SHANTHI NAINAR A AND SONS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is a firm of two partners, A. Shanthi Nainar and A. Padmaraj, dealing in silk cloth. THE partnership was constituted under a deed of partnership dated May 30, 1958. According to the said deed, the profits or losses are to be shared in the ratio of 13:5 between Shanthi Nainar and Padmaraj. THE firm was registered under Section 26A of the Indian Income-tax Act, 1922, for the year 1959-60, and, later, registration was renewed up to the assessment year 1961-62. On April 13, 1960, there was a partial partition in the family of one of the partners, i.e., Shanthi Nainar. That family, in addition to the I3/18ths share held by Shanthi Nainar in the assessee-firm, was having a separate wholesale business in handloom cloth. THE said business as well as the interest of Shanthi Nainar in the assessee-firm were the subject-matter of the said partial partition. As per the said partition, the separate business in handloom cloth and the 13/18ths share in the assessee-firm dealing in the silk cloth were converted into a partnership business of Shanthi Nainar and his three sons by an instrument of partnership dated May 2, i960. THEre was, however, no change effected in the terms of the partnership deed dated May 30, 1958, by admitting the divided members of Shanthi Nainar's family as partners in the assessee-firm ; nor was there any separate deed of partnership bringing in Shanthi Nainar's sons as partners of the assessee-firm. THE partnership deed of May 2, 1960, provided that the 13/18ths share held by the family in the assessee-firm should be divided equally between Shanthi Nainar and his sons as also the share of the profits therefrom.

(2.) THE assessee-firm applied for renewal of registration for the assessment year 1962-63 under Section 184(7) of the Act. But renewal of registration was refused by the Income-tax Officer on three grounds: (1) that no fresh instrument was drawn up to give effect to the changes in the nucleus of the divided family of Shanthi Nainar and his sons ; (2) that the partnership deed dated May 30, 1958, did not specify the individual shares of the partners with effect from May 2, 1960 ; and (3) that the firm constituted under the partnership deed dated May 1, 1960, was the real partner of the firm and that there could not be a valid partnership between an individual and a firm.

(3.) THE decision of the Supreme Court in Agarwal & Co. v. Commissioner of Income-tax, . appears to us to be the direct decision on the point. In that case, a karta of a Hindu undivided family joined a firm as a partner. He contributed his share from out of the family funds. THEre also, the question arose as to whether the firm could be registered under Section 26A of the Indian Income-tax Act, 1922. Registration was refused on the ground that the real partners of the firm were the Hindu undivided families of the partners and that as the adult coparceners in the joint families exceeded 20 that could not be a valid partnership, as it contravened Section 4 of the Indian Partnership Act. THEir Lordships of the Supreme Court expressed the view that for the purpose of finding out as to who are the partners of the firm, one has only to look to the partnership deed and not to go behind it, that if the partnership deed shows that the partners have entered into a partnership in their individual capacity, and there is nothing to indicate that they have done so as karta of their respective joint Hindu families it is not open to the revenue to go behind the deed and find for the purpose of registration that the partners have joined the partnership as representing their families and to refuse registration. In this case, the registration of the assessee-firm has been refused admittedly by going behind the partnership deed and taking certain facts and circumstances outside the partnership deed. This cannot be done, according to the above decision of the Supreme Court in Agarwal & Co. v. Commissioner of Income-tax. As already stated, the partnership deed is clear and unequivocal, and according to the partnership deed, Shanthi Nainar has been admitted as a partner only in his individual capacity. THE partnership deed dated May 30, 1958, has not been modified and the relationship between the two partners referred to therein continued to be the same. Whatever be the relationship between Shanthi Nainar and his three sons as per the deed of partial partition or as per the partnership deed dated May 2, 1960, Shanthi Nainar's relationship with his partner under the partnership deed dated May 30, 1958, has not undergone any change. In our view, the renewal of registration in this case should be granted. THE result is, that the question referred to us is answered in the negative and in favour of the assessee. THE assessee will be entitled to its costs. Counsel's fee Rs. 250.