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TMI Blog1970 (10) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in this case is Messrs. Ferozepur Ice Manufacturers' Association, Ferozepur City, and the assessment year concerned is 1961-62. It appears that on 1st April, 1960, nineteen individuals, who were partners in seven ice factories at Ferozepur, executed a deed of partnership. The purpose for which this partnership was entered into was given in the preamble of the deed and it was to "create and maintain good and friendly relations amongst the ice manufacturers in Ferozepur and arrange conditions in business which would prevent under-selling and harmful competitions ". The agreement was to take effect for a period of one year from 1st April, 1960. It was also agreed that this term may be extended by mutual consent of the partners after the above-mentioned date. One of the nineteen members of the partnership, namely, Harnam Singh Sethi, died on 12th July, 1960, and in his place Shrimati Sumitra Rani Sethi was taken as a partner on 13th July, 1960. Consequently, two income-tax returns were filed by the assessee-one relating to the period commencing from 1st April, 1960, till 12th July, 1960, and the other from 13th July. 1960, to 31st March, 1961. In the first return the income d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r referring to this court the question of law mentioned above. His application was accepted and that is how the said question of law has come before us. For the determination of the question of law referred to us, the only point that needs consideration is whether the association formed by the ice manufacturers is a " partnership " within the meaning of section 4 of the Indian Partnership Act or a mutual association brought about to safeguard their interests and it did not carry on any trade or business activity and thus earn any income, profits and gains as alleged by the assessee. " Partnership" has been defined in section 4 of the Partnership Act, which says: " Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. " The definition contains three elements- (a) There must be an agreement entered into by all the persons concerned. (b) The agreement must be to share the profits of the business. (c) The business must be carried on by all or any of the persons acting for all. Learned counsel for the revenue submitted that the assessee was a partnership firm and it carried on the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners. According to clause 6, the parties agreed to place the respective factories at the disposal of the partnership firm for the entire manufacture of ice and its total supplies according to the direction of the partnership. Clause stated that all the factories would be kept in proper working order. If there was a breakdown in any factory, the said party would be required to get his plant in working order within 15 days from the breakdown. According to clause 8, it had been agreed that the manufacturing cost of per maund of ice for the sake of uniformity be fixed at 10 annas exclusive of sales tax. According to clause 9, each factory could, out of the sale price, keep to itself the manufacturing cost of the entire ice at 10 annas per maund as also the sales tax recovered on the sales. The balance selling price representing the difference between the sale price and the manufacturing cost would be sent to the office of the partnership firm by each member on the following day of the sale by 1.00 pm. In case of supplies made to the military by any factory, however, payment @ 5 annas per 100 lbs. of ice so supplied would be made to the firm by the factory concerned. If any member fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is true that the deed had been described as a partnership deed, but a perusal of its various clauses and the actual activity carried on by the association showed that it did not carry on any business but it was only a mutual association. It is further true that in the clauses of the deed it was mentioned that the assessee could purchase the ice manufactured by the factories and sell the same, but it has been found that it did not carry on any business activity and run any factory or purchase or sell any ice. The assessee did not carry on any business. The contributions made by the members went to a common pool and they were distributed among them at the end of the year. The only reason why the association was formed was that all the factory owners should sell ice at a uniform rate, and there should not be undercutting in the price of the ice. As I have already said, in order to constitute a valid partnership, it was necessary that some business must be carried on by the partnership concern. In the instant case, it has been found by the Tribunal that the assessee did not purchase the ice produced by the various factories and then sell the same in the market. The various proprietor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves. " The assessee in the instant case answers the description of such an association. The view that I have taken finds support in a Division Bench decision of the Nagpur High Court, consisting of Stone C.J. and Vivian Bose J. in Radhakisan Jaikisan Ginning and Pressing Factory v. Jamnadas Nursory Ginning and Pressing Co. Ltd., where it was held: " Various businesses combined inter so to keep up prices and as a quence to benefit the members. There was throughout no sign that anything had to be done other than the observance of the restrictive clause contained in the agreement, the payment over into the pool of a particular amount of money and the payment out of the pool of a particular share of the accumulated proceeds. There were clauses which provided for what would happen if there was breach of this contract including the arbitration clause and there were all kinds of detailed restrictions to guard a such difficulties as might arise owing to the breakdown of the machinery: Held, that the case was a combination and not a case of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (some of which were themselves firms) which carried on independent businesses in the manufacture and sale of ice in Baroda entered into a deed of partnership. The business of the partnership was to sell the ice manufactured by the six concerns in their respective factories. Under clause 5 of the deed the partnership was to purchase ice from each of the concerns on credit and sell it in local and up-country markets at a price fixed by it and pay each of the concerns as and when the moneys on the sale of their respective goods were recovered. In addition to clauses relating to the sharing of profit and loss and regulating the management of its affairs there was a further provision prohibiting the expansion by the concerns of the capacity of their ice plants or the getting interested in other concerns for the manufacture and sale of ice : Held, that, on the facts, the test of partnership was fully satisfied in this case and the partnership was entitled to be registered under section 26A of the Indian Income-tax Act, 1922. " It is clear from the head-note itself reproduced above that in that case the firm was itself to sell the ice manufactured by its six constituents in their re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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