Appeal No 195 of 1955
Appeal from the judgment and order dated the 30th day of December 1953 of the Nagpur High Court in Miscellaneous Civil Case No 35 of 1952
Kirpa Ram Bajaj Hardyal Hardy with him for the appellant
C K Daphtary Solicitor General of India G N Jo8hi and R H Dhebar with him for the respondent
February 17
The Judgment of the Court was delivered by DAS CJ
This is an appeal from the judgment and order passed by a Bench of the Nagpur High Court on the 30th December 1953 in Miscellaneous Civil Case No 35 of 1952 whereby the Bench answered in the negative the question that had been referred to them by the Income Tax Appellate Tribunal Bombay under section 661 of the Indian Income Tax Act 1922 hereinafter referred to as the Act
In connection with the assessment for the assessment year 19491950 of Dulichand Laxminarayan an unregistered firm an application was made under section 26 A of the Act before the Income Tax Officer Raigarh for its registration as a firm constituted under a Deed of Partnership dated the 17th February 1947
In the opening paragraph of that deed the names and descriptions of the parties thereto were set out in the following words We Dulichand Laxminarayan Firm through Malik partner Laxmi Narayan son of Laljimal Laxmi Narayan Chandulal Firm through Malik partner Chandulal son of Nanakchand Mulkhram Bholaram Firm through Malik partner Tekchand son of Bholaram Jeramdas Hiralal Firm through 157 Malik partner Beharilal son of Asharam and Mangatrai Ganpatram through Malik partner Ganpatram son of Mangatrai Agarwar Bani aged 50 40 28 25 45 residing at Raigarh are partners in equal shares with effect from 5 1 1946 in the firm Dulichand Laxminarayan in whose name Importers  Licence of cloth is issued for Raigarh State group Raigarh Jaipur Saraigarh Udeypur and Sakti State on the following terms and conditions   
Then follow 15 clauses containing the terms on which the partnership business was agreed to be done
At the foot of the deed signatures were appended in the following order one below the other Laxminarayan for Dulichand Laxmi Narayan
Beharilal for Jairam Das Hiralal
Ganpatram for Mangatrai Ganpatram
Tekchand for Mukhram Bholaram
Chandulal for Laxminarayan Chandulal
It is common ground that out of the five constituent parties Dulichand Laxminarayan Jairamdas Hiralal and Laxminarayan Chandulal are separate firms constituted under three separate deeds of partnership and that Laxminarayan Beharilal and Chandulal who signed the deed on behalf of those firms are partners in their respective firms
There is also no dispute that Mukbram Bholaram is the name of a business carried on by a Hindu undivided family of which Tekchand who has signed for it is the Karta
It is also conceded that Mangatrai Ganpatrai is an individual
The application for registration was signed by the same five individuals who bad signed the deed of partnership
Finding that Dulichand Laxminarayan constituted under the aforesaid Deed of Partnership dated the 17th February 1947 consisted of three firms one Hindu undivided family business and one individual and taking the view that a firm or a Hindu undivided family could not as such enter into a partnership with other firms or individuals the Income Tax Officer held that the said Dulichand Laxminarayan could not be registered as a firm under section 26 A and 21 158 accordingly on the 26th February 1950 he rejected the application
On appeal the Appellate Assistant Commissioner held that when a firm entered into a partnership with another firm the result in law was that all the partners of each of the smaller firms became partners of the bigger firm and therefore there was no legal flaw in the constitution of the bigger firm of Dulichand Laxminarayan
He however took the view that as the application for registration had not also been signed personally by all the partners of those three smaller firms as required by section 26 A of the Act and rule 2 of the Rules framed under section 59 of the Act there was no valid application for registration and consequently the firm could not be registered
The result was that on the 5th August 1950 the Appellate Assistant Commissioner dismissed the appeal
The assessee appealed to the Income Tax Appellate Tribunal
The Tribunal agreed with the Appellate Assistant Commissioner that a valid partnership had been brought into existence but reversed the decision of the Appellate Assistant Commissioner on the ground that as all the five executants of the deed had signed the application for registration the requirements of law had been satisfied
Accordingly on the 12th June 1951 the Tribunal directed registration of the firm
On the application of the Commissioner of Income Tax Madhya Pradesh the Tribunal under section 661 of the Act drew up a Statement of Case and submitted to the High Court of Nagpur the following question of law namely Whether on the facts of the Case the assessee is entitled to registration under section 26 A of the Income Tax Act The reference came up for hearing before a Bench of the Nagpur High Court on the 30th December 1953
Following their own judgment delivered earlier in the day in Miscellaneous Civil Case No 189 of 1951 Jabalpur Ice Manufacturing Association vs Commissioner of Income Tax Madhya Pradesh and Bhopal1 1 159 the High Court answered the referred question in the negative
In view however of the importance of the question involved in the reference the High Court under section 66 A2 of the Act gave a certificate of fitness for appeal to this Court
Hence the present appeal
