 25A making it necessary, as my learned brother has pointed out, that notices are first to be served on all the members of the family; and that where any claim is made 'on behalf of any member of a Hindu family, hitherto assessed as undivided, that a partition has taken place' the Income-tax Officer is to make an enquiry and is to be satisfied that the joint family property has been partitioned ; and that only then is he to record an order to that effect. In the present case the nature and the circumstances, in which the application for the registration of the partnership firm was made, appear from p. 4 of the paper book in the judgment of the Income-tax Officer where he says:
Deferring to the Partnership-deed, dated 15-6-1942, he (the pleader) states that Babus Gostha Behari Sadhukhm and Sarat Chandra Sadhukhan, members of a Hindu undivided family and still continuing as such separated from the assets of the Hindu undivided family the business styled Gopal Pure Oil Mills and formed themselves into a firm by taking in three of their former employees as working partners....
11. This recital and the circumstances in which the application was made clearly leave no doubt in my mind that Section 25A was attracted; and the procedure under Section 25A was made a requisite preliminary step in this case before the partnership firm could be registered.
12. For authority that the partnership sought to be registered is to be limited to the signing parties, reference may be made to the case in Pichappa Chettiar v. Chokalingam Pillai . Since Rabindra and Panchkari did not sign the application it follows that they could not be regarded as members of the new partnership firm sought to be registered. Rule 2, Income-tax Rules, moreover expressly stipulates that the application for registration under Section 26A of the firm is to be signed by all the partners personally. It follows from this that Rabindra and Panchkari though they had been members of the Hindu undivided family and were accordingly two of the joint owners of the Hindu family business, were not by virtue of the application for registration to be partners in the firm sought to be registered. Even if it could be contended for the assessee that for other members of the Hindu undivided family the mere filing and signing of the application for registration as a firm under Section 26A in itself amounted to proof both of partition and of their consent to partition and by reason of their presence before the Income-tax Officer afforded an excuse for non-issue of notice under Section 25A, yet no such contention would be open to the assessee in regard to Rabindra and Panchkari.
13. In these circumstances and for these reasons, as well as those stated by my learned brother in his judgment, I agree, that it was a preliminary to the registration of the partnership firm sought to be registered that there should have been a partition of the Hindu undivided family previously owning the business; and that in the absence of proof of such partition, the Income-tax Officer was right in refusing registration; and I concur in the answer to the question given by my learned brother.