N R WADIA AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question that arises for out determination on this reference is : "Whether on the facts and circumstances of the case, Wadia, Dadachanji and Vakil constituted a p nership and were rightly assessed as an unregistered firm within the meaning of S. 2(16) of the Act. ?"

(2.) A situation somewhat incongruous if not grotesque has arisen in the matter of the assessment of the assessee before us and it is primarily due to the attitude taken up by the IT Department and of that attitude consistency is not a merit. We are, however, not particularly concerned with the attitude of the Department and what we have to determine is whether in law there was constituted a partnership between these three persons. Though the point we shall be deciding lies in a reasonable compass, it will be necessary to set out the relevant and material facts in some detail.

(3.) IT will be seen that a peculiar method of conducting their business was adopted by these three persons. They described themselves as partners. They agreed that each of them was only to attend to and carry out the work secured by him and in respect of that work he had to keep and maintain a separate work-book, bill- book and other necessary books. Each of them had to recover the bills in respect of the work done by him for his own client and it is of some importance to notice that there was no sharing of profits between them in the ordinary way and the arrangement was more akin to an arrangment of sharing expenses between persons carrying on business in the same premises under one common name. The expenses were to be shared by them not in the proportion of any fixed share but in the proportion of the work done by them for their client. Of course, the fact remained that in the agreement they described themselves as partners carrying on business under the firm name of N. R. Wadia & Co. There is no dispute that they themselves were at the time of the opinion that the legal relation between them would be that of partners. Now, partnership is not a matter of opinion but a matter of intention and agreement. It is well- settled law-and the provisions of the Indian Partnership Act give recognition to that law-that to constitute a partnership in law, there must be three elements : (i) there must be an agreement entered into by all the persons concerned; (ii) the agreement must be to share the profits of a business; and (iii) the business must be carried on by all or any of the persons concerned acting for all. All these three elements must be present before a group of per sons can be held to be partners. This can be gathered from the definition of "partnership" in the Indian Partnership Act. Sec. 6 of that Act gives a comprehensive statement of the rule as to the nature of a partnership. In determining whether a person is or is not a partner in a firm, the Court must have regard to the real relation between the parties. Whether the relation of partnership does or does not exist must depend on the real intention and contract of the parties as appearing from the whole facts of the case and not merely on their expressed intention. A and B may in a written agreement have stated expressly that they are not partners, yet they have been held to be partners; or they may have stated that they are partners and have been held not to be partners. These principles are so firmly established that it is not necessary to elaborate them and we have merely recapitulated here what one of us had occasion to say in another place.