K. C. SEN, J. - (1.) : In this reference under s. 66(1) of the IT Act, 1922 (hereinafter called the Act), the following question of law has been referred to this Court for its opinion : "Whether, on the facts and in the circumstances of the case, there was any partnership in the year of account within the meaning of s. 4 of the Indian Partnership Act, which is entitled to registration under s. 26A of the Indian IT Act ?"
(2.) THE facts which gave rise to the above question are briefly stated as follows : Anil Krishna Paul and Jogendra Nath Nandi had acquired a right of receiving commission of 1per cent on sales from M/s Annapurna Cotton Mills. THE said Jogendra Nath Nandi died on the 7th June, 1950. Along with Anil Krishna Paul, he entered into an agreement dated 26th January, 1950. THE benefits of the agreement were transferred in favour of the applicants, Sunil Krishna Paul and Amar Krishna Poddar, by a deed of assignment dated 10th December, 1951, executed by Anil Krishna Paul and the legal heirs of Jogendra Nath Nandi. On the 9th of August, 1954, the assignees, Sunil Krishna Paul and Amar Krishna Poddar, entered into a partnership to share the commission receipts and the instrument of partnership was executed on the said date. It was alleged by the applicants that they carried on the business of partnership by employing staff in order to verify the correctness of the sales of the company. Such expenses at the time of assessment were allowed as deductions by the Department. The relevant year of assessment is 1956-57. For this assessment year an application was made on behalf of the said partnership to the ITO for registration of the firm under s. 26A of the Act. The ITO found that no business was carried on by the applicant and therefore it did not constitute a partnership which could be registered under s. 26A. Accordingly in terms of such a decision the ITO treated the applicants as an " association of persons" and made the assessment in that status. In appeal against the assessment made, the AAC affirmed the order of the ITO. When the matter came up before the Tribunal it held that the agreement for the alleged partnership in this case was nothing but an agreement to share the income and the alleged partners did not carry on any business activity. On this finding the Tribunal came to its decision that the claim of the applicant for registration under s. 26A of the Act was not sustainable. In view of the frame of the question it is necessary to decide whether the instrument of partnership dated the 9th of August, 1954, brought into existence a partnership within the meaning of s. 4 of the Indian Partnership Act.
(3.) MR. Subimal Roy, learned counsel appearing for the applicants, raised various points attacking the decision of the Tribunal. Before dealing with the details of his argument, it is necessary to set out the relevant provisions of the instrument of partnership dated the 9th August, 1954. The preamble runs as follows : "Whereas both the said first and second parties acquired the right to receive commission at the rate of 1per cent on the gross sales effected by M/s Annapurna Cotton Mills Limited, a limited liability company incorporated under the Indian Companies Act, 1913, having its registered office at 214, Cross Street, Calcutta 7, in perpetuity : And whereas both the first and second parties mutually agreed between themselves to share the said commission in co-partnership in equal halfshare each : And whereas in addition to sharing the commission the said two parties further agreed between themselves to carry on other business as they may from time to time agree upon in co- partnership : And whereas in pursuance of the said agreement the said two parties have been sharing the said 1per cent commission between themselves in equal halfshare w.e.f. 10th December, 1951 . . . . . Now this memorandum of agreement made this the 9th day of August, 1934, hereby witnesseth and confirms as follows :" Of all the clauses set forth therein the following clauses are relevant for the purpose of considering whether a partnership business was actually entered upon : (5) Proper records and accounts of this partnership shall be kept at the principal place of business and shall be open to inspection by both the partners at any time during the working hours. (6) Accounts of this partnership shall be closed and adjusted at the end of every Bengali year. (7) Profits and/or losses of this partnership shall be borne by the said two partners in two equal shares.;