1966 (6) TMI 15 - HC - Income Tax

Summary

Issues Involved:

1. Timeliness of the application for registration of the partnership deed.
2. Legality of the partnership under the Mines and Minerals (Regulation and Development) Act, 1948, and the Mineral Concession Rules.
3. Entitlement of the partnership to registration.
4. Legality of the partnership agreements as collateral agreements.

Detailed Analysis:

Issue 1: Timeliness of the Application for Registration

The first issue concerns whether the Tribunal could reject the application for registration of the partnership deed dated November 1, 1954, on the ground that the application was belated. The application for registration was sought by the firm of Venkatarama Chetty and six others for the period of three months in the assessment year 1956-57. The Income Tax Officer, the Appellate Assistant Commissioner, and the Appellate Tribunal noted that the application was made beyond the prescribed period. Mr. Visvanatha Iyer, representing the assessee, admitted that the application was indeed belated, and thus, the answer to the first question should be against the assessee.

Issue 2: Legality of the Partnership under the Mines and Minerals (Regulation and Development) Act, 1948, and the Mineral Concession Rules

The second issue involves whether a partnership formed for working mines on an assignment from a person who held a valid lease from the State Government is prohibited by the Mines and Minerals (Regulation and Development) Act, 1948, and the Rules made thereunder. The Tribunal and other authorities concluded that the partnership was not genuine because the assignments of the mining lease by Thiruvengadam Chetty to Venkatarama Chetty were not valid without the previous sanction of the State Government under rule 37 of the Mineral Concession Rules.

However, the court observed that rule 37 authorizes a transfer by a lessee provided the transferee holds a certificate of approval. Venkatarama Chetty held such a certificate, but the assignments lacked the State Government's sanction. The court clarified that the second question should be understood as whether a partnership formed for working a mine on an assignment that does not conform to rule 37 is prohibited by the Act and the Rules. The court concluded that the partnership was not prohibited by the Act and the Rules, as the rule does not expressly forbid such partnerships but regulates the mode of transfer.

Issue 3: Entitlement of the Partnership to Registration

The third issue is whether the partnerships were entitled to registration. The court noted that the registration of a partnership cannot be refused under section 26A of the Indian Income Tax Act, 1922, if there is a genuine partnership existing in the eye of the law. The Tribunal's observation that no genuine partnership existed was based on the lack of State Government sanction for the lease transfer. However, the court concluded that the partnership was not illegal and was entitled to registration because the formation of the partnership did not violate any statutory provisions.

Issue 4: Legality of the Partnership Agreements as Collateral Agreements

The fourth issue is whether the partnerships, even if the assignment of the lease was void for lack of sanction, can be considered illegal or forbidden by law. The court emphasized that section 23 of the Contract Act voids agreements that are statutorily prohibited, intended to disobey the law, or impossible to perform without violating the law. The court found no evidence that the partnership was formed with the intention to break the law. The partnership was a valid agreement at inception, and it was possible for the partners to obtain the necessary sanction for the lease transfer. Thus, the partnership was not illegal or forbidden by law.

Conclusion:

1. The Tribunal could reject the application for registration of the partnership deed dated November 1, 1954, on the ground that the application was belated.
2. The partnerships formed on November 1, 1954, and July 1, 1955, were not hit by the Mines and Minerals (Regulation and Development) Act and the Rules made thereunder.
3. The partnerships were entitled to registration.
4. The partnerships were neither illegal nor forbidden by law.

As the assessee did not fully succeed, no directions regarding costs were made, but a refund of Rs. 400 deposited by the assessee with the Tribunal was directed.