Judgment Case ID: 709

Judgment:
Civil Appeals Nos. 85 & 389 of 1957. Appeal from the judgment and order dated August 26	 1955	 of the Calcutta High Court in Income tax References Nos. 44 of 1954 and 17 of 1953. section Mitra and P. K. Mukherjee	 for the appellant (in C. A. No. 85/57.) N. C. Chatterjee and P. K. Ghosh	 for the appellant (in C. A. No. 389/57). R. Ganapathy Iyer	 R. H. Dhebar and D. Gupta	 for the respondent. April 15. The judgment of Sinha and Kapur	 JJ.	 was delivered by Sinha	 J. Hidayatullah	 J.	 delivered a separate judgment. SINHA	 J. The common question of law arising in these two appeals on certificates of fitness granted by the High Court of Calcutta under section 66A(2) of the Indian Income tax Act	 1922	 is the effect and scope of the words " constituted under an instrument of partnership" in section 26A of the Income tax Act	 which	 in the course of this judgment	 will be referred to as the Act. 644 The facts of the two cases	 leading upto these appeals	 though not dissimilar	 are not identical. They are	 therefore	 set out separately. In Civil Appeal No. 85 of 1957	 Messrs. R. C. Mitter and Sons	 54	 Rani Kanto Bose Street	 Calcutta	 claim to be a firm said to have been constituted in April 1948	 with four persons whose names and shares in the nett profits of the partnership business	 are stated to be as under (a) Ramesh Chandra Mitter 40 per cent. of the nett profits. (b) Sudhir Chandra Mitter 30 per cent. of the nett profits. (c) Sukumar Mitter 20 per cent. of the nett profits. (d)Sushil Chandra Mitter 10 per cent. of the nett profits. The firm intimated its bank	 the Bengal Central Bank	 Limited	 (as it then was)	 of the constitution of the firm as set out above	 by its letter dated April 15	 1948. The letter also stated that a partnership deed Was going to be drawn up and executed by the partners aforesaid	 and that the deed so drawn up	 will be forwarded to the bank in due course. Though the firm is said to have come into existence in April 1948	 the deed of partnership which is set out as annexure " A " at P. 5 of the paper book	 was drawn up only on September 27	 1949. This deed of partnership appears to have been registered under the provisions of the Indian Partnership Act	 on October 1	2	 1949. It was also forwarded to the Bengal Central Bank	 Ltd.	 Head Office at Calcutta	 as it appears from the seal of the bank and the signature dated December 7	 1949. An application to register the firm under section 26A	 for the assessment year 1949 50	 was made to the Income tax Authorities. The date of the said application does not appear from the record before us. The application was rejected by the Income tax Authorities. The firm preferred an appeal to the Income tax Appellate Tribunal	 which was also dismissed by the Tribunal by its order dated September 7	 1953. The ground of the order of the Tribunal was that as the firm admittedly 645 was formed by a verbal agreement in April 1948	 and not by or under an instrument in writing dated September 27	 1949	 and as the assessment was for the year 1949 50	 for which registration of the firm was sought	 the registration could not be ordered. The Tribunal also referred to the letter aforesaid to the Bengal Central Bank	 and observed that the letter merely contained information as to the formation of the partnership and of the personnel thereof	 but it did not contain the terms on which the partnership had been formed. It also showed that a partnership had been created but not by deed. Hence	 the Tribunal further observed	 the letter might be useful for consideration on the question of the genuineness of the firm	 but it could not fulfil the requirements of section 26A	 namely	 that the firm should be constituted under an instrument of partnership. Therefore	 the Tribunal held that assuming the firm to be genuine	 it was not entitled to be registered under section 26A of the Act. Thereupon	 the assessee moved the Tribunal under section 66(1) of the Act. That application was granted by the order dated February 2	 1954	 and the case stated to the High Court for its decision on the following question : " Whether the assessee firm which is alleged to have come into existence by a verbal agreement in April	 1948	 is entitled to be registered under section 26A for the purpose of assessment for 1949 50	 where the Instrument of Partnership was drawn up only in September	 1949	 after the expiry of the relevant previous year ". The High ' Court Bench	 presided over by Chakravarti	 C. J.	 by its judgment dated August 26	 1955	 answered the question in the negative. The learned Chief Justice considered the matter from all possible view points	 including grammatical	 etymological and textual matters	 and came to the conclusion that " constituted " meant created ". He also considered that the preposition under " is " obviously inappropriate after having convinced himself that " constituted could be equated with "created". He also found no difficulty in observing that " some of the 646 paragraphs of the Form appear to be ill adjusted to the provisions of the Act and the Rules ". In the end	 therefore	 he concluded with the remarks: " It appears to me to be desirable that the language of the section	 as also that of the Rules should receive legislative attention ". In Civil Appeal No. 389 of 1957	 Messrs. D. C. Auddy & Brothers	 Calcutta	 claim to be a partnership consisting of Dulal Chand Auddy	 Prem Chand Auddy	 Gora Chand Auddy and Kalipada Nandy. The partnership business is said to have begun in June	 1944. An application was made on August 24	1949	 for the registration of the partnership. The Income tax Officer and the Appellate Assistant Commissioner were of the opinion that the partnership was not a genuine one	 and could not be registered. Another reason for not ordering registration was that the partnership deed	 having been executed on June 2	 1948	 could not be operative during the two years under consideration	 namely	 1945 46 and 1946 47. On appeal	 the Income. tax Appellate Tribunal rested its decision on the finding that the alleged partnership had not been constituted under an instrument of partnership within the meaning of those words in section 26A of the Act. At the instance of the assessee	 the Tribunal framed the fol lowing question for determination by the High Court: " Whether the assessee firm constituted orally in June	 1944	 can validly be registered in the assessment years 1945 46 and 1946 47 under Section 26A of the Indian Income Tax Act on the basis of a Memorandum of Partnership executed in June 1948. " The other parts of the statement of the case by the Tribunal	 refer to the merits of the assessment	 with which we are not concerned in this appeal. Hence	 it is not necessary to set out those facts. On this part of the statement of the case	 the High Court gave the same answer as in the other appeal. In this case also	 the High Court granted the necessary certificate under section 66A(2)	 read with article 135 of the Constitution. As both the cases raise the same question of law	 they have been heard together	 and will be governed by this judgment. 