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TMI Blog1966 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise than in accordance with the instrument of partnership. The Appellate Assistant Commissioner, to whom the assessee appealed, concurred in the view taken by the Income-tax Officer and the further appeal to the Income-tax Appellate Tribunal was also dismissed. The question of law referred to us for our decision, on the application of the assessee, reads : "Whether the assessee-firm is entitled to renewal of registration under section 26A of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 ?" In the applications presented for renewal of registration in accordance with the form prescribed by rule 6 of the Indian Income-tax Rules, 1922, it was stated by the assessee that, although the four partners were during the relevant period entitled to a four annas share each, in the balance of the profits or the losses, two of the partners had been paid salaries during that period. One of them, Raghunath Rao, it was stated, was paid a salary of Rs. 3,600 and the other, Dattatreya, was paid a salary of Rs. 1,800 during each previous year. The instrument of partnership did not, in so many words, provide for the payment of any salary to any of the partners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alary was paid without a provision in the instrument of partnership authorising such payment, there was a change in the constitution of the firm. We are concerned in this case with the provisions of the Income-tax Act, 1922, under which renewal of registration was sought. Although section 26A does not in terms provide for renewal of registration, it is clear from the language of sub-section (2) of that section that the Income-tax Officer was invested with the power to renew a registration previously made. The procedure to be adopted for renewal of registration is prescribed by rules as provided by section 26A(2), and the relevant rule is rule 6 of the Indian Income-tax Rules, 1922. Rule 4 prescribes the procedure for an application for initial registration and rule 6 says that a firm to whom such certificate of registration has been granted under rule 4 may apply to the Income-tax Officer for renewal of the certificate of registration. It directs that the application for such renewal has to be made in the form prescribed by that rule, and paragraph 2 of that form requires the assessee to certify that the constitution of the firm specified in the instrument of partnership as previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old Act also speaks of a change in the " constitution of a firm " and its consequence, and the question is whether the " constitution of a firm " changes not only when the persons constituting the firm at a given point of time are not those who constituted the firm earlier, but also where the shares of the partners are varied, although the partners continue to be the same as those who originally became partners. We take the view that, according to the plain meaning of the words, there is no change in the constitution of a firm when the partners do not change but there is only a change in the proportion in which the profits are to be distributed or the losses have to be borne. The view that we take receives support from the decision of the High Court of Calcutta in In re Moolji Sicka, in which Derbyshire C. J. said this : " There is no question here of a firm having been newly constituted. The only question is whether a change has occurred in the constitution of a firm. There is no previous decision to guide us as to the meaning of 'change in the constitution of a firm'. The relevant explanation of the word 'constitution' given in the New English Dictionary by Sir James Murray, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. So what follows from this finding of fact, which is not open to discussion in this reference, is that the payment of remuneration to the two partners, to whom we have referred, was prohibited by section 13 of the Partnership Act and was impermissible. But it does not follow that a payment of remuneration in disobedience to section 13 is the payment of an additional share of profits. The Appellate Tribunal did not state that the payment of a remuneration was camouflage to which the partners resorted to for making the distribution of a larger share of the profits to the partners. The erroneous assumption made by the Tribunal was that in all cases where there was a payment of remuneration in disobedience to section 13, there was an alteration in the proportion in which profits had to be shared between the partners. Whatever may be the consequences emanating from an impermissible payment of remuneration in transgression of section 13 of the Partnership Act, such payment does not necessarily involve, unless the facts justify such inference, an alteration or change in the proportion in which the profits have to be shared. The Tribunal did not subscribe to the view that there was any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law the constitution of the partnership is void. The jurisdiction of the Income-tax Officer is therefore confined to the ascertaining of two facts, namely, (i) whether the application for registration is in conformity with the Rules made under the Act, and (ii) whether the firm shown in the document presented for registration is a bogus one or has no legal existence." This elucidation which was made in the context of an application for registration for the first time under section 26A has equal application even to an application for renewal of registration, except in the context of the question whether, after the initial registration, there was a change in the constitution of the firm. Mr. Srinivasan appearing for the assessee does not dispute that he could not, on the basis of the exposition made by the Supreme Court, contend that the renewal of registration can be claimed as of right even if there was a change in the constitution of the firm. But what is clear from the pronouncement of the Supreme Court is that, if there be no such change and the partnership was in existence when it was registered and was not a bogus or not a genuine one, and its constitution was not void ..... X X X X Extracts X X X X X X X X Extracts X X X X
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