Appeal No 424 of 1960
Appeal from the judgment and order dated March 25 1958 of the Madras High Court in case Referred No 62 of 1957
AV Viswanatha Sastri J B Dadachanji Rameshwar Nath and P L Vohra for the appellant
252 H N Sanyal Additional Solicitor General of India K N Rajagopala Sastri and D Gupta for the respondent
March 13
The Judgment of the Court was delivered by KAPUR J
This is an appeal against the judgment and order of the High Court of Judicature at Madras
The assessee is the appellant and the Commissioner of Income tax is the respondent
A partnership consisting of four persons was formed by a deed of partnership dated March 31 1949
On July 27 1951 another partner was taken into partnership and a new deed was drawn up
The previous partnership deed was considered as the principal deed
The new partnership like the old one was to end on March 31 1954
On March 29 1954 a new partnership was entered into and a sixth partner was taken and a new deed was executed
The new partner contributed Rs 40000 as his share to the capital but in the partnership deed no express provision was made as to the manner in which profits and losses were to be divided between the partners
In order to rectify this a deed of rectification was executed on September 17 1955 which was after the close of the account year 1954 55
This deed recited that an error had crept in in typing the partnership deed dated March 29 1954 by omitting to type el
21 of the old partnership deed in the new deed
The parties had therefore agreed to rectify the error by adding cl
20 A as follows We hereby agree that for purpose of clarification the following clause shall be added as clause 20 A in the Partnership Instrument dated 29th March 1954 The parties shall be entitled to shares in the profits and losses of the firm in proportion to the contribution of the capital of each of the partners and whenever fresh capital is required for the business each partner shall be liable to contribute the additional capital in the same proportion as the 253 paid up capital referred to in clause 4 of the deed dated 29th March 1954
 This is signed by all the partners
Up to the end of assessment year 1954 55 the old firms ie the one constituted of four partners and the other constituted of five partners were registered under section 26A of the Income Tax Act hereinafter termed the Act 
The appellant firm then applied for registration for the assessment year 1955 56
The Income Tax Officer pointed out to the appellant firm that there was no specification of shares of the partners in the deed of partnership
Thereupon the appellant submitted the deed of rectification dated September 17 1955 above mentioned and submitted that the original deed did specify the shares of the partners and the deed of rectification only clarified the position
But the registration was refused by the Income tax Officer and an appeal taken against that order to the Assistant Commissioner was dismissed
Further appeal was taken to the Income tax Appellate Tribunal which also failed
At the request of the appellant the following question was referred to the High Court for its opinion Whether the assessee firm is entitled to registration section 26 A of the Income tax Act for the assessment year 1955 56 The High Court held that under section 26 A of the Act the factual existence in the year of account of an instrument of partnership was necessary a requisite which in the present case was lacking and therefore the provisions of section 26 A were not satisfied and that the specification of shares only took place on September 17 1955 when the deed of rectification was executed
The question was therefore answered in the negative
Against this judgment and order the appellant has come in appeal to this Court by certificate of the High Court
It was contended that cls
9 11 34 and 41a sufficiently specified the shares of the partners and satisfied the requirements of the law
These clauses were as follows 254 Cl
9 Such extra contribution made by the partners shall be credited to the respective partners under an account called Extra Capital Subscription Account and for the period of the utilisation of the whole or part thereof during the course of the year or years it shall be treated as capital con
tribution only for the purpose of dividing profit but it shall otherwise in no circumstances be added to the paid up capital
 Cl 11
In addition to the shake of profits in proportion to the contribution to the extra capital subscription account the amount so advanced shall carry an interest equal to the highest rate at which the company may have to pay in the event of borrowing the same from Multani money market and shall carry twice the said rate of interest in the year or years of loss
 Cl 34
The senior partner may at any time during the subsistence of the partnership bring in one or more of his other sons other than partners of the 5th and the 6th part herein to the partnership and in the event of their so becoming partners they will be liable for the same duties as the other partners herein and shall be entitled to remuneration and profits in proportion to their capital contribution
41a
In the event of the dissolution of partnership the capital available for distribution as per the balance sheet except for debts outstanding for collection and reserve fund shall be paid off to the outgoing partner in proportion of the capital contribution of the outgoing partner to the total contribution of all the partners including extra capital subscription paid if any under clause 9