Section 26 A of the Act under which the application for registration was made provides as follows 1 Application may be made to the Income tax Officer on behalf of any firm constituted under an instrument of partnership specifying the individual shares of the partners for registration for the purposes of this Act and of any other enactment for the time being in force relating to income tax or supertax
2 The application shall be made by such person or persons and at such times and shall contain such particulars and shall be in such form and be varied in such manner as may be prescribed and it shall be dealt with by the Income tax Officer in such manner as may be prescribed
The relevant portion of rule 2 of the Rules made under section 59 of the Act runs thus Any firm constituted under an Instrument of Partnership specifying the individual shares of the partners may under the provisions of section 26 A of the Indian Income tax Act 1922 hereinafter in these rules referred to as the Act register with the Income tax Officer the particulars contained in the said Instrument on application made in this behalf
Such application shall be signed by all the partners not being minors personally or  
At the hearing before us it was at one time suggested that the partners of the firm consisted of the five individuals who had signed the deed and each of them had an  equal share as specified therein and that as all the said five partners had signed the application for registration the requirements of section 26 A of the Act and rule 2 had been fully complied with and the assessee should have been registered as a firm for the purposes of the Act
A perusal of the deed and par 160 ticularly the portions hereinbefore set out indicate beyond any doubt that the intention of the parties quite clearly was that each of the three constituent firms and not the particular member of each of the said three firms who had signed the deed for his respective firm was to be the partner in the bigger firm constituted under this deed
The contention that only the five individual executants of the deed were the partners of the newly created firm runs counter to the apparent tenor of the deed and cannot be entertained
Indeed learned counsel appearing in support of this appeal did not press this point
The main argument before us has centred round the larger question as to whether a firm as such can be a partner in another firm
Section 26 A of the Act quoted above postulates the existence of a firm for otherwise no question of its registration can possibly arise
The Act however does not indicate what a firm signifies or how it is to be constituted
Indeed section 26B of the Act clearly providesinter alia that firm and partnership have the same meanings respectively as they have in the 
We have therefore to go to the last mentioned Act to ascertain what a firm is and how it can be created
Turning then to the we come to section 4 which defines partnership partner firm and firm name in the words following 4
Definition of Partnership Partner firm and firm name Partnersbip 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
Persons who have entered into partnership with one another are called individually partners and collectively a firm and the name under which their business is carried on is called the firm name
This section clearly requires the presence of three elements namely 1 that there must be an agreement entered into by two or more persons 2 that the agreement must be to share the profits of a business 161 and 3 that the business must be carried on by all or any of those persons acting for all
According to this definition persons who have entered into partnership with one another are collectively called a firm and the name under which their business is carried on is called the firm name
The first question that arises is as to whether a firm as such can enter into an agreement with another firm or individual
The answer to the question would depend on whether a firm can be called a person
There is no definition of the word person in the Partnership Act
The  however by section 3 42 provides that person shall include any company or association or body of individuals whether incorporated or not
The firm is not a company but is certainly an association or body of individuals
The argument is that applying that definition to the word persons occurring in section 4 one can at once say that an unincorporated association or body of persons like a firm can enter into a partnership just as by the application of that definition to section 4 of the a company can become a partner in a firm
The definitions given in section 3 of the  however apply when there is nothing repugnant in the subject or context
It is difficult to say that there is anything repugnant in the context of section 4 itself which will exclude the application of that definition to the word Persons occurring in section 4
Is there however anything repugnant in the subject of partnership law which will exclude the application of that definition to section 4 As pointed out in Lindley on Partnership llth Edition at page 153 merchants and lawyers have different notions respecting the nature of a firm
Commercial men and accountants are apt to look upon a firm in the light in which lawyers look upon a corporation ie as a body distinct from the members composing it
In other words merchants are used to regard a firm for purposes of business as having a separate and independent existence apart from its partners
In some systems of law this separate per 162 sonality of a firm apart from its members has received full and formal recognition as for instance in Scotland
