BHAGWATI, - (1.) THE Judgment of the court was delivered by :
(2.) THIS appeal with special leave is directed against a judgment and order of the High court of Judicature at Calcutta delivered on a reference by the Income Tax Appellate tribunal (Cal. bench) under S. 66(1) of the Indian Income Tax Act (Act XI of 1922) hereinafter referred to as "the Act" whereby the High court answered the referred question in the negative. The facts leading up to this appeal may the shortly stated as under: Prior to 29/11/1928, Steel Bros. and Co., Ltd., (hereinafter referred to as "Steels") and Ellerman's Arracan Rice and Trading Co., Ltd. (hereinafter referred to as "Ellermans") carried on trade in Burma rice and/or its by-products in Burma, in London and elsewhere inter alia through Burma and London Bullenger Rice Pool and the New General Rice Company Limited. Apart from the selling of rice, both these Companies had rice milling machines and produced rice from paddy. There was another Company known as the Burma Co. Ltd., (hereinafter referred to as "Burma"). This Company also had a few rice mills. It never purchased paddy or sold rice. All the shares of this Company were held by Steels, who were also its Managing Agents. On or about 29/11/1928, an agreement was entered into between the Steels, Burma and Ellermans to provide for the amalgamated working of the Burma Rice business in Burma and London of all the three Companies under the management of Steels. The combined business of Steels, Burma and Ellermans was referred to therein as "the Combination". All stocks of Burma rice and by-products in hand at 3/11/1928, were excluded from this Agreement and remained the property of the individual owners to be disposed of by them as they thought fit and the entire business in Burma hitherto carried on by Ellermans was to be taken over., and managed by Steels as from 1/12/1928, and conducted from Steels offices in London, Rangoon and other Burma Branches in Steels name solely and in conjunction with the whole of the rice business of all descriptions of Steels and Burma and Steels were to conduct the said business in such manner JUDGEMENT_315_AIR(SC)_1958Html1.htm as they in their absolute discretion should think fit. The profit or loss of the business of the Combination carried on at the under mentioned places was to be shared by and divided between Steels and Ellermans in the following ratios: The rice mills belonging to Burma viz., Burma. Uppar Kanungtoe Mill in Rangoon, Burma Mill in Bassein and Burma's Martaban Mill in Moulmein were to be worked by the Steels for the purpose of the Combination. (Cl. 4a). The agreement was to take effect as from 1/12/1928, and could be terminated on 30/11/1930, or on any subsequent 30th November, by any party giving notice to that effect to others not later than the preceeding 1st August. (Cl. 12). The agreement was signed and the common seals of Steels and Ellermans were affixed thereto and it was also signed by one James Kilgour Michie for and on behalf of Burma. In connection with the assessments for the assessment years 1943-44 and 1944-45 the Combination (which is hereinafter referred to as "the assessee") made applications to the Income Tax Officer under S. 26-A of the Act for registration of their partnership said to be constituted of Steels and Ellermans. These applications were signed by the Steels and Ellermans only and were supported by a copy of the Agreement dated November 29, 1928, which was relied upon as the instrument of partnership of which registration was sought. By two separate orders dated 19/03/1948, and M 31/03/1949, the Income Tax Officer, District V, Calcutta, refused registration of the partnership on the ground (i) that the partnership was not constituted of Steels and Ellermans only but was constituted of those two parties and a third party, viz., Burma and that the partnership deed did not specify the shares of the said three partners and (ii) that the loss arising during the previous year had not been properly allocated proportionately to the said three partners the whole of the loss falling to the shares of Steels and Burma having been borne by Steels only.
(3.) THE assessee carried an appeal before the Second Additional Appellate Assistant 317 Commissioner of Income-tax "A" Range, Calcutta who upheld the orders of the Income Tax Officer on the grounds that the application for registration was signed by two partners, Steels and Ellemans, whereas the partnership deed showed that it was a partnership of three partners and that the individual shares of Steels and Burma were not shown separately. The assessee preferred an appeal to the Income Tax Appellate tribunal (Calcutta bench) and by its order dated the 20/02/1951, the tribunal held that although the agreement entered into on 29/11/1928, showed that the three companies would carry on the whole of their Burma rice business on amalgamation, on an examination of the agreement it would appear that the companies which formed the partnership were really Steels and Ellemans; and Burma which was a hundred per cent subsidiary of Steels had hardly anything to do with the Combination. In its order the tribunal observed : "In order to determine whether there was a partnership we have to look into the surrounding circumstances also under S. 6 of the Partnership Act and reading the document as a whole and considering the fact that it was drawn up in 1928, and also taking into account the profit and loss account of the Burma Co., for the years ending November 1941, Nov. '42 and Nov. '43 we think that the partnership was really between Steels and Ellermans. Burma is bracketted with Steels in paragraph 3 (a) in a broad sense as Steels were holding all the shares of Burma. We are therefore of opinion that the deed is a proper deed and should be registered." Upon the application of the Commissioner of Income Tax, West Bengal (the respondent herein) the tribunal stated a case and referred the following question of law to the High court for its decision under S. 66 (1) of the Act: "Whether on a proper construction of the deed of agreement dated 29/11/1928, and having regard to the relevant facts and circumstances of the case, the tribunal was right in holding that the partnership was really between Steels and Ellermans and that therefore registration should have been allowed under S. 26-A of the Indian Income Tax Act." The Reference was heard by the High court and the High court answered the referred question in the negative. The High court was of the opinion that on a true construction and effect of the agreement and particularly having regard to the recital in the Agreement and the provisions contained in Cls. 1, 3 (a), 12 and 14, thereof, the partnership was a partnership of the three Companies and as the applications were not made by the said three Companies and the deed of partnership did not specify their respective shares, the registration of the partnership was rightly refused. The assessee applied for a certificate of fitness under S. 66-A (2) of the Act which was however refused by the High court with the result that the assessee applied for and obtained from this court special leave to appeal under Art. 136 of the Constitution. ;