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Issues Involved:
1. Whether the deed can be considered an instrument of partnership under Section 4 of the Indian Partnership Act, 1932. 2. Whether the firm Messrs. K.D. Kamath & Co. could be granted registration under Section 26A of the Indian Income-tax Act, 1922 for the assessment year 1959-60. Issue-wise Detailed Analysis: 1. Instrument of Partnership: The primary question was whether the deed marked as exhibit A could be considered an instrument of partnership under Section 4 of the Indian Partnership Act, 1932. Section 4 defines partnership as "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all." The essential conditions are: - Agreement to share the profits and losses of the business. - Each partner acting as the agent of all. Section 6 of the Partnership Act stipulates that the real relation between the parties should be determined by all relevant facts taken together. Section 20 allows partners to extend or restrict the implied authority of any partner, but it does not impinge on the essential conditions of Section 4. The material clauses in the deed (clauses 5 to 9, 12, and 16) were examined: - Clause 8: Principal partner K.D. Kamath had full control and management rights. - Clause 9: Working partners could not raise loans or pledge the firm's interest without the written consent of the principal partner. - Clause 16: Any questions regarding the conduct or management of the firm were to be settled with the consent of the principal partner, whose decision was final and binding. The court concluded that the alleged partners (Nos. 2 to 6) could not be considered partners in law as they did not have the power to act as agents of all. The management and control of the business were entirely in the hands of the principal partner, K.D. Kamath. The other partners merely worked under his directions and shared profits and losses as per clause 5. This lack of mutual agency meant that the relationship constituted by the deed did not fulfill the requirements of a partnership. 2. Registration under Section 26A: The Income-tax Officer refused registration under Section 26A, relying on clauses 8, 9, 12, and 16 of the partnership deed, concluding that the partnership did not establish a relationship of partners inter se, and the partners were not in enjoyment of the full share of profits. The Appellate Assistant Commissioner confirmed this order, placing significant reliance on clause 12. The Tribunal, however, directed that the firm should be registered under Section 26A, distinguishing the case from earlier decisions and emphasizing the agreement to share profits and the principle of mutual agency. The court analyzed several precedents, including: - Balubhai Gulabdas Navlakhi v. Commissioner of Income-tax: The court held that despite enlarged powers of one partner, the deed satisfied the requirements of Section 4 of the Partnership Act. - M.P. Davis v. Commissioner of Agricultural Income-tax: The Supreme Court held that the deed did not constitute a partnership due to lack of mutual agency and sharing of losses. - Umarbhai Chandbhai v. Commissioner of Income-tax: The court held that there was no partnership in law due to the lack of mutual agency and the principal partner's exclusive control over management. - Commissioner of Income-tax v. Pathrose Rice and Oil Mills: The Kerala High Court found the deed to be a partnership deed as it did not limit the agency powers of the other partners. The court concluded that the deed in question did not create a relationship of partnership as the partners Nos. 2 to 6 could not act as agents of all. Therefore, Messrs. K.D. Kamath & Co. could not be granted registration under Section 26A for the assessment year 1959-60. Judgment: The court answered the question in the negative, stating that Messrs. K.D. Kamath & Co. could not be granted registration under Section 26A of the Act for the assessment year 1959-60. The assessee was ordered to pay the costs of the revenue with an advocate's fee of Rs. 250.
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