SHAH - (1.) THE following Judgment of the court was delivered by:
(2.) THE appellants who are a firmcarrying on business in cloth at Secunderabad1412applied on 30/06/1955, for registration underS.26A of the Indian income-tax Act, 1922, forthe assessment year 1956-57. THE followingpersons were, it was recited in the application.partncts having share in the profits and lossesin proportions specifid against their names:- JUDGEMENT_1411_AIR(SC)_1965Html1.htm For facility of reference we will call No 1 'theyarn shop'. The Income-tax Officer rejected the application, and hisorder was confirmed in appeal by the Appellate AssistantCommissioner and by the Income-tax Appellate tribunal. TheTribunal held that because in the deed of partnershipbenefits to which certain minors were admitted, andparticulars 'about the distribution of profits or losses inthe manner in which the firm wanted the same to bedistributed' were not specified, and because by the deed ofpartnership the Yarn Shop was introduced as a partner in thefarm, the privilege of registration under s. 26-A must bedenied to the firm. The High court of Andhra Pradeshrecorded on the following question referred under s. 66(1)of the Income-tax Act'Whether on the facts and circumstances of the case, theassessee is entitled to registration under s. 26-A of theIncometax Act ?',a negative answer. Section 26-A of the Indian Income-tax Act, 1922, provides'(1) Application may be made to the Income-taxOfficer on behalf of any firm, constitutedunder an instrument of partnership, specifyingthe individual shares of the partners, forregistration for the purpose of this Actand of any other enactment for the time being in forcerelating to income-tax or super-tax.(2)The application shall be made by suchperson or persons and at such times and shallcontain such particulars and shall be in suchform, and be verified in such manner, as maybe prescribed; and it shall be dealt with bythe Income-tax Officer in such manner as maybe prescribed.'By securing registration under the Act, the partners of thefirm obtain a benefit of lower rates of assessment and notax is directly charged on the income of the firm. This isan important benefit to which the partners of a registeredfirm become entitled as a consequence of registration, andif it is intended to secure that benefit, requirements of s.26-A and the rules framed under the Act must be strictlycomplied with. Rule 2 framed under s. 59 requires that theapplication shall be signed by the partners (not beingminors) personally, and prescribes the period within whichthe application shall be made for the year in question.Rule 3 provides that the application shall be made in theprescribed form and shall be accompanied by the originalinstrument of partnership under which the firm isconstituted. By Rule 4 it is provided that if on receipt ofthe application, the Income-tax Officer is satisfied thatthere is or was a firm in existence constituted as shown inthe instrument of partnership, and that the application hasbeen properly made, he shall enter in writing at the foot ofthe instrument or certified copy, as the case may be, acertificate in the prescribed form. By Rule 6 of thecertificate of registration may be renewed for subsequentyears.
(3.) REGISTRATION of the firm may be obtained on an applicationto the Income-tax Officer on behalf of any firm, if the firmbe lawfully constituted under an instrument of partnershipwhich specifies the individual shares of partners and theIncome-tax Officer is satisfied that there is or was agenuine firm in existence as shown in the instrument. Ifthe conditions are fulfilled, the income-tax Officer has nopower to reject the application. Undoubtedly, theapplication must strictly be in conformity with the Act andthe Rules, but in ascertaining whether the application is inconformity with the Rules, the deed of partnership must bereasonably construed. Under the Indian Partnership Act, 1932 partnership is therelation between persons who have agreed to share theprofits of a business carried on by all or any of themacting for all. A firmis strictly not a person : it is an association of persons,and an agreement by which a firm purports to enter into apartnership with an individual or another firm merely makesthe partners of that firm individually partners of thelarger partnership. The problem posed by such a partnershipagreement is under the general law academic, but the rightto registration under s. 26A being conditional uponspecification of the individual shares of the partners, adeed of partnership between a firm and an individual, whichspecifies the collective share of the firm, without more,cannot be registered. It has been held by this court inDulichand Laxminarayan v. Commissioner of Income-tax,Nagpur(1) that a partnership constituted between anindividual, a joint Hindu family and three firms could notbe registered under s. 26-A of the Act. In Dulichand'scase(1) the partnership deed was signed by five individuals,viz., the karta of the joint Hindu family, one partner eachof the three firms and the individual. It was held that thepartnership could not be admitted to registration, because afirm as such cannot enter into an agreement as partner withanother firm or individual, and also because all the membersof the three firms had not personally signed the applicationas required by Rule 2 of the Income-tax Rules.;