That is however not the English Common Law conception of a firm
English Lawyers do not recognize a firm as an entity distinct from the members composing it
Our partnership law is based on English Law and we have also adopted the notions of English lawyers as regards a partnership firm
Some of the mercantile usages relating to a firm have however found their way into the law of partnership
Thus in keeping accounts merchants habitually show a firm as a debtor to each partner for what he brings into the common stock and each partner is shown as a debtor to the firm for all that he takes out of that stock
But under the English Common Law a firm not being a legal entity could not sue or be sued in the firm name or sue or be sued by its own partner for one cannot sue oneself
Later on this rigid law of procedure however gave way to considerations of commercial convenience and permitted a firm to sue or be sued in the firm name as if it were a corporate body see Code of Civil Procedure Order XXX corresponding to rules of the English Supreme Court Order XLVIII A
The law of procedure has gone to the length of allowing a firm to sue or be sued by another firm having some common partners or even to sue or be sued by one or more of its own partners see Order XXX rule 9 of the Code of Civil Procedure as if the firm is an entity distinct from its partners
Again in taking partnership accounts and in administering partnership assets the law has to some extent adopted the mercantile view and the liabilities of the firm are regarded as the liabilities of the partners only in case they cannot be met and discharged by the firm out of its assets
The creditors of the firm are in the first place paid out of the partnership assets and if there is any surplus then the share of each partner in such surplus is applied in payment of his separate debts if any or paid to him
Conversely separate property of a partner is applied first in the payment of his separate debts and the surplus if any is utilised in meeting the 163 debts of the firm see section 49 of the 
In the Indian Income Tax Act itself a firm is by section 3 which is the charging section made a unit of assessment
It is clear from the foregoing discussion that the law English as well as Indian has for some specific purposes some of which are referred to above relaxed its rigid notions and extended a limited perpersonality of a firm
Nvertheless the general concept of partnership firmly established in both systems of Law still is that a firm is not an entity or person in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm
In other words a firm name is merely an expression only a compendious mode of designating the persons who have agreed to carry on business in partnership
According to the principles of English jurisprudence which we have adopted for the purposes of determining legal rights there is no such thing as a firm known to the law as was said by James L J in Ex parte Corbett In re Shand1 In these circumstances to import the definition of the word person occurring in section 342 of the into section 4 of the will according to lawyers English or Indian be totally repugnant to the subject of partnership law as they know and understand it to be
It is in this view of the matter that it has been consistently held in this country that a firm as such is not entitled to enter into partnership with another firm or individuals
It is not necessary to refer in detail to those decisions many of which will be found cited in Jabalpur Ice Manufacturing Association vs Commissioner of Income tax Madhya Pradesh2 to which a reference has already been made
We need only refer to the case of Bhagwanji Morarji Goculdas vs Alembic Chemical Works Co Ltd and others3 where it has been laid down by the Privy Council that Indian Law has not given legal personality to a firm apart from the partners
This 1  126
2 3 164 view finds support from and is implicit in the observations made by this Court in the Commissioner of Income Tax West Bengal vs A W Figgies  Co and others1
In Jai Dayal Madan Gopal2 Sulaiman C J followed the Calcutta decisions and was not prepared to dissent from the view that the word person in section 239 of the should not be interpreted so as to include a firm
The learned Chief Justice however expressed the view that it was difficult to say that there was anything in section 239 itself which made the application to that section of the definition of person as given in in any way repugnant
The learned Chief Justice however does not appear to have con sidered whether there was anything repugnant in the subject of partnership law as it prevails in this country which operates to exclude the application of that deanition to the word person occurring in section 239 of the 
In our opinion the word Persons in section 4 of the  which has replaced section 239 of the  contemplates only natural or artificial ie legal persons and for the reasons stated above a firm is not a person and as such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual
In this view of the matter there can arise no question of registration of a partnership purporting to be one between three firms a Hindu undivided family business and an individual as a firm under section 26 A of the Act
The learned Advocate for the appellant then urges that at any rate the partnership was not illegal for there was no legal impediment in the way of all the members of all the three constituent firms and the karta of the Hindu undivided family and the individual entering into an agreement and that therefore a valid partnership was constituted by the deed of partnership under consideration
