PREM CHAND PANDIT, J. - (1.) . The following question of law has been referred to us for our opinion by the Income-tax Appellate Tribunal, Chandigarh : "whether, on the facts and circumstances of the case, the firm was entitled to registration ?"
(2.) THE facts giving rise to this question are these. Messrs Eastern Commercial Corporation was a firm, which was registered under the Income-tax Act and assessed as such up to the assessment year 1961-62. This firm originally consisted of four partners, namely, Teja Singh, his son, Mohinder Singh, Bhag Singh and his brother, Deva Singh. On 1st April, 1961, however, another partner, Jeevinder Singh, son of Teja Singh, was also brought in this partnership and thus there was a change in the constitution of the firm. The share ratio in the profits and losses in the new firm was as under : Teja Singh 45 Paise Mohinder Singh 25 Paise Jeevinder Singh 20 Paise Bhag Singh 5 Paise Deva Singh 5 Paise This new partnership continued functioning up to 25th September, 1961. The Income-tax Officer granted registration of this firm for the assessment year 1962-63 for the period April 1, 1961, to September 25, 1961. The financial position of the firm was not sound and it was felt that it had not got sufficient funds to run the business. It then approached D. N. Kapur, who was the manager of the Oriental Bank of Commerce, Patiala, and his wife, Shrimati Vimla Kapur, for helping them in this connection. Both of them arranged a loan of Rs. 50,000 from Dr. Rajinder Nath, brother of Vimla Kapur. In consideration thereof, she was alleged to have been taken as a partner and given a share of 5 paise in the profits of the firm. She contributed a sum of Rs. 5,000 also towards the capital of the firm. On 26th September, 1961, a new deed of partnership was written and the shares of the partners in the same were as follows : Teja Singh 38. 25 Mohinder Singh 21. 25 Jeevinder Singh 17. 00 Bhag Singh 4. 25 Deva Singh 4. 25 Vimla Kapur 5. 00
(3.) IN the partnership deed, it was mentioned as to how much interest had to be paid to Dr. Rajinder Nath on the amount of loan advanced by him and also the manner and the time by which the said amount had to be repaid. The financial control of the affairs of the firm was given to Vimla Kapur. On 7th May, 1962, the new firm applied to the Income-tax Officer for registration for the assessment year 1962-63, for the period commencing from September 26, 1961, to March 31, 1962. The said officer, however, rejected the application on the ground of delay. The firm then made another application on 13th September, 1962, for the same purpose. This application was also dismissed by the Income-tax Officer on 24th March, 1967, on the ground of delay as well as merits. On the latter ground, the reasons given were : " (i) The powers given under Clause 16 of the deed to Shrimati Vimla Kapur in respect of financial control in matters of policy and the operation thereof violate the principle of agency which is the essence of partnership. (ii) Although Shrimati Vimla Kapur has made an investment of Rs. 5,000 she has been given wide powers and is entitled to damages of Rs. 10,000 in case of violation of any Clause of the agreement. This along with the fact that Dr. Rajinder Nath has been given wide powers which are interlinked with those of Shrimati Vimla Kapur shows that she is only a dummy for Dr. Rajinder Nath and not a genuine partner. (iii) Shrimati Vimla Kapur was not produced for examination. (iv) The wide powers given to an outsider, Dr. Rajinder Nath, violate the principle of agency. (v) The provision regarding transfer of assets through mortgage as ' required by Clause 6 of the deed has not been acted upon which shows that the deed was not acted upon. (vi) The partner "shrimati Kapur" is to be paid profit even when there is no profit and this provision violates the principle of partnership which is defined as a relationship between persons carrying on business who have agreed to share their profits. " ;