- (1.) THIS is a case stated under section 66(2) of the Income-tax Act, 1922. The question referred is: "Whether, on the facts and in the circumstances of the case, the assessee-firm was entitled to registration under section 26?"
(2.) THE material facts are these: The assessee is a firm. It consisted of four adult and one minor. The relevant year of assessment is 1956-57. The fourth partner was one Chandrika Prasad and it was his son, Jhabboo Lal, a miner, who was said to have been admitted to the benefits of partnership. The firm was constituted under a deed of partnership dated 22nd October, 1949. The preamble to the partnership deed reads: "Whereas the first, second, third, fourth and fifth parties formed a joint Hindu family and have divided their movable property by means of the award of an arbitrator dated 21st October, 1949. And whereas the first, second, third and fourth parties have expressed a desire to carry on two business at Mirzapur and one at Unchhora in partnership....." The relevant clauses of the deed of partnership are: "3. That Shri Jhabboo Lal, minor, the fifth party is admitted to the benefits of partnership and his share shall be one-fifth in the business. 4. That the share of each party in the profit and loss in the partnership shall be equal. i.e., one-fifth. 7. That every partner has a right to take part in the conduct of the business, is bound to attend diligently to his duties and has a right to have access to, and to inspect and to take copies of the books of the firm. 9. That the first, second third and fourth parties may submit a dispute relating to the business of the firm to arbitration, open and operate or close a banking account on behalf of the firm,....."
(3.) THE instrument of partnership was signed by all the partners including the minor. Chandrika Prasad did not sign on behalf of the minor as his father and guardian. The assessee-firm was granted registration for the assessment year 1951-52 to 1955-56. For the relevant assessment year 1956-57, the assessee applied for renewal of registration. This application for renewal was signed by the minor Jhabboo Lal and he was shown there as a partner. The Income-tax Officer refused registration relying upon clause (4) of the partnership deed which provided for the share of the minor in the same preparation as the share of profits and losses of other partners and as such the deed was held to be contrary to law. In this he was supported by a decision of the Punjab High Court in Banka Mal Lajja Ram and Co. v. Commissioner of Income-tax. The assessee then went up in appeal to the Appellate Assistant Commissioner. It was contended that the intention of the partners was only to admit Jhabboo Lal to the benefits of partnership and even if some clause of the partnership deed appeared to suggest that Jhabboo Lal was being treated as a full-fledged partner for certain purpose, such clauses should be deemed to be non- operative and the firm was entitled to registration. In support of this contention the assessee relied upon the decision of the Madras High Court in Jakka Devayya and Sons v. Commissioner of Income-tax, P. Vincent v. Commissioner of Income-tax, Dwarkadas Khetan and Co. v. Commissioner of Income-tax and Sahai Brothers v. Commissioner of Income-tax. There was undoubtedly a conflict on this point and the Appellate Assistant Commissioner preferred the view which was being taken by the Punjab and the Allahabad High Courts as against the view taken by the Madras, Patna and Bombay High Court. Thereupon, a second appeal was carried to the Income-tax Appellate Tribunal and by the time the Tribunal came to hear the appeal, the decision of the Supreme Court resolving the said conflict had been delivered in Commissioner of Income-tax v. Dwarkadas Khetan and Co. Accordingly, the appeal was dismissed. Hence, this reference at the instance of the assessee.;