1979 (5) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Existence of a genuine firm during the assessment year 1972-73.
2. Validity of the partnership deed executed on February 20, 1970.
3. Specification of individual shares of partners in the partnership instrument.
4. Legal implications of a partner signing the partnership deed in two capacities.

Detailed Analysis:

1. Existence of a Genuine Firm During the Assessment Year 1972-73:
The primary issue was whether a genuine firm existed during the assessment year 1972-73. The Income-tax Appellate Tribunal, Cochin Bench, concluded that there was a genuine firm in existence, contrary to the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC), who had canceled the registration on the grounds that one of the partners, K. S. Krishnadas, signed the partnership deed in two capacities. The Tribunal found this reason unsustainable in law, referencing the decision in CIT v. Raghavji Anandji and Co. [1975] 100 ITR 246, which allowed surviving or continuing partners to carry on the business with the estate of the deceased partner.

2. Validity of the Partnership Deed Executed on February 20, 1970:
The court examined the validity of the partnership deed executed after the death of one of the original partners, K. K. Sudevan. According to Clause 13 of the original partnership deed and Section 37 of the Indian Partnership Act, the firm could continue with the remaining partners and the estate of the deceased partner. The court found that K. S. Krishnadas signing the deed twice, once in his individual capacity and once as a representative of the heirs of Sudevan, did not invalidate the partnership. This dual capacity signing was deemed permissible and consistent with legal provisions.

3. Specification of Individual Shares of Partners in the Partnership Instrument:
Counsel for the revenue argued that the partnership instrument did not specify the shares of Sudevan's heirs, which was countered by the assessee's counsel, stating that this issue was not raised before the Tribunal or lower authorities and thus could not be considered. The court agreed with the assessee, noting that the objection did not arise out of the Tribunal's order. Additionally, the court found that Clause 6 of the partnership deed sufficiently specified the shares of the partners, including the estate of the deceased partner.

4. Legal Implications of a Partner Signing the Partnership Deed in Two Capacities:
The court addressed whether a partner signing the partnership deed in two capacities invalidated the partnership. References were made to multiple precedents, including CIT v. A. Abdul Rahim and Co. [1965] 55 ITR 651 (SC) and CIT v. Bagyalakshmi and Co. [1965] 55 ITR 660 (SC), which supported the validity of such arrangements. The court concluded that Krishnadas signing in dual capacities did not affect the genuineness or validity of the partnership.

Conclusion:
The court answered the referred question in the affirmative, favoring the assessee and confirming the existence of a genuine firm during the assessment year 1972-73. The judgment emphasized that signing the partnership deed in dual capacities was legally permissible and did not invalidate the partnership. The court directed that a copy of the judgment be communicated to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.