G.K.MITTER, J. - (1.) THIS reference under s. 66(1) of the Act is at the instance of the assessee, a firm which was denied registration under s. 26A for the period, January 1, 1953, to 1st July, 1953.
(2.) DAWJEE Dadabhoy and Co. was a firm composed of eight partners under a written agreement of 14th Nov., 1949. There was a change in the constitution of the partnership in the year 1953, when two of the partners retired and a new partner was taken in. This was recorded in writing by a document styled "supplementary deed of partnership" bearing date 2nd July, 1953, executed by six out of eight partners who did not retire and the new partner who was taken in. As the rights of the parties are regulated by these two documents it is necessary to note the relevant provisions thereof. The following are the relevant clauses of the deed of 1949 : "Clause 2 :- The partnership business shall be carried on as long as the senior partners or a majority of them so desire provided that if any partner shall be desirous of retiring from the partnership at any time during the continuance of the partnership he shall be at liberty to do so only on the 30th June or the 31st December in any calendar year, and only on giving at least two months' previous notice in writing ending with the 30th June or the 31st December, as the case may be, to the managing partners.... and immediately after the 30th June or the 31st December, as the case may be the partner giving such notice shall cease to be a partner and subject thereto the business of the partnership shall be continued by the remaining partners. Clause 3 :- At the end of every year, that is to say, on the 31st December (or at the end of every period of six months, namely, on the 30th day of June and the 31st December if the partners or a majority of them so decide) a general account and balance sheet shall be made by the partners who shall be at the head-office of the firm and also at each branch of the firm of all sales, purchases, receipts, etc., during the preceding year six months as the case may be." The partners who retired were Esoof and Abdul Hamid and the new partner was one Ghulam Hossain. The recitals in the supplementary indenture are as follows : "Whereas the said Esoof and Abdul Hamid both desire to retire from the said partnership. Whereas it is provided in cl. 2 of the deed of partnership dt. 14th Nov., 1949, that a partner shall be at liberty to retire only on the 30th day of June or the 31st December in any calendar year. Whereas by mutual agreement of all concerned it is deemed expedient that Esoof and Abdul Hamid shall both be considered to have retired w.e.f. 31st Dec., 1952. Whereas the remaining parties of the partnership formed by the deed of partnership dt. 14th Nov., 1949, have agreed to take in and admit as a new partner in the said partnership business the party, viz., Gulam Hossain, as and from Jan. 1953. Whereas the parties have agreed to carry on the business on the same terms and conditions, stipulations as laid down in the deed of partnership dt. 14th Nov., 1949, and they hereby agree, accept and abide by all the articles numbered 1 to 40 as set out therein and whereas all the parties hereto including the newly admitted partner have agreed (as they hereby do) to admit and acknowledge correctness of the accounts and balance sheet of the partnership business up to and including the 31st December, 1952, and each of them hereby agree not to raise any objection to the accounts, or as to correctness thereof or about any matter connected with the said business prior to January 1. 1953." The operative portion of the supplementary deed shows that in pursuance of the above, the parties agreed to carry on the said business in the Union of India of the firm of Dawjee Dadabhoy and Co., under the supplementary deed of partnership, upon the same terms and conditions, stipulations, as are set out in the deed of partnership dt. 14th Nov., 1949.
(3.) THE firm applied for registration under s. 26A which was refused by the ITO and the AAC. THE Tribunal also rejected the appeal of the assessee holding that there was no proper distribution of profits in accordance with the deed dt. 2nd July, 1953. THE Tribunal further held that the firm was only entitled to registration w.e.f. the last-mentioned date, there being no partnership deed in operation from January 1. 1953, to 1st July, 1953. It appears that before the Tribunal the assessee prayed for production of two documents, viz., one dt. 31st Dec., 1952, and the other dt. January 1, 1953. It is claimed that by the first of these documents the retirement of two partners w.e.f. 31st Dec., 1952, was recorded and by the latter executed by the six continuing partners and the. new partner it was provided that these seven partners would carry on the business of the firm w.e.f. January 1, 1953, and that a new instrument of partnership would be drawn up as quickly as possible and until execution of such an instrument the partnership would be covered by the agreement dt. January 1, 1953.;