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TMI Blog1966 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... y rejected the appellant's application. Appeal dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (1) the Ferozepore firm could not legally be a partner in the assessee-firm; (2) the total number of partners of the assessee-firm was 21, and (3) moreover, the individual shares of the eight partners of the Ferozepore firm were not specified in the deed dated December 5, 1952. On these findings, the Income-tax Officer rejected the application under section 26A. On appeal, the Appellate Assistant Commissioner set aside these findings, and held that Gosain Chander Bhan was the partner of the assessee-firm in his individual capacity and not as representative of and on behalf of all the partners of the Ferozepore firm. He held that Gosain Chander Bhan had merely agreed to share his profits and losses in the assessee-firm with his other partners of the Ferozepore firm, that such an agreement did not make the other partners of the firm, partners in the assessee-firm, and the effect of the agreement was to constitute a sub-partnership only. On further appeal, the Income-tax Appellate Tribunal, Delhi Bench, upheld these findings of the Appellate Assistant Commissioner, and held that those findings were supported by the decisions in Commissioner of Income-tax v. Agardih Colliery and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-firm, having regard to (1) the fact that the capital of the assessee-firm was secured by Gosain Chander Bhan from the Ferozepore firm, (2) the clause in the deed of partnership dated June 14, 1952, under which all the partners of the Ferozepore firm were entitled to the profit and liable for the loss in respect of the share of Gosain Chander Bhan in the assessee-firm, and (3) the statement of Harbhajan Lal and other partners of the assessee-firm that Gosain Chander Bhan was a partner in the assessee-firm not in his individual capacity but on behalf of the Ferozepore firm. We are unable to accept this contention. The real question before us is whether any substantial question of law arises out of the order of the Tribunal. We think that no such question arises. The deed dated December 5, 1952, clearly stated that Gosain Chander Bhan and 13 other parties to the deed were the partners of the assessee-firm. On the face of the deed, it does not appear that Gosain Chander Bhan was a partner in a representative capacity on behalf of the Ferozepore firm, or that the Ferozepore firm was the partner in the assessee-firm. On the materials on the record, the Appellate Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to the profits and liable for the losses in the share of Gosain Chander Bhan in the assessee-firm. The statement, fairly read, shows that only the 14 persons mentioned in the deed dated December 5, 1952, were the partners in the assessee-firm. If the 8 partners of the Ferozepore firm were partners in the assessee-firm, Harbhajan Lal could not have stated that the number of the partners of assessee-firm was 14 only. Counsel for the appellant pointed out that the High Court erroneously assumed that the partnership deed constituting the Ferozepore firm was dated June 14, 1954, whereas, in fact, this partnership was dated June 14, 1952. Counsel for the appellant rightly pointed out that on the erroneous assumption that the partnership deed constituting the Ferozepore firm was executed after December 5, 1952, when the assessee-firm was constituted, the High Court held that there was a sub-partnership between Gosain Chander Bhan and the other partners in the Ferozepore firm in respect of the share of Gosain Chander Bhan in the assessee-firm. Counsel then contended that in law, a sub-partnership can be entered only after the partnership is constituted, and, therefore, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the terms of the agreement, as the case may be." Quite plainly, the relevant clause in the deed dated June 14, 1952, was not part of the agreement of partnership dated December 5, 1952, constituting the assessee-firm, and did not affect the right of the partners of the assessee-firm to claim registration of the assessee-firm under section 26A. It is not possible to say that there are no materials on the record to support the finding that Gosain Chander Bhan was a partner of the assessee-firm in his individual capacity and not as representing the Ferozepore firm. The question whether there was a sub-partnership between the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan is not material because assuming that there was no sub-partnership, the members of the Ferozepore firm did not become partners in the assessee-firm by virtue of the relevant clause in the deed dated June 14, 1952, or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he partners of the Rupar firm, accompanied by the deed of partnership dated December 5, 1952, before the Income-tax Officer, Ambala, for registration of the firm under section 26A of the Act for the assessment year 1953-54. The Income-tax Officer examined the partners constituting the firm and recorded their statements in order to ascertain the true position with regard to the constitution of the firm. Harbhajan Lal in his statement dated January 30, 1954, and the other partners in their statements dated February 27, 1954, admitted that Gosain Chander Bhan had entered into the partnership not in his individual capacity but on behalf of the Ferozepore firm. The Income-tax Officer also found