. ,,.

COMMISSIONER OF INCOME TAX PATlALA

M/S. JAGANNATll PYARELAL

AUGUST 2 9, 1985

[ SABYASACllI MUKllARJI AND RANGANATH MISRA, JJ • ]

Indian Income Tax Act, 1922; Section 26A and Rules 2 and 4 of Income Tax Rules 1922 - Registration of firm - Partnership . deed not signed by one of the partners - Application for registration made beyond prescribed time - Held; Firm not entitled to registration.

The respondent-fiilll had 11 partnes on 8.10.19.56, ineluding Shri Rsbinder Kumar who left Ind1s for abrosd on 29.1.19.59 for prosecuting his studies •. A fresh partnership deed was executed to that effect on 1.4.19.59. The respondent-firm filed an application on 30.9.19.59 for regist.ration of the said firm under section 26A of the Indian Income Tax Act 1922. The Tribunal rejected the application on the ground that the firm was not genuine and the application for registration of partnership firm was not in accordance with the rules as Rsbinder Kumar had not signed it •

In a reference made under section 66(2) of the Act, the Higli Court held that the firm wasentitled to be , registered for two reasons, namely, (i) that another opportunity should have been given to show whether the firm wan actuslly in existence or not; and (ii) that Rsbinder Kumar had acquiesced in the constitution of the firm and had accepted the position.

Allowing the appeals,

HELD:

l. I (i) The firm was not entitled to registration under section 26A of the Act as it did not fulfil the conditions

laid down for its registration. [738 A]

l.(ii) The lsw enjoins that the deed of partnership must be G signed personally by each partner. Furthermore, Rules 2 and 4 of the Income Tax Rules 1922 require that the application for registration must be made within a period of six months Of the' constitution of the firm or before the end of the "previous year" of the firm whichever is earlier,. if the firm was constituted in that previous year. [738 B] H

A In the instant case, factually neither the deed of partnership was signed by Rabinder Kumar nor was the applicatiun for registration in accordance with the Rules, and these findings of fact were not negatived by the High Court. Therefore the registration of the firm was rightly refused. [737-H, 738 C-D]

B B..c. Mitter & Sons v. ea-<ea<oaer' of me- Tax, Calcutta

36 I.T.R. P• 194 and llao Bahedqr Jlavulu Subba llao & Ors. v. eo-<seiooer of lDcfxE Tax, lladras 30 I.T.R. 163 at page 166, relied upon.

CIVIL APPELLATE JURISDICTION 1974.

Civil Appeal No. 124 of

From the Judgment and Order dated 22nd February, 1973 of the Punjab & Haryana High Court in Income Tax Reference No. 7 of 1972.

AND Civil Appeal Nos. 4122-23 of 1985.

D From the Judgment and Order dated 11th July, 1979 of the Punjab & Haryana, High Court in Income Tax Cases Nos. 21 and 22 of 1974. '

C.M. Lodha and Miss A. Subhashini for the Appellant.

E P.K. Mukharjee for the Respondent.

The Judgment of the Court was delivered by

SABYAsAcl!l MUKHARJI, J, Special leave is granted in the above-mentioned two Petitions.

These appeals by special leave arise out of a decision and judgment of the Punjab & Haryana High Court in respect of the assessment year 1960-61, under Indian Income Tax Act, 1922 holding that the registration of the firm was wrongly refused. A reference was made under section 66(2) of the Indian Income-Tax G Act, 1922 to thr High Court in respect of the following question:

"Whether on the facts and in the circumstances of the case, the registration of the firm has rightly been refused?"

H Originally there were 10 partners who were members of two

C.I.T. v. JAGM't; A'ffi [SABYASACHI MUKl:AIWI, J.] 737

farr1ilies and a firm came into existence under the instrument A dated 27 .3 .1952, when Fadam Kumar was a minor. When he attained majority on 1.10.1956, he opted to continue as a full-fledged partner and a fresh instrUII!ent of partnership was exected on 8.10.1956 by 11 partners including Shri Rabinder Kumar. A fresh deed was executed to that effect on 1.4.1959 and an application dated 2.9.1959 for registration of the said firm under section E 26-A of thesaid Act w•s filed on 30.9.1959. Shri Rabinder Kumar had left Indian for United Statesof America for prosecuti.ng his studies on 29.1.1959. It was found by the Tribunal that Rabinder Kumar had not signed the application but indeed he was away to u .. s.A. frorr 29.1.1959. This finding was not challenged by the assessee before the High Court. The Tribunal held that the firm c was not genuine and the application was not proper as Rabinder Ktmlar had not signed and the application for registration of

partnershii:- was not in accordance with the rules. These findings were not challenged before the High Court. The High Court, however, was of the opinion that another opportunity should have been given to show whether the firm was actually in existence or not. The high Court held that Rabinder Kurrar had acquiesced in the firm and f1ad accepted the Position and as such the firm was entitled to be registered. The conditions required to be fulfilled have been laid down by this Court in the case of R.C.

Mitter & Sons v. Ccmmissioner of Incooe Tax, Calcutta 36 I. T .R.

P• 194. This Court held that in

"order that a firm may le entitled to registration under section 26A of the Incorr, e-tax Act, the follcwing essential conditions nn.ist te satisfied viz. (i) the firn should Ce constituted under an instrument of partnership, srecifying the individual shar€s of the partners; (ii) an application on tehalf of, and signed by, all the partners and containing all the particulars as set out .in the Rules must be made; (iii) the application should be u.ade before the assessment of the firn; under section 23, for that rarticular year;

(iv) the profits of losses if any of the business relating to the accounting year should have been divided or credited, as the case may be, in accordance with th~ tenrs of the instn.irnent; and (v) the partnership must l:e genuine and must actllally have existed in conforrri ty with the. terns and conditions of the instrument of partnership,. in the, accounting year."

As it arpears, factually neither the deed Qf partnership was signed by I\abinder Kuar nor was the applicatjon for registration

in accrodance with the rules. Therefore, the firm was not entitled to registration under s. 26-A of the Indian Income Tax Act, 1922. The law enjoins that the deed of partnership must be signed personally by each partner and this position is settled by the decision of this Court in Rao Bahac!11r Ravulu Sobba Rao & Qrs.

v. ec-tssioner of Iucane Tax:, Madras 30 LT .R• 163 at page 166, Furthermore, Rules 2 and 4 of the Income Ta& Rules, 1922 enjoins that the application for registration must be made within a per.iod of six months of the constitution of the firm or before the end of the "previous year" of the firm whichever is earlier, at the firm was constituted in that previous year. Neither of these conditions was fulfilled in the facts.and circumstances of the case: as found by the Tribunal and these were not negatived by the High Court. In these circumstances, we are of the opinion that the Tribunal was right in refusing the registration of the finil and the High Court was not right in holding otherwise. The question referred must be answered by saying that the registration of the firm was rightly refused.

The appeals are, therefore, allowed and the decision of the Tribunal is restored. The appellant is entitled to the costs of

these appeals.

M.L.A.

Appeals allowed.