- (1.) The common question of law arising in these two appeals on certificates of fitness granted by the High Court of Calcutta under S. 66A(2) of the Indian Income-tax Act, 1922, is the effect and scope of the words "constituted under an instrument of partnership" in S. 26A of the Income-tax Act, which, in the course of this judgment, will be referred to as the Act.
(2.) The facts of the two cases, leading up to these appeals, though not dissimilar, are not identical. They are, therefore, set out separately.
(3.) In Civil Appeal No. 85 of 1957, Messrs. R. C. Mitter and Sons, 54, Rani Kanto Bose Street, Calcutta, claim to be a firm said to have been constituted in April 1948, with four persons whose names and shares in the nett profits of the partnership business, are stated to be as under: (a) Ramesh Chandra Mitter-40 per cent. of the nett profits. (b) Sudhir Chandra Mitter-30 per cent of the nett profits. (c) Sukumar Mitter-20 per cent. of the nett profits, (d) Sushil Chandra Mitter-10 per cent.of the nett profits. The firm intimated its bank, the Bengal Central Bank, Limited, (as it then was), of the constitution of the firm as set out above, by its letter dated April 15, 1948. The letter also stated that a partnership deed was going to be drawn up and executed by the partners aforesaid, and that the deed so drawn up, will be forwarded to the bank in due course. Though the firm is said to have come into existence in April 1948, the deed of partnership which is set out as annexure "A" at p. 5 of the paper book, was drawn of only on 27-9-1949. This deed of partnership appears to have been registered under the provisions of the Indian Partnership Act, on 12-10-1949. It was also forwarded to the Bengal Central Bank, Ltd., Head Office at Calcutta, as it appears from the seal of the bank and the signature dated 7-12-1949. An application to register the firm under S. M. A, for the assessment year 1949-50, was made to the Income-tax Authorities. The date of the said application does not appear from the record before us. The application was rejected by the Income-tax Authorities. The firm preferred an appeal to the Income-tax Appellate Tribunal, which was also dismissed by the Tribunal by its order dated 7-9-1953. The ground of the order of the Tribunal was that as the firm admittedly was formed by a verbal agreement in April 1948, and not by or under an instrument in writing dated 27-9-1949, and as the assessment was for the year 1949-50, for which registration of the firm was sought, the registration could not be ordered. The Tribunal also referred to the letter aforesaid to the Bengal Central Bank, and observed that the letter merely contained information as to the formation of the partnership and of the personnel thereof, but it did not contain the terms on which the partnership had been formed. It also showed that a partnership had been created but not by deed. Hence, the Tribunal further observed, the letter might be useful for consideration on the question of the genuineness of the firm, but it could not fulfil the requirements of S. 26A, namely, that the firm should be constituted under an instrument of partnership. Therefore the Tribunal held that assuming the firm to be genuine, it was not entitled to be registered under S. 26A of the Act. Thereupon, the assessee moved the Tribunal under S. 66(1) of the Act. That application was granted by the order dated 2-2-1954, and the case stated to the High Court for its decision on the following question: "Whether the assessee firm which is alleged to have come into existence by a verbal agreement in April, 1948, is entitled to be registered under S. 26-A for the purpose of assessment for 1949-50, where the Instrument of Partnership was drawn up only in September, 1949 after the expiry of the relevant previous year." The High Court Bench, presided over by Chakravarti, C. J., by its judgment dated 26-8-1955, answered the question in the negative. The learned Chief Justice considered the matter from all possible view points, including grammatical, etymological and textual matters, and came to the conclusion that "constituted" meant "created.' He also considered that the preposition "under" is "obviously inappropriate," after having convinced himself that "constituted" could be equated with "created". He also found no difficulty in observing that "some of the paragraphs of the Form appear to be ill-adjusted to the provisions of the Act and the Rules". In the end, therefore, he concluded with the remarks: "It appears to me to be desirable that the language of the section, as also that of the Rules should receive legislative attention.";