that the funds invested in the Rupar firm in the name of Gosain Chander Bhan were also provided by the Ferozepore firm. Upon these and some other facts he came to the conclusion that the deed of partnership dated December 5, 1952, did not specify the real partners of the firm and, therefore, the firm cannot be registered. He further came to the conclusion that as in reality all the partners of the Ferozepore firm and not Gosain Chander Bhan alone were also partners along with 13 other persons in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the Tribunal could come to the conclusion that the firm was registrable but whether, upon the facts found, it was registrable. In other words, the question is as to what is the cumulative effect of all the facts and not what is the effect of only some of the facts found. The contention of the learned Additional Solicitor-General is that when a question of law is said to arise the High Court is bound to call for a reference and it is immaterial that the question is settled already. If in the facts and circumstances of the case a question of law arises, there is little doubt that under section 66(1) the Tribunal is bound to draw up a statement of the case and refer the question to the High Court. The Tribunal has no discretion in the matter. Where, however, the Tribunal refuses to do so and the High Court is moved under section 66(2) of the Act, the position becomes different. Section 66(2) confers a discretion on the High Court and if the High Court is of the opinion that though a question of law arises it is not substantial or that it is well settled it can reject the petition. What we have, therefore, to ascertain is whether a question of law at all arises in this case and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormer as a sub-partnership. The law as stated in Lindley on Partnership, at page 99, is: " A sub-partnership is, as it were, a partnership within a partnership: it presupposes the existence of a partnership to which it is itself subordinate. " The correctness of this statement of law is not assailed before us by either side. It is no doubt settled law that where an application for registration of a firm complies with the requirements of section 26A and of the rules and it is found that the partnership is not genuine the Income-tax Officer is not bound to admit the firm to registration. But it does not follow from this that for ascertaining whether the requirements of law have been satisfied and for ascertaining whether a firm is genuine or is bogus or that it has no legal existence the Income-tax Officer must confine himself to the deed of partnership. He has power to examine the partners and to require them to adduce evidence for satisfying himself about the genuineness or otherwise of the firm and also for satisfying himself about compliance with the requirements of law. Paragraphs 2 and 3 of the order of the Appellate Assistant Commissioner, however, show that he has treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of the principal firm." The sole ground given by the Appellate Assistant Commissioner for holding that Gosain Chander Bhan was a partner in the Rupar firm in his individual capacity is that the preamble to the partnership deed 'clearly sets out that the contracting parties were 14 and that Gosain Chander Bhan was a partner in his individual capacity.' It is true that he has repelled some of the grounds given by the Income-tax Officer in support of his conclusion but, as already stated, he has entirely omitted to consider other facts found by the Income-tax Officer which bear directly on the point. It may be that the finding cannot be said to be based on no evidence but even so, as it has been arrived at by ignoring relevant facts, it is vitiated by an error of law. The first sentence of paragraph 6 of the order of the Appellate Assistant Commissioner quoted above paraphrases the provisions of section 4 of the Partnership Act and is unexceptionable. The rest of the quotation appears to have been lifted from the head-note of the decision in Commissioner of Income-tax v. Laxmi Trading Co. The question which fell for decision in that case was : " Whether there could in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising here has already been settled by three decisions of this court. The first of these is Commissioner of Income-tax v. Sivakasi Match Exporting Co. In that case this court held that the mere fact that one of the partners of the firm seeking registration brought his capital from another firm of which he was one of the partners and the further circumstance that he shared the profits received by him from the former firm with his partners in the latter firm did not make the former partnership bogus. In the first place, the circumstance that upon a certain set of facts this court arrived at a particular decision would not necessarily make that a binding precedent even though the inference drawn by the court upon which its judgment rests is one of law. In the second place, we have here the fact that one of the partners of the firm seeking registration was a partner in his representative capacity and not merely a partner in his individual capacity. The next case relied on is Commissioner of Income-tax v. A. Abdul Rahim & Co. In that case this court held that the circumstance that one of the partners was a benamidar for another does not justify a refusal to register the firm under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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