Ramaswami, J. - (1.) This appeal is brought, by special leave, on behalf of the assessee from the judgment of the Bombay High Court, dated March 15, 1961 in Income-tax Reference No. 56 of 1960.
(2.) The assessee is a partnership firm constituted under a Deed of Partnership, dated March 19, 1950. The partners are three brothers-Nandlal Bhimjibhai, Tarachand Bhimlibhai and Rajnikant Bhimjibhai, each one having an equal 1/3rd share in the partnership firm. Prior to November, 1949, the three partners of the assessee-firm in partnership with eight others carried on business in Bombay and other places in the name and style of "Rajnikant Vitheldas and Co.". In that larger firm, each one of the three brothers had an equal two annas share each, the other eight partners having the remaining ten annas share. The larger partnership of 'Rajnikant Vitheldas and Co.' was dissolved on October 31, 1949 and on its dissolution the business of the two branches thereof at Nagpur was allotted to the three brothers, who thereupon as from November 1, 1949 constituted themselves into a new firm, viz., the assessee-firm under the deed of partnership executed on March 19, 1950. This document recites that the three brothers have agreed to continue the business of the two branches at Nagpur in partnership on the terms mentioned in that document. For the purpose of this case, it is not necessary to reproduce all the terms of the partnership deed. It is sufficient to reproduce only four terms as follows: "3. The capital of the partnership shall be Rs. 2,40,000 (Rupees two lacs forty thousand) divided into 15 shares of Rupees 16,000 each. The partners hereby agree that the shares allotted to different partners will be equal, i.e., each partner will get five shares. 10. After meeting all expenses, interest and other charges, the resulting net profit or loss shall be ascertained and shall be divided amongst all partners. 13. In case of death, or insolvency of any partner the surviving partners or such of them as are willing shall have the rights to purchase the shares of such partners at the valuation of the shares in the preceding balance sheet. 14. In case of any partner desiring to retire from the partnership will have to give a written notice of at least two months to the other partners of his intention to do so. On receipt of such notice, the remaining partner or partners will purchase the share or shares in proportion to their holding at the time the valuation in paragraph 13." In the assessment year 1951-52, the three partners applied to the Income-tax Officer for registration of the firm under the Income Tax Act, 1922 (hereinafter called the 'Act'). Along with this application, the deed of partnership, dated March 19, 1950 was produced. By his order, dated March 20, 1956 the Income-tax Officer granted registration under S. 26A of the Act for the assessment year 1951-52. On the same day, he determined the total income of the firm at Rs. 87,172, and under S. 23 (6) of the Act, allocated it between the three partners for tax purposes, each partner getting one-third share of the total income, i.e., Rs. 29,057. On the basis of the same deed, an application was made for the renewal of registration of the firm for the assessment year 1952-53.The renewal was granted on March 28, 1957. For the assessment year 1953-54, the partners again applied for renewal of registration on the basis of the same deed, but the Income-tax Officer was of the opinion that there was no clause in the deed specifying the individual shares of each partner as required by S. 26A of the Act. After issuing notices to the three partners and after giving them a hearing, the Income-tax Officer, by his order, dated March 28, 1958, rejected the application of the partners for renewal of registration of the firm. The assessee took the matter in appeal to the appellate Assistant Commissioner but the appeal was dismissed. The assessed preferred a second appeal to the appellate Tribunal but that appeal also was dismissed. At the instance of the assessee the appellate Tribunal referred the following question of law for the determination of the High Court under S. 66 (1) of the Act: "Whether on a proper construction of the partnership deed, dated 19-3-1950, the firm sought to be registered for the assessment year 1953-54, can be said to have been constituted under an instrument of partnership specifying the individual shares of the partners as required by S. 26A of the Act '' By its judgment, dated March 15, 1961, the High Court answered the question in the negative, holding that renewal of registration under S. 26A of the Act was rightly refused by the Income-tax authorities.
(3.) Section 26A of the Act provides as follows: "26A. Procedure in registration of firms.-(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." ;