V.G. Oak, C.J. - (1.) THE question for decision in this income-tax reference is whether a certain firm is entitled to registration. THE firm is Messrs. Agrawal Brothers and Co. THE firm was originally constituted in the year 1939 with 13 partners. THEre was a provision in the partnership deed for taking new partners into the firm in case of death or retirement of any partner. THE firm was granted registration for the assessment year 1940-41. Registration was renewed from year to year up to the assessment year 1952-53. Owing to a change in the constitution of the firm, the partners drew up a fresh deed of partnership on December 20, 1952. THE firm succeeded in having registration renewed for the assessment year 1953-54 also. Fresh deeds of partnership were drawn up in the years 1955, 1956 and 1957. THE firm applied for registration for the five succeeding assessment years from 1954-55 to 1958-59. Renewal was refused by the Income-tax Officer for all these assessment years on the ground that the number of partners exceeded 20, and the constitution of the firm was illegal in view of the provision contained in Section 4 of the Indian Companies Act, 1913. That decision was upheld in appeal by the Appellate Assistant Commissioner. But the firm succeeded in the appeal before the Appellate Tribunal. THE Tribunal directed that the firm be registed for all the five assessment years from 1954-55 to 1958-59. At the request of the Commissioner of Income-tax, U.P., the Tribunal has referred the following question of law to this court: "Whether, on the facts and in the circumstances of the case, the assessee-partnership was entitled to registration ?"
(2.) THE department relies upon Section 4 of the Indian Companies Act, 1913. Section 4 of the Companies Act contains a prohibition against exceeding a certain number in a partnership. Sub-section (2) of Section 4 of the Companies Act lays down that no partnership consisting of more than 20 persons shall be formed unless it is registered a company under the Companies Act. Admittedly, the firm in the instant case was never registered as a company under the Companies Act. According to the department, the number of partners of the firm exceeded 20 at all material times. THEre was, therefore, infringement of Section 4 of the Companies Act. Consequently, the constitution of the firm was illegal. This position has been disputed by the firm. According to the firm, the number of partners never exceeded 20. The department also relies upon Sub-section (3) of Section 4 of the Companies Act. Sub-section (3) of Section 4 of the Companies Act states : "This section shall not apply to 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." According to the department, we are dealing in this case with a partnership of a number of joint families. If the membership of the joint families is taken into consideration, the number of partners exceeds 20. This position is also disputed by the firm. It was denied on behalf of the firm that there was any partnership among joint families as such.
(3.) AS already mentioned, there were as many as five deeds of partnership executed between the years 1952 and 1957. They are exhibits A to E annexed to the statement of the case. The general plan of the five deeds of partnership was the same. It will, therefore, be sufficient to consider in detail the provisions of one of these deeds of partnership. Exhibit A is a copy of the instrument of partnership, dated December 20, 1952. In the first paragraph of annexure "A", names of 20 partners were given. The second paragraph of annexure "A" ran thus : "Whereas the aforesaid parties and Lala Harakchand Kedia and Lala Chiranjilal Kedia were partners... aND WHEREAS Lala Harakchand Kedia, one of the partners of the firm.. . died on the 16th day of January, 1950, leaving two sons, Shri Ganpatrai Kedia and Shri Rukmanand Kedia, as his legal heirs ; and WHEREAS the aforesaid heirs have nominated Shri Ganpatrai Kedia on their behalf to be a partner of the firm .. .and as such automatically he become a partner in the said firm..and WHEREAS Lala Chiranjilal Kedia another partner, died on the 22nd of April, 1952, leaving four sons, Shri Chhedilal Kedia.. and WHEREAS the aforesaid heirs have nominated Shri Chhediial Kedia as their nominee for and on behalf to be a partnner of the firm of the managing agents by virtue of paragraph 6 of the deed of partnership dated 26th November, 1948 ; and as such he automatically became a partner in the said firm. Paragraph 6 of annexure "A" runs thus : On the death or retirement of any partner his nominee or in the absence of such nominee his heirs, executors, administrators or legal representatives shall automatically become partner in the place of the so dying or retiring partner and shall be entitled to all the powers and be liable to all the liabilities of the partners so dying or retiring provided that in cases there be more than one heirs, the heir, executors, administrators or legal representatives shall nominate one of them to be the partner in place of partner so dying or retiring." ;