Assuming that this contention is possible in view of the language which 1   2 165 has been used in this deed for describing the parties the position of the appellant will not improve for in order to be entitled to the benefit of registration under the Act it will have to be shown that the shares of all individual partners are specified in the deed and that all the partners have personally signed the application for registration as required by section 26 A of the Act read with Rule 2
The deed specifies that each of the five constituent parties is entitled to an equal ie 15 share but it does not specify the individual shares of each of the partners of each of the three smaller constituent firms
Further all the members of those three firms have not signed the application for registration personally
It is said that each of the three persons who executed the deed for the three smaller firms must be regarded as having the authority of their co partners in their respective firms to sign the application for registration just as they had their authority to execute the deed itself for them
Even if they had such authority as to which there is no evidence at all on the record the section and rule 2 require that each partner not being minors must sign personally
That admittedly has not been done and therefore the application was not in proper form
In our judgment the answer given by the High Court to the question is correct
This appeal must therefore be dismissed with costs


Summary:
In connection with the assessment for the assessment year 1949 1950 of Dulichand Lakshminarayan an unregistered firm an application was made under section 26 A of the Indian Income Tax Act 1922 before Income Tax Officer Raigarh for its registration as a firm constituted under a Deed of Partnership dated 17th February 1947
In the opening paragraph of the deed the names and descriptions of the five parties thereto were set out
The signatures of five per sons were appended on behalf of five parties respectively at the foot of the deed
It was common ground that out of the five constituent parties DL JH and LC were separate firms constituted under three separate deeds of partnership
The three different persons who signed the deed on behalf of those three firms respectively were partners in their respective firms
The fourth party MB was the name of a business carried on by a Hindu undivided family of which the person who signed it was the karta
The fifth party MG was an individual
The Income Tax Officer rejected the application on the ground that Dulichand Lakshminarayan constituted under the deed dated 17th February 1947 consisted of three firms one Hindu undivided family business and one individual and that a firm or a Hindu undivided family could not as such enter into a partnership with other firms or individual 155 The assessee s appeal to the Appellate Assistant Commissioner was dismissed but it succeeded before the Income Tax Appellate Tribunal who directed registration of the firm
On the application of the Commissioner of Income Tax under section 661 of the Income Tax Act the High Court held that on the facts of the case the assessee was not entitled to registration under section 26 A of the Income Tax Act
On appeal to the Supreme Court Held that a perusal of the deed would indicate beyond any doubt that the intention of the parties quite clearly was that each of the three constituent firms and not the particular member of each of the said three firms who had signed the deed for his respective firm was to be the partner in the bigger firm constituted under this deed
The contention that only the five individual executant of the deed were the partners of the newly created firm was against the tenor of the deed and was therefore without force
Section 26 A of the Indian Income Tax Act postulates the existence of a firm
The Act however does not indicate what a firm signifies or how it is to be constituted
Section 26 B of the Act clearly provides inter alia that firm and partnership have the same meaning respectively as they have in the 
Section 4 of the which gives the definitions of partnership partner firm and firm name clearly requires the presence of three elements namely 1 that there must be an agreement entered into by two or more persons 2 that the agreement must be to share the profits of a business and 3 that the business must be carried on by all or any of those persons acting for all
The general concept of partnership according to both systems of law English as well as Indian is that a firm is not an entity or person in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm
In other words a firm name is merely an expression only a compendious mode of designating the persons who have agreed to carry on business in partnership
The word persons in section 4 of the  which has replaced section 239 of the Indian Contract Act contemplates only natural or artificial ie legal persons and therefore a firm is not a person and as such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual and there is no question of registration of a partnership purporting to be one between three firms a Hindu undivided family business and an individual as a firm unders
26 A of the Act as in the present case
Jabalpur Ice Manufacturing Association vs Commissioner of Income Tax Madhya Pradesh and Bhopal 1965  Exparte Oorbett In re Shad 1880   126 Bhag 156 wanji Morarji Goculdas vs Alembic Chemical Works Co Ltd and others  Commissioner of Income Tax West Bengal vs A W Figgies  Co and others 1954 SCR 171 and In re Jai Dayal Madan Gopal 1933 ITR 186 referred to