Jagdish Sahai, J. - (1.) THE Income-taxAppellate Tribunal, Delhi Bench, (hereinafter referred to as " the Tribunal") has submitted a statement of the case and referred the following question of law at the instance of the assessee, Messrs. Agarwal and Co. (hereinafter referred to as " the assessee ") under Section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the "Act") : " Whether on the facts and in the circumstances of the case, registration was rightly refused to the firm on the ground that it violated the provisions of Section 4 of the Indian Companies Act, 1913 ?"
(2.) THE assessment years in question are 1952-53, 1953-54 and 1954-55. The Tribunal submitted one statement of the case and referred one question of law because the point raised is common to all the three years. The assessee-firm was constituted in 1934. A deed of partnership was drawn up on January 24, 1936, but as some of the members died fresh partnership deeds were subsequently drawn up. The one with which we are concerned in this case is dated July 7, 1950, a copy whereof has been made a part of the statement of the case.
(3.) ACCORDING to this document, there were in all 18 partners. The assessee firm applied for registration under Section 26A in all the three years. The Income-tax Officer refused registration every time on the finding that the partnership consisted of more than 20 persons which was violative of Section 4 of the Indian Companies Act and for that reason could not be registered as a partnership. The orders passed in each year were affirmed on the assessee's appeals by the Appellate Assistant Commissioner and the Tribunal. It is clear from the statement of the case that some of the partners of the assessee-firm had joined it only in their representative capacity being kartas of their respective Hindu undivided families. The appellate order of the Tribunal has been made a part of the statement of the case and has been marked as annexure "E" in the referring order. In paragraph 4 of the appellate order the Tribunal has clearly stated that : " As already mentioned, the number of partners as mentioned in the partnership deed was 18. It is common ground that most, if not all, of them were kartas and represented their respective families in the partnership." For its finding that the partnership could not be registered the Tribunal relied upon Section 4(3) of the Indian Companies Act, as it at stood the relevant time ; "4. (1) ..... (2) No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of an Act of Parliament of the United Kingdom or some other Indian law or Royal Charter or Letters Patent. (3) This section shall not apply to a joint family carrying on joint family trade or business and where two or more such joint families form a partnership, in computing the number of persons for the purposes of this section, minor members of such families shall be excluded. (4) Every member of a company, association or partnership carrying on business in contravention of this section shall be personally liable for all liabilities incurred in such business ..." The Tribunal was of the opinion that several partners of the assessee-firm having entered into partnership in their representative capacity of being kartas of their respective Hindu undivided families, the total number of adult members in such families should be taken into consideration while determining whether or not the number exceeded twenty.;