G. K. MITTER J. - The only question in this reference is whether the assessee, an association of persons, was entitled to registration under section 26A of the Indian Income-tax Act.
The assessment year is 1950-51, the relevant accounting year ending on April 30, 1950. Up to the year 1935 one Pannalal Kothari was the karta of a Hindu undivided family carrying on a joint family business under the name and style of Karnidan Rawatmull. In 1935 a partition suit was filed in the original jurisdiction of this court wherein a decree was passed by consent on January 14, 1936. By this decree Meghraj and Kissen Gopal Kothari, the adult sons of Pannalal, were declared entitled to an undivided 1/8th share each in the properties and business of the joint family. A similar declaration was made in favour of Chunilal, Heeralal and Kaniyalal Kothari, minor defendants and brothers of the plaintiffs. The father, Pannalal Kothari, was held entitled to an undivided 3/8th share in the properties mentioned in the plaint including the business. On January 23, 1937, a deed of partnership was executed whereby Pannalal Kothari, the father, was to have six annas share in the business and the five sons were each to be entitled to two annas share, the three minors being admitted to the benefits of the partnership. This deed provided that on the death of any of the parties the firm would not stand dissolved but would continue to be carried on by the remaining partners along with the heir and representative of the deceased partner subject to such terms and conditions as night be agreed upon between the surviving parties and the representatives of deceased. On the death of Kissen Gopal in 1943 a fresh deed of partnership was executed on September 23, 1943. By this deed the shares were to remain as before except that, in place Kissen Gopal, his minor sons, Sreegopal and Hargopal, were admitted to the benefits of the partnership and entitled to a two annas share. Pannalal Kothari died in July, 1949. On August 5, 1949, a fresh deed of partnership was drawn up and this is the document which was offered to the Income-tax Officer for the purpose of registration under section 26A. In this deed there is a reference to the deed of partnership dated September 23, 1943, and mention is made of the fact that Suraj Bai, the widow of Pannalal, was not willing to continue as a partner of the firm and that she had taken the value of her share in the business in cash and given up all her right, title and interest thereto. The document goes on to recite that the legal representatives of Pannalal Kothari, deceased, with the exception of Suraj Bai were willing to continue the partnership business on the terms and conditions on which it used to be carried on under the deed of partnership dated September 23, 1943, with the exception that the shares of the partners would be as set out in the new document. By this time the minor sons of Pannalal had attained majority but Sreegopal and Hargopal were still minors. The shares of the parties as given in clause 2 of the operative portion of the document read as follows :
Meghraj Kothari .
Shri Gopal Kothari and Hargopal Kothari, minors jointly admitted to the benefits of the partner ship the party hereto of the 2nd part, represented herein by their mother and natural guardian, the said Jasoda Debi .
Shri Chunnilal Kothari, the party hereto of the 3rd part .
Shri Heeralal Kothari, the party hereto of the fourth part .
Shri Kaniyalal Kothari, the party hereto of the fifth part .
The Income-tax Officer refused registration on the ground that the individual shares of the two minors were not specified as required by section 26A. Having lost all along before the income-tax authorities the assessee caused the reference to be made for determination of the following question :
'Whether, on the facts and in the circumstances of the case, the status of the assessee was that of an association of persons and not that of a firm ?'
Section 26A provides as follows :
'26A. (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.
(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed.'
In my opinion, the case is a simple one and admits of one answer only, namely, that the individual shares of Shri Gopal and Hargopal were not specified in the instrument of partnership and as such registration cannot be had. It was argued that in construing the deed of partnership of August, 1949, the previous history of the Hindu undivided family and the various partnerships constituted by them have got to be taken into account. Counsel argued that it would be found therefrom that Sreegopal and Hargopal came to possess the share of two annas formerly owned by their father, Kissen Gopal, and as under the Hindu law their shares were equal they were each entitled to one anna share in partnership up to 1949, when as a result of the death of Pannalal his share devolved on the five branches of the family and inasmuch as Suraj Bai was not willing to take part in the partnership Sreegopal and Hargopal each became entitled to one half of 3-1/5 share shown against their names. That would undoubtedly be the position under the general law of the land but under section 26A the individual shares of the partners must be specified in the instrument of partnership produced by the firm in the application for registration. It is not open to the income-tax authorities to go into questions of Hindu law and then find out by reference to the deed of partnership as to what the individual shares of the partners should be. Whatever be the reason, the legislature has not provided for that and the parties must suffer if there has been no compliance with the Act.
The rules framed under the Act under section 59 when published have effect as if enacted in the Act by virtue of sub-section (5) of that section. Under rule 2 of the Rules it is obligatory on a firm desiring registration to have the application signed by all the partners (not being minors personally) specifying the particulars contained in the instrument of partnership in the form mentioned in rule 3. The form provides for various entries being recorded under several columns giving, inter alia, the name of each partner, the date of admittance to partnership and the share in the balance of profit and/or loss in annas and pies in the rupee in respect of each partner. As these shares must be specified in the instrument of partnership itself the registering authority cannot go behind the said instrument. The specification of shares of the minors in the deed of partnership is that they are jointly entitled to the benefits of 3-1/5 annas in the profits and loss of the firm. 'Jointly' does not mean equally; it means together; so that there is no knowing whether one of the minors is entitled to a little more than the other in their total interest in the partnership.
