1973 (11) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Validity of partnership registration under section 26A of the Indian Income-tax Act, 1922.
2. Legality of a partnership deed signed by the same individual in two capacities.
3. Correctness of the cancellation of the firm's registration by the Commissioner of Income-tax.

Issue-wise Detailed Analysis:

1. Validity of partnership registration under section 26A of the Indian Income-tax Act, 1922:
The case revolves around the registration of Messrs. Raghavji Anandji & Co. for the assessment year 1959-60. The Income-tax Officer initially granted registration based on the partnership deed dated 21st March, 1958. However, the Commissioner of Income-tax later cancelled this registration under section 33B of the Act, directing the assessment to be made taking the status as that of an association of persons. The Tribunal, upon appeal, set aside the Commissioner's order, maintaining the firm's registration. The key question referred to the court was whether the firm could be registered under section 26A and whether the cancellation by the Commissioner was lawful.

2. Legality of a partnership deed signed by the same individual in two capacities:
The primary reason for the Commissioner's cancellation was the fact that Vandravan Purshottam signed the partnership deed in two capacities: individually and as a karta of a Hindu undivided family. The Commissioner relied on several cases, including Lachhman Das v. Commissioner of Income-tax, to support his decision. The court had to determine if such a partnership deed was valid under the Indian Partnership Act and principles of Hindu law. The court noted that a partnership not valid in law could be refused registration or have its registration cancelled. The validity would be assessed based on statutory provisions and personal law principles.

3. Correctness of the cancellation of the firm's registration by the Commissioner of Income-tax:
The court examined previous judgments, including the unreported decision in Income-tax Reference No. 2 of 1950, where a similar issue was addressed. The Division Bench had held that there was no legal impediment to a person signing a partnership deed in two different capacities. The court also referred to section 46 of the Indian Partnership Act, which allows a partner to enforce certain contractual rights against the firm, indicating that contracts between a partner and the firm (comprising the partner and others) are not inherently invalid. The court concluded that the partnership deed in question was not invalid merely because it was signed by Vandravan Purshottam in two capacities. The Tribunal's decision to uphold the firm's registration was deemed correct, and the revenue's contention was rejected.

Conclusion:
The court answered the referred question by stating that the firm could be registered under section 26A for the assessment year 1959-60, and the Commissioner of Income-tax was not right in law in cancelling the registration. The Commissioner was ordered to pay the costs of the reference to the assessee.