Case: Dulichand Lakshminarayan Vs. The Commissioner Of Income-Tax,Nagpur

2. In connection with the assessment for the assessment year 1949-1950 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 wordsDulichand Laxminarayan Firm, through Malik (partner) Laxmi Narayan son of Laljimal, Laxmi Narayan Chandulal Firm through Malik (partner) Chasndulal son of Nanakchand, Mukhram Bholaram Firm through Malik (partner) Tekchand son of Bholaram, Jeramdas Hiralal Firm through Malik (partner) Beharilal son of Asharam and Mangatrai Ganpatram through. Malik (partner) Ganpatram son of Mangatria, 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 andfollow 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 otherfor Dulichand Laxmi NarayanBeharilal for Jairam Das HiralalGanpatramfor Mangatrai GanpatramTekchand for Mukhram BholaramChandulal 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 Mukhram 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 Ganpatram is an individual. The application for registration was signed by the same five individuals who has signed the deed of partnership.4. 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 accordingly on the 26th February, 1950, he rejected the application.5. 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 R. 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.6. 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 requirement of law had been satisfied. Accordingly on the 12 th June, 1951, the Tribunal directed registration of the firm.7. On the application of the Commissioner of Income-Tax, Madhya Pradesh the Tribunal under section 66(1) 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?8. The reference came up for hearing before a Bench of the Nagpur High Court onFollowing their own judgment delivered earlier in Misc. Civil Case No. 189 of 1952, Jabalpur Ice Manufacturing Association v. Commr, of Income-tax, M. P. and Bhopal (A), 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 S. 66A (2) of the Act, gave a certificate of fitness for appeal to this Court. Hence the present appeal.

Reasoning: 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 R. 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 particularly 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 thisis 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 "person" occurring in section 4.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 personality to a firm. Nevertheless, 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, (1880) 14 Ch D 122 at p. 126 (B). In these circumstances to import the definition of the word "person" occurring in section 3(42) of the General Clauses Act. 1897, into section 4 of the Indian Partnership Act 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 a partnership with another firm orour opinion, the word "persons" in section 4 of Indian Partnership Act, which has replaced section 239 of the Indian Contract Act, contemplates only natural or artificial, i.e., 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 thethat this contention is possible in view of the language which 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 R. 2.The deed specifies that each of the five constituent parties is entitled to an equal, i.e., 1/5th 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 R. 2 require that each partner (not being minor) 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