1933 (5) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the registration of the firm under Section 2(14) of the Income-tax Act.
2. Whether the appellant was a partner in the firm.
3. Jurisdiction of the civil court to declare the registration void.
4. Whether the suit is barred by Section 67 of the Income-tax Act.
5. Proper parties to the suit.

Issue-wise Detailed Analysis:

1. Validity of the registration of the firm under Section 2(14) of the Income-tax Act:
The appellant's income for the year 1926-27 was assessed for super-tax by the Income-Tax Officer, 1st Circle, Karaikudi, Madras, based on a total income of Rs. 1,58,227. The appellant appealed against this assessment, arguing that the registration of the firm C.T.A.M., Minhla, under Section 2(14) of the Income-tax Act was not valid. Section 2(14) defines a "registered firm" as one constituted under an instrument of partnership specifying the individual shares of the partners and registered with the Income-tax Officer in the prescribed manner. The registration was purportedly done by an agent and not by the partners themselves, which was deemed ultra vires and void, as the statutory rules required the application to be signed by at least one of the partners.

2. Whether the appellant was a partner in the firm:
The original instrument of partnership dated 29th July 1922, did not mention the appellant's name but listed C.T.A.C.T. Chidambaram Chetty and P.L.S.M. Muthukaruppan Chetty as partners. After the death of Chidambaram Chetty on 20th August 1926, Chokkalingam Chettyar, acting as an agent, applied for registration without mentioning the appellant, who was purportedly the successor. The court held that the Income-tax authorities in Madras did not determine whether the appellant was, in fact, a partner of the firm, which was a critical issue.

3. Jurisdiction of the civil court to declare the registration void:
The court opined that the civil court was competent to make a declaration that the registration of the partnership instrument was null and void, notwithstanding any concurrent remedy under the Income-tax Act. The court cited well-settled authority to support this position, stating that an affirmative statute giving a new right does not necessarily destroy a previously existing right unless the legislature's intention is clear that the two rights should not coexist.

4. Whether the suit is barred by Section 67 of the Income-tax Act:
Section 67 of the Income-tax Act states that no suit shall be brought in any civil court to set aside or modify any assessment made under the Act. The court held that the present suit was not within the ambit of Section 67, as it was not brought to set aside any assessment but to declare the registration of the instrument of partnership as ultra vires and void. Therefore, the suit was not barred by Section 67.

5. Proper parties to the suit:
The second respondent contended that he was not properly made a party to the proceedings. The court held that the second respondent was a necessary and proper party to the suit because if he had not been impleaded, there would have been inconsistent decisions regarding the validity of the registration. The second respondent had also actively participated in the proceedings by filing a written statement and contesting the suit on various grounds.

Conclusion:
The appeal was allowed, and the decree from which the appeal was brought was set aside. The court passed a decree for a declaration that the registration of the instrument of partnership was ultra vires and void. The court did not express any opinion on the effect of this declaration on the merits of the assessment or whether the assessment should be reopened, leaving these questions to be considered by the proper authorities. The second respondent was deemed a necessary and proper party to the suit, and the appeal was allowed with costs.