Case: N. T. Patel And Company Vs. Commissioner Of Income-Tax, Madras

referred to the High Court for its opinion:-"Whether the assessee firm is entitled to registration u/s 26-A of the Income-tax Act for the assessment year 1955-56."The High Court held that under S. 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 S. 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 appellate has come in appeal to this court by certificate of the High Court.4. It was contended that Cls. 9, 11, 34 and 41(a) sufficiently specified the shares of the partners and satisfied the requirements of the law. These clauses were as follows:-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 contribution 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 share 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 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."Cl. 41(a). "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 Cl. 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 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 41(a) 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 S. 26-A of the Act and as that was wanting, registration was rightly refused. Registration under S. 26-A of the Act confers a benefit on the partners which the partners would not be entitled to but for S. 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. R. Subba Rao v. Commr. of Income-tax, Madras, 1956 SCR 577 at p. 588: ( (S) AIR 1956 SC 604 at p. 612). Section 26 A provides:-S. 26-A (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 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 R. C. Mitter and Sons v. Commr. of Income-tax, 1959-36 ITR 194 : (AIR 1959 SC 868 ) 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 in being made. At p. 202 (of ITR): (at p. 874 of AIR) Sinha J. (as he then was) said:-"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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 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 41(a) 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 S. 26-A of the Act and as that was wanting, registration was rightly refused. Registration under S. 26-A of the Act confers a benefit on the partners which the partners would not be entitled to but for S. 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 thatthe 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 thethe 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.