1. In this case the Commissioner of Income-tax, Bengal, has referred to this Court under Section 66(2), Income-tax Act 1922, two questions: (1) Whether the Income-tax Officer has any power under the law to refuse an application for registration made in the prescribed manner with partnership deed prior to assessment and, if so, under what section of the Act; and (2) whether the law gives the Income-tax Officer any power to call for evidence of dissolution of the joint family for the purpose of registration under Section 2(14) over and above the documentary evidence adduced by the partnership deed in support of the application in Form 1 under Rule 2.
2. Now it is abundantly clear that the assessees in this case carry on a certain business. The Income-tax Officer says that this business has be9n assessed on the footing that the persons who carry it on are members of a Hindu undivided family in business as such. It seems there is the grandfather who is the senior member and there are grandsons who are minors and the business has been treated in that way until the time with which we are now concerned.
3. It appears that, after notices, requiring a return of income for the year 1927-28 had been issued, the assessees, on 12th October 1927, applied, purporting to make the application under the rules laid down in the Income-tax Manual, for registration of the firm as a registered firm within the meaning of Clause (14), Section 2 of the Act. They produced a document according to which these various members who had formerly been assessed as a Hindu family said that the parties had been carrying on the business for a long time and that for various reasons it has become necessary that their respective shares should be defined.
4. Then the document purported to describe an ordinary contractual partnership each one of the five members of the firm including the minors being stated to have a one-fifth share. On this document being presented to the Income tax Officer, he was immediately suspicious of it because it appeared to him that while no doubt the members of an undivided Hindu family owning a family business might dissolve the family business and enter into a contractual partnership business on their own account, the probabilities of that having been done in the circumstances of this case were extremely remote. It seems tolerably clear, in the absence of some evidence to the contrary, that this piece of paper which the parties have signed was expected to be a magical talisman which would protect them from the imposition of super-tax and had no other reality at all. In these circumstances, the Income-tax Officer required the assessees to produce evidence of the bona fides of this document; some evidence to show that the family bad been dissolved; some evidence to show that the business which had formerly bean treated as a joint family business had really and, in fact, ceased to be so and no such evidence was forthcoming.
5. The question which the Income-tax Officer was asked to refer to us was whether any set of people purporting to be a firm as described by Clause (14), Section 2, were not entitled to get themselves registered as a registered firm under the rules, however much the document upon which they relied was either forged on the one hand or intended not to be acted upon or otherwise a pure unreality. It is said that the rules contain no provision for an investigation into the reality of such a document. Neither they do. On the other hand, under the Act and under the rules, the right to present such a document at all is only given to a firm constituted under an instrument of partnership specifying the individual shares of the partners; and, if a firm is not a firm in fact constituted under such an instrument; of partnership, the Income-tax Officer, in my judgment, is not obliged to receive the application at all or to register the document which the parties were putting forward. It may or may not be in view of the meticulous character of some of the other provisions of the Act that it would be as well to prescribe expressly that the Income-tax Officer may investigate such a question as the present. But there is nothing in the Act to show that he may not investigate such a question and I dissent from the doctrine that before investigating into anything the Income-tax Officer has to show that his investigation is required or permitted by the express terms of the section. In the present case, a duty is cast upon him by Clause (14), Section 2 and by the rules made thereunder, and in order to work the Act properly, it appears to me that he has power to call for evidence as to the reality of the instrument produced.
6. In these circumstances, it would be sufficient to answer the first question by saying that the Income-tax Officer has the power referred to. As regards the third question, the answer should be in the affirmative. The assessees must pay the costs of this reference.
C.C. Ghose, J.
7. I agree.
8. I agree and desire to add only a few observations. The first question, stated broadly, appears to be whether the Income-tax Officer has power to enquire whether a person or a body of persons is or are what he or they represent themselves to be for the purpose of taking advantage of a provision of the Act. If the question is so stated, it becomes clear that the Income tax Officer must have power to make the enquiries necessary to satisfy himself as to the person or persons with whom he is asked to deal. If the reply to the first question propounded is in the affirmative, it would, in my opinion, be a sufficient reply to the third question to say that the Income-tax Officer is entitled, for the purposes of such enquiries as the reply to the first question contemplates may be necessary, to call for any evidence which may properly be required.
9. Speaking for myself, it may be that in this particular matter the Income-tax Officer was right in calling for evidence of dissolution of the joint family, and it certainly cannot be said that he was not. But I prefer to base myself on more general grounds and to say that when persons claim to constitute a partnership firm for the registration of which they make an application the Income-tax Officer may call upon them to prove by evidence that they are what they claim to be before he proceeds further with the application.