647 It is convenient at this stage to set out the relevant provisions of the Act. Section 26A is in these terms :" 26A. Procedure in registration of firms. (I) 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 super tax. (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 verified 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 section contemplates the framing of rules laying down the details of the Form in which the application has to be made and the particulars which should be stated in the application	 and other cognate matters. Section 59 of the Act	 authorizes the Central Board of Revenue	 subject to the control of the Central Government	 to make rules for carrying out the purposes of the Act	 and sub section (5) of section 59 provides that rules made under the section	 shall be published in the Official Gazette	 and " shall thereupon have effect as if enacted in this Act". Income tax Rules 2 to 6B lay down the details of the procedure for making an application for the registration of a firm	 as contemplated under section 26A	 quoted above. These rules have been amended extensively in 1952	 but we are concerned in this case with the rules before those amendments. Rule 2 requires such an application to be signed by all the partners personally	 and to be made before the income of the firm is assessed for the year	 under section 23 of the Act. Rule 3 requires that the application be made in the Form annexed to the rule	 and that the application shall be accompanied by the original Instrument of	 Partnership under which the firm is constituted. . The Form appearing in r. 3	 requires the assessment year to be specified. Thus	 the registration is for a particular year of assessment	 and not for future years also	 and therefore	 the application for registration has 648 to be made every year	 which in fact means an application for renewal of the registration. Paragraph 3 of the Form requires a certificate to be signed by the applicants for registration	 to the effect that the profits (or loss	 if any) of the previous year were divided or credited as shown in Section B of the Schedule. The Form contains the Schedule in 7 columns which require the names of the partners	 their addresses	 the date of admittance to partnership	 their shares in the profits or loss	 etc.	 to be filled in. Under the Schedule	 there are Section A and Section B. Section A has to contain particulars of the firm as constituted at the date of the application	 and Section B has to contain the particulars of the apportionment of the income	 profits or gains (or loss) of the business in the previous year between the partners who in that previous year were entitled to share therein. Rule 4 provides that if the Income tax Officer. is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership	 and that the application has been properly made	 he has to enter a certificate at the foot of the Instrument of Partnership that the firm has been registered under section 26A of the Act	 and that the certificate of registration shall have effect for the assessment for the year specified therein. Rule 5 is as follows:" 5. The certificate of registration granted under Rule 4 shall have effect only for the assessment to be made for the year mentioned therein. "And Rule 6 makes provision for the certificate of registration to be renewed for a subsequent year	 on an application being made in that behalf in accordance with the preceding Rules. It is manifest that for a true and proper construction of the relevant provisions of the Act	 relating to registration of firms	 sections 26	 26A and 28	 and the Rules summarized above	 have to be read together. So read	 it is reasonably clear that the ' following essential conditions must be fulfilled in order that a firm may be held entitled to registration: (1) That the firm should be constituted under an Instrument of Partnership	 specifying the individual shares of the partners. 649 (2) That an application on behalf of	 and signed by	 all the partners	 containing all the particulars as set out in the Rules	 has been made; (3) That the application has been made before the assessment of the income of the firm	 made under section 23 of the Act (omitting the words not necessary for our present purpose)	 for that particular year; (4) That the profits (or loss	 if any) of the business relating to the previous year	 that is to say	 the relevant accounting year	 should have been divided or credited	 as the case may be	 in accordance with the terms of the Instrument; and lastly	 (5) That the partnership must have been genuine	 and must actually have existed in conformity with the terms and conditions of the Instrument. It is clear from what has been said above with reference to the relevant provisions of the Act	 that the certificate of registration has reference to a particular assessment year	 and has effect for the assessment to be made for that particular year. In other words	 the terms of the partnership should appear in the Instrument of Partnership in respect of the relevant accounting year. It is equally clear that the firm to be registered	 should have been in existence during the accounting year	 " constituted as shown in the Instrument of Partnership ". The Rules	 thus	 contemplate a document operative during the