B.L.GUPTA J. - (1.) THESE are two references under section 66(1) of the Income-tax Act. They relate to two years, 1955-56 and 1956-57, but raise a common question arising out of the assessment of the same assessee and can be disposed of conveniently by a common judgment.
(2.) THE question referred to this court for opinion is : Whether, on the facts and in the circumstance of the case, the several restrictions contained in the instrument of partnership dated June 21, 1953, rendered the partnership void in law so as not to entitle the firm to registration under section 26A of the Income-tax Act ? The facts giving rise to the reference are that on June 15, 1953, the assessee firm came into existence with the following constitution : JUDGEMENT_917_ITR47_1963Html1.htm For the assessment year 1955-56 the assessee applied for registration under section 26A and relied on an instrument of partnership dated June 21, 1953. On a consideration of the terms of that document the Income-tax officer took the view that the status of Manohar Lal was not that of a partner but merely that of an employee and as such the partnership constituted under the instrument was not a genuine partnership. Accordingly, he refused registration to the firm. An appeal to the Appellate Assistant Commissioner against the order refusing registration failed, but on further appeal the Income-tax Appellate Tribunal took the view that the restrictions and limitations imposed by the instruments on instruments Lal were within the purview of the provisions of the Indian Partnership Act and held that the firm was genuine and entitled to registration. Thereafter, the Commissioner of Income-tax made an application under section 66(1) for a statement of the case to this court and the Tribunal has accordingly stated a case. For the succeeding assessment year 1956-57, the Income-tax Officer again refused registration on the same ground on which registration was refused to the firm in the earlier a year but in appeal the Appellate Assistant Commissioner allowed registration, as by the time the order came to be made by him, the order of the Income-tax Appellate Tribunal in the appeal for the preceding year had already come into existence and the Appellate Assistant Commissioner gave effect to that order for the succeeding year, namely, 1956-57 also. Thereupon, the Income-tax Officer was directed by the Commissioner to file an appeal to the Income-tax Appellate Tribunal but the Tribunal dismissed the appeal and followed its view expressed in the order for the preceding year 1955-56 but at the instance of the Commissioner of Income-tax made a statement of the case for this year also. This is how, as already stated above, the two connected reference have comes to be made to this court and the same question of law has to be answered in the in both the references.
(3.) IT may be stated that the assessee remained unrepresented by counsel in there reference before this court Shri. Gopal Behari, learned council for the department, invited our attention to the following features of the instrument of partnership, some of which had been commenced on by the Income-tax Officer and the Appellate Assistant Commissioner in the earlier year for refusing registration to the firm : 1. The business of the firm shall be started with an investment of Rs. 30,000 by the first two partners to be shared by them in equal proportion. They alone shall be the proprietors of the business. If they separate at any time the assets and outstanding shall be distributed between the two of them alone. Manohar Lal will not be entitled to invest anything in the partnership but will only be working partner. 2. The business will be carried on by the first two partners with their mutual consent and Manohar Lal shall have no right of self determination or interference, obstruction or resistance in the conduct of business. He will act according to the directions of the first two partners. If he acted other wise he would be liable to be turned out. 3. The first two partners will be entitled to inspect and examine the accounts at any time. Manohar Lal shall not be entitled to resist or interfere in the account books at any stage. 4. Manohar Lal shall be entitled only to draw up to Rs. 100 per month for his expenses liable to be adjusted at the settlement of accounts. His share in profits and losses is to be 0-3-0 in the rupees as a working partner for his consolation and so that be should work honestly and carry out the directions of first two partners. The first features relied on by Shri Gopal Behari in support of his argument that there was no valid partnership between the three persons was that all the three persons did not jointly own the property and the assets of the partnership. Indeed Manohar Lal was specifically forbidden from investing anything in the partnership and was to remain only a working partner. It is not possible to assent to this argument. There may be a partnership where the property and the assets of the partnership may not bed the subject of joint ownership between all the partners but may belong only to some or one of them. In Halsburys Laws of England, third edition volume 28, page 487, paragraph 933, it is laid down as follows : ..... Persons may be partners either generally or in some particular business or isolated transaction, although all or part of the property used for the purpose of such business transaction may not be the subject of joint ownership, but belong to some or one of them individually. ;