 None of these clauses specify the shares of the partners
Clause 9 has reference to extra contribution made by the partners which was to be treated as capital contribution for the purpose of dividing profits but was not otherwise taken to be paid up capital
Clause 11 provides for interest on the extra capital subscribed 
Clause 34 authorises the senior partner during the subsistence of the partnership to bring in 255 one or more of his sons as partners who on being so brought in were entitled to remuneration and profits in proportion to their capital contribution
Clause 41a provides that in the event of dissolution of partnership the capital available except for debts etc
was to be paid to the outgoing partners in proportion to the capital contribution of the outgoing partner
But in none of these clauses is it stated what the shares of the partners in the profits and losses of the firm were to be and that in our opinion was requisite for registration of the partnership under section 26 A of the Act and as that was wanting registration was rightly refused
Registration under section 26 A of the Act confers a benefit on the partners which the partners would not be entitled to but for section 26 A
The right can be claimed only in accordance with the statute which confers it and a person seeking relief under that section must bring himself strictly within the term of that section
The right is strictly regulated by the terms of that statute Ravula Subba Rao vs The Commissioner of Income tax Madras Section 26 A provides S26A1 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 purpose of this Act and of any other enactment for the time being in force relating to income tax or super tax
 For the purpose of this case the relevant words of that section are constituted under an instrument of partnership specifying the individual shares of the partners
Therefore unless the instrument of partnership specified the individual shares of the partners the instrument of partnership does not conform to the requirements of the section
In B C Mitter  Sons V Commissioner of Income tax 2 it was held that the instrument of partnership to be registered should have been in existence in the accounting year in respect of which an assessment is being made
At page 202 Sinha J as he then was said 1 1956 SCR 577588
2 256 It is therefore essential in the interest of proper administration and enforcement of the relevant provisions relating to the registration of firms that the firms should strictly comply with the requirements of the law and it is incumbent upon the Income tax authorities to insist upon full compliance with the requirements of the law In the present case an instrument of partnership was in existence but it did not specify the shares which was one of the requirements for registration and that condition was fulfilled by the deed of rectification dated September 17 1955
Therefore it cannot be said that there was the requisite instrument of partnership specifying the individual shares of the partners during the year of account
The High Court in our opinion was right in answering the question in the negative
We therefore dismiss this appeal with costs
Appeal dismissed


Summary:
The assessee a Hindu undivided family owned a tea estate in Assam comprising a tea garden factories labour quarters staff quarters etc
On February 27 1942 the military authorities requisitioned all the factory buildings etc under the Defence of India Rules but the tea garden however was left in the possession of the assessee
The possession of the military continued till the year 1945 and during that period though the assessee looked after its tea garden its business as tea growers and tea manufacturers could not be continued
Under the Defence of India Rules the military authorities paid the assessee as compensation a sum of Rs 222080 for the year 1944 which included Rs 10000 for repairs to quarters for labourers and a sum of Rs 246794 for the year 1945 which included Rs 15231 for repairs
For the assessment years 1945 1946 and 1946 47 the question arose as to whether the aforesaid sums or any portion thereof were capital receipts or were revenue receipts and liable to tax
The facts showed that the business which the assessee had been carrying on consisted in growing tea plants and in making tea out of the leaves by a manufacturing process into a commercial commodity that without the factory and the premises the tea leaves could not be dried smoked and cured to become tea and that the result of the requisition of the factories was to stop the business
Held that the amounts paid by the military authorities were received by the assessee not as compensation for the loss of profits of the business which it had been carrying on but for the injury to the business as a whole because the entire structure of business was affected to such an extent that no business was carried on by the assessee during the two years in question
Accordingly the compensation could not bear the character of profits of a business and was not liable to tax under section Io of the Indian Income tax Act 1922
Income tax Commissioner vs Shaw Wiallace  CO 1932 LR 59 IA 206 referred to and applied
Case law reviewed
33 258