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TMI Blog1996 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... the necessary capital. Hence, he refused to grant registration. The assessee submitted that the provisions in the partnership deed dated December 9, 1973, have not been actually ignored by the partners because a sum of Rs. 63,252 standing to the credit of Sri N. A. P. Rajaramalinga Raja was free of interest and belongs to Smt. Ramani, Krishnamoorthy and others. In view of this, separate capitals have not been brought in by these two partners. Even otherwise it was contended that partnership was an agreement between the partners and always subject to modification, according to the desire of the partners. If any partner does not strictly follow the provisions of the deed, it is implied that the other partners have agreed to the departure. Reliance was placed on two decisions in 61 ITR 671 (sic) and V. K. Kurien and K. P. George v. CIT [1967] 63 ITR 675 (Ker). According to the Appellate Assistant Commissioner, the failure of the two partners to bring in capital, as stipulated in the partnership deed, should not disentitle the firm to the benefits of registration. He further pointed out that the credit balance lying in the name of the third person, which belongs to the partners, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration, all the partners have brought in capital. Therefore, it was submitted that the stipulations contained in the partnership deed were strictly complied with. Even otherwise, learned counsel appearing for the assessee submitted that there is no condition precedent as per section 4 of the Indian Partnership Act for contribution of capital to constitute a valid firm. We have heard learned standing counsel for the Department as well as learned counsel appearing for the assessee. The fact remains that under a partnership deed dated December 9, 1973, a partnership firm was constituted with nine partners. The firm was in existence even prior to December 9, 1973. Partner No. 5 was then a minor. He became a major and elected to continue. One of the then partners died. So his minor daughter was admitted to the benefits of the partnership firm. Three other married daughters, partners Nos. 6 to 9, were taken in. Partner No. 5 is also one of the legal heirs. That is how the reconstitution or change in constitution took place. Clause 4 of the partnership deed which dealt with capital contribution, is as under : " (4) The aforesaid partners shall take over the assets and liabilities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... register the firm. " Section 4 of the Partnership Act, 1932, describes a partnership as 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. Persons who have entered into partnership with one another are called individually " partnersm " and collectively " a firm ", and the name under which their business is carried on is called the " firm name ". Therefore, before granting registration, the Income-tax Officer should find out the genuineness of the firm and its constitution as specified in the instrument of partnership. Therefore, according to the assessee, contribution of capital is not a part of the constitution of the firm. In S. S. K. Haja Allauddin Maracair v. CIT [1952] 22 ITR 545, this court, while considering the provisions of section 26A of the Indian Income-tax Act, 1922, held that it was not proper for the income-tax authorities and the Appellate Tribunal to take each circumstance by itself and then reject it on the ground that each by itself was not conclusive. The cumulative effect of all the circumstances should be considered in arriving at the conclusion whether the partnership was rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allow the firm to enjoy the benefit provided by the Act." Likewise the Supreme Court in Agarwal and Co. v. CIT [1970] 77 ITR 10 held that the conditions of registration prescribed by section 26A and the relevant rules are (headnote) : (i) on behalf of the firm, an application should be made to the Income-tax Officer by such person and at such times and containing such particulars, being in such form and verified in such manner as are prescribed by the rules ; (ii) the firm should be constituted under an instrument of partnership ; (iii) the instrument must specify the individual shares of the partners ; and (iv) the partnership must be valid and must actually exist in the terms specified in the instrument. If all the above conditions are fulfilled, the Income-tax Officer is bound to register the firm unless the assessee has contravened section 23(4) of the Indian Income-tax Act, 1922. " In Virendra Kumar Avinash Kumar v. CIT [1988] 171 ITR 263, the Allahabad High Court while considering the provisions of section 185 of the Income-tax Act, 1961, held that partnership is a matter of agreement and for a valid agreement, there must be more than one party, there must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in as a partner. V died on January 25, 1947, and his son, R, was admitted into the partnership. On April 10, 1947, a fresh deed of partnership was entered into by P, S and R in respect of the three liquor shops. The deed, which was duly registered, provided (i) that the partnership would be deemed to have commenced from January 25, 1947, the date of V's death ; (ii) that the capital of the partnership was the amount as found to the credit of the parties thereof ; (iii) that banking accounts could be opened in the firm's name or any other name as may be agreed upon. For the assessment year 1948-49, at first two returns were filed showing the income from the business as having been received in the status of a Hindu undivided family, but a third return was filed showing the income as that of the firm. Simultaneously applications were made for an order recognising the partition and for registration of the deed, dated April 10, 1947. The claim of registration was rejected by the Income-tax Officer on the grounds that there was no separate capital account of the partners and that the share of profits of each partner was not credited in his account in the ledger. On these facts, the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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