Reference was however made by counsel on both sides to several authorities either for or against their contention. Counsel for the assessee relied chiefly on the judgment of the Bombay High Court in Chhotalal Devchand v. Commissioner of Income-tax. In this case a firm was first registered under an instrument of partnership dated September 13, 1945. That partnership continued till November 6, 1953. A new partnership deed was executed on January 22, 1954, to record the formation of the partnership as on November 7, 1953. By this the constitution of the firm was altered. A further change in the constitution was recorded by a third partnership deed executed on November 29, 1954. The change was brought about by reason of the death of one of the partners. The firm applied for registration on February 19, 1954, and made a second application for that purpose on November 27, 1954. To this application was annexed the partnership deed of November 29, 1954, and it is the second application with which the court had to deal. The application was signed by six persons who were partners of the firm under the last mentioned deed. The schedule to the application mentioned the names of the partners of the firm, their shares in the profits and loss as also the names of the partners who constituted the firm at the date of the application for registration with their shares in the profits and loss. It would appear from the judgment that the firm, of which registration was sought, was constituted of two firms and one individual and the Tribunal held that it was not a valid partnership in the eye of the law. According to Chagla C.J. : '...on a true reading of the partnership deed in this case, it is the constituent members of the two firms and not the two firms as entities that have entered into the partnership with the individual; and this fact is amply borne out,...both by the recitals and the fact that the partnership deed has been signed by the constituent members of the two firms'. Another ground taken by the revenue was that the partnership deed did not specify the individual shares of the partners and it is this objection with which we are concerned in this case. It was argued before the Bombay High Court that the partnership deed specified the shares of the partners as equal which meant that the two firms and the individual had equal shares in the profits and loss. On the basis of this it was argued that the deed of partnership did specify the share of each individual partner. The learned Chief Justice observed that what section 26A required was that the documents which constituted that instrument of partnership must specified the shares of the partners and it was, therefore, open to the two partners to draw up a partnership deed setting out the capital to be brought by them, the work to be done, the terms of the partnership, but without any mention of the shares of partners; they may draw up another document in which only they had specified the shares. If this course was adopted the documents together would constitute the instrument of partnership. The learned Chief justice said that by looking into the deeds of partnership one would know what the shares of the partners were in these two partnerships, and 'from these shares one would equally well know what the shares of these persons are in the partnership in question.' According to the learned Chief Justice when these two prior deeds of partnership were actually on the file of the income-tax authorities and when they were relied upon by the assessee the authorities could easily refer to them and find out the specified shares of the partners. With great respect, I find myself unable to agree. The section lays down specifically that the partnership constituted under an instrument of partnership must specify the individual shares of the partners. It may be that the whole set of terms of the partnership might not be recorded in one document and if a partnership was constituted under several documents the whole body of them might have to be considered by the income-tax authorities. It is not here necessary to go into the question as to whether the words 'an instrument of partnership' in section 26A would be opposed to such an argument but assuming that such objection was groundless the instrument of partnership which is produced before the income-tax authorities in support of the application for registration must specify the individual shares of the partners. It would not be in order to say that because the income-tax department had other deeds of partnership on their file it was their duty to take the entire lot into consideration for finding out the specified shares of the partners. This in my view would be reading something into the section and the Rules which are not part of the Act. The deed of partnership on which the application for registration was based was the one of 1954 and this did not fulfil the requirements of section 26A.
The Supreme Court has again and again pointed out that in order to get the benefit of registration under the Income-tax Act the applicant firm must comply strictly with the requirements of section 26A. Thus in Ravulu Subba Rao v. Commissioner of Income-tax, the court held that a deed of partnership which was not signed by the two partners constituting the firm personally but was signed by one of them personally and by the other through an agent holding a power of attorney from the other did not comply with the requirements of section 26A. Again in Steel Brothers & Co. Ltd. v. Commissioner of Income-tax, where the signatories to the document were only two but in reality there was a third partner who had not signed the deed, the document could not be registered. The court also relied on the absence of specification of the respective shares of the partners in the document. In Commissioner of Income-tax v. Dwarkadas Khetan & Co., the court reserved the finding of the Bombay High Court to the effect that the document which was signed by five partners, including a minor described therein as a full partner, ought to be construed so as to make the minor a person only entitled to the benefits of partnership. According to the Supreme Court such a firm was not entitled to registration under section 26A. In N. T. Patel & Co. v. Commissioner of Income-tax, the court upheld the decision of the High Court of Madras holding that where an instrument of partnership in existence in the accounting year did not specify the shares of the partners individually registration of the firm could not be had because of the execution of the deed of rectification in a subsequent year. The court observed : 'Registration under section 26A of the Act confers a benefit on the partners which the partners would not be entitled to but for section 26A. The right can be claimed only in accordance with the statute which confers it and a person seeking relief under the section must bring himself strictly within the terms of that section.'
In the result the question framed, 'Whether on the facts and in the circumstances of the case, the status of the assessee was that of an association of persons and not that of a firm' must be answered in the affirmative and against the assessee who must pay the costs of this reference.
LAIK J. - I agree.
Question answered in the affirmative.