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TMI Blog1940 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... deed of the 14th of July 1937 was executed under which the mother of V.H. Desai was substituted for his wife and minor son, and she was given 4½ annas. That is to say, the 5 annas which had previously been divided between the wife and the minor son, were distributed as to ½ anna for V.H. Desai and 4½ annas for the mother, who thus became entitled to the largest share in the firm. It is, of course, not disputed that the object of the alteration was to avoid the effect of Section 16(3) of the Income-tax Act. On an application to register the firm, the Income-tax Officer refused registration on the ground that the partnership deed produced was one prepared only to avoid what he calls "proper taxation" owing to the operation of the new Section 16(3) of the Act. That is not a good ground for refusing to register. I do not like the expression "proper taxation". Taxation is either legal as falling within the terms of the taxing Act, or non-existent. As has been pointed out many times by this and other Courts, any one entitled so to conduct his affairs within the laws to avoid incidence of taxation and if a man finds that he will suffer less in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence constituted as shown in the instrument of partnership" then he has to register. Having regard to the authorities on the old rule, I think that the new rule really does not alter the law as it previously existed; it only makes the true effect of Rule 4 clearer than it was under the previous wording. Under the old rule the Courts held that the Income-tax Officer was entitled to consider whether the deed produced for registration really constituted a partnership as alleged. Under Rule 2 the only person who can apply for registration is a firm constituted under an instrument of partnership specifying the individual shares of the partners, which must, of course, mean specifying correctly the individual shares of the partners. I think it is open, whether under the old rule or the new rule, to the Income-tax Officer to say that the shares, which appear in the deed, are not the true shares of the partners, and therefore, there is no proper application by the requisite firm. Speaking for myself, I should say that if it were shown that one of the partners was only a nominee of a share allotted to him or her for another partner, the deed would not then specify correctly the individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision bsing made in the Income-tax Act, a new partnership deed dated 14th July 1937 was executed. The partners therein mentioned were Mr. V.H. Desai with 3½ annas share, his mother (Mrs. Vijayabai M. Desai in place of Mr. T.V. Desai and Mr. M.V. Desai) with 4½ annas share, and the remaining partners with their shares as in the previous deed. It is not disputed, that this reshuffling of the shares was made because of the amendment of the Income-tax Act. The Income-tax Officer, before whom the matter came first rejected the partnership deed dated 14th July 1937 as the motive was to get round the Amendment. That was wrong. The motives of a person in making alterations in the mode of his doing business are no guide for rejecting the registration of a firm. As has been pointed out repeatedly, if any subject could manage his business affairs as to pay the least tax which he might be liable to, he may do so provided the whole action is within the law. In the present case when this partnership deed was put before the Income-tax Officer, he had to inquire underSection 26-A read along with Rules 2 to 4, whether the firm constituted under the instrument of partnership and stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isthat relationship as setoutin thepartnership deed, which, the Commissioner has to determine, exists or not. Approaching the question from that point of view, in the present case the applicants stated that Mrs. Vijayabai was admitted as a partner with 4½ annas share in consideration of capital brought by her into the business That is the only ground set up by the applicants in support of their allegation that this lady was given the share. The Assistant Commissioner made inquiries about this allegation. He looked into the books of account. The books contained two entries showing the total sum of about ₹ 20,000 credited to her. On considering the other entries the Assistant Commissioner came to the conclusion that those were mere book entries. It is not open to this Court to inquire whether that conclusion of the Assistant Commissioner is right or wrong. On looking into the evidence, which consists of the books of account of the partnership, he held that the only ground alleged by the applicants for giving this lady this large share in the partnership was not proved. In arriving at that conclusion, it is not possible for this Court to say that there was no evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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