1972 (4) TMI 5 - HC - Income Tax

Firm partnership deed does not specify the profit sharing ratios of the partners of the partner-firm - entitlement to registration held that registration cannot be denied when there is no dispute about the genuineness of the partnership

Summary

Issues Involved:
1. Entitlement of the assessee-firm to registration under section 26A of the Income-tax Act, 1922, for the assessment year 1961-62.
2. Validity of the partnership deed and specification of individual shares of partners.
3. Interpretation of statutory provisions and judicial precedents regarding the registration of firms.

Issue-wise Detailed Analysis:

1. Entitlement of the Assessee-Firm to Registration under Section 26A:
The primary issue was whether the assessee-firm was entitled to registration under section 26A of the Income-tax Act, 1922, for the assessment year 1961-62. The firm, constituted under a partnership deed dated January 15, 1960, included Arjandas & Co. (a firm with three partners) and an individual named Muralidhar. The partnership deed specified the collective share of Arjandas & Co. as 75 paise and Muralidhar's share as 25 paise. However, the individual shares of the partners within Arjandas & Co. were not explicitly stated in the assessee-firm's partnership deed or the application for registration.

2. Validity of the Partnership Deed and Specification of Individual Shares of Partners:
The Income-tax Officer refused registration on two grounds: (i) the partnership was between a firm (Arjandas & Co.) and an individual (Muralidhar), which was deemed illegal, and (ii) the individual shares of the three partners of Arjandas & Co. were not specified in the partnership deed. On appeal, the Appellate Assistant Commissioner upheld the refusal, emphasizing the lack of specific details regarding individual shares. The Tribunal, however, recognized the partnership as valid but upheld the refusal of registration due to the absence of specified individual shares in the deed or application.

3. Interpretation of Statutory Provisions and Judicial Precedents:
The Tribunal relied on previous decisions (A.S.S.R. Guruswami Chettiar v. Commissioner of Income-tax and V. M. Periasamy Chettiar & Co. v. Commissioner of Income-tax) to support its view. These decisions emphasized that an application for registration under section 26A must specify the individual shares of partners in the partnership deed itself, without relying on external documents or statutory provisions like the Partnership Act.

The assessee's counsel argued that these precedents were no longer valid in light of later Supreme Court judgments (Kylasa Sarabhaiah v. Commissioner of Income-tax and Parekh Wadilal Jivanbhai v. Commissioner of Income-tax). The Supreme Court had held that the word "specified" in section 26A did not necessarily mean explicitly stated in the deed, and individual shares could be ascertained through legal principles or other relevant circumstances.

In Parekh Wadilal Jivanbhai v. Commissioner of Income-tax, the Supreme Court allowed for the ascertainment of individual shares through the application for registration and account books, even if not explicitly stated in the partnership deed. Similarly, in Kylasa Sarabhaiah v. Commissioner of Income-tax, the Supreme Court permitted the use of preamble details and other clauses within the partnership deed to determine individual shares.

Conclusion:
The High Court concluded that the refusal to look into the partnership deed of Arjandas & Co. to ascertain individual shares was overly technical and without substance. The Court held that the assessee-firm was entitled to registration under section 26A of the Income-tax Act for the assessment year 1961-62. The reference was answered in the affirmative and in favor of the assessee, with costs awarded.