accounting year. We are not here concerned with the further question whether the document should be in existence at the very inception of the accounting year	 or before the year is out. The provisions of the Act	 set out above	 do not present any serious difficulty except for the words it constituted under an Instrument of Partnership " occurring in section 26A and the relevant Rules. On the interpretation of these words	 there has been a conflict of judicial opinion	 as will presently appear. On behalf of the assessee appellants	 it has been contended that so long as the assessment has not been made	 the assessees are entitled to have their firms registered in accordance with the terms of the Instrument of 82 650 Partnership	 irrespective of the year in which the Instrument may have come into existence. Strong reliance was placed upon the decision of the Bombay High Court (Chagla	 C. J.	 and Tendolkar	 J.) in the case of Dwarkadas Khetan & Co. vs Commissioner of Income tax	 Bombay City	 Bombay(1)	 wherein	 the following observations have been made: " Any firm can make an application under section 26A for registration and the two conditions that it has got to comply with are that it must be constituted under an instrument of partnership and the second condition is that the instrument of partnership must specify the individual shares of the partners. If these two conditions are satisfied it would be entitled to registration. The section does not say that the firm must be constituted by the instrument of partnership. It does not require that the firm must come into existence by reason of the instrument of partnership	 or that the firm should be the creature of the instrument of partnership	 or that the firm must not exist prior to the instrument of partnership being executed. In the case decided by the Bombay High Court	 the Instrument of Partnership had been executed on March 27	 1946	 with effect from January 1	 1946. On an application made to the Department to register the firm	 the matter was determined by the Income tax Appellate Tribunal against the assessee on the ground that the partnership was in existence before the deed was executed	 and that	 therefore	 it could not be registered. Before the Bombay High Court	 reliance had been placed on behalf of the Department on the decision of the Calcutta High Court	 now before us in appeal	 as also on a decision of the Punjab High Court. The decision of the Calcutta High Court now under examination	 in the case of R. C. Mitter & Sons vs Commissioner of Income tax (2)	 takes the view that section 26A of the Act contemplates a firm created or brought into existence by an Instrument of Partnership	 which governs the distribution of shares in the relevant accounting period. Such a deed should have (1) [1956) 	 907. (2) 	 704	 705. 651 come into existence on or	 before the commencement of the relevant accounting period. The other decision relied upon in the Bombay High Court	 had been given by a Division Bench of the Punjab High Court	 reported in Padam Parshad Rattan Chand vs Commissioner of Income tax	 Delhi (1). On the other hand	 it has been contended on behalf of the Revenue that in order to entitle a firm to be registered	 the firm should have been created by an Instrument of Partnership	 or at any rate	 such an Instrument should be in existence during the relevant accounting year	 that is	 the year previous to the year of assessment in respect of which the application for registration has been made. For the first part of the submission on behalf of the respondent	 there is ample authority in the decision under appeal	 which bad been relied upon before the Bombay High Court. In that case	 (R. C. Mitter & Sons vs Commissioner of Income tax (supra) (2) )	 Chakravarti	 C. J.	 who delivered the opinion of the Court under section 66(1) of the Act	 after a very elaborate discussion	 came to the conclusion which may best be expressed in his own words	 as follows: " If by the expression I constituted under an instrument of partnership ' is meant a firm which originated in a verbal agreement but with respect to which a formal deed was subsequently executed	 there would be no room in the section for partnerships actually created by an instrument and such partnerships	 although most obviously entitled to registration	 would be excluded from the purview of the section. Even etymologically or textually	 I do Dot think that the word constituted '	 when used in relation to a firm or such other body	 can mean anything but I created when the reference is to some deed or instrument to which the inception of the firm or other body is to be traced. " After having	 thus	 held that section 26A contemplated firms created or brought into existence by a deed in writing	 he had no difficulty in substituting " by " for " under "	 thus	 making the crucial words " constituted (I) (2) 	 704	 705. 652 by " instead of " constituted under ". In our opinion	 the learned Chief Justice fell into the error of re constructing the provisions of the statute	 instead of construing them. The word " by " could be substituted for the word " under " in section 26A only if the words	 as they stand in the section	 were not capable of making sense	 and it would	 thus	 have been necessary to amend the wording of the section. Turning his attention from the wording of the section to that of the Rules and the Form appearing under the Rules	 he again came to the conclusion that " some of the paragraphs of the Form appear to be ill adjusted to the provisions of the Act ". Referring to other parts of the Rules	 he was constrained to observe that they" would lend strong support to the view that what is meant by 'any firm constituted under an instrument of partnership ' in section 26A is no more than a fir of which the constitution appears from an instrument in writing. It is obvious that if such be the meaning of the expression 'constituted under an instrument of partnership '	 the instrument need not be one by which the partnership was created ". But then he attempted to get over that difficulty by observing that the language of the Rules and the Form could not supersede a provision contained in the Act itself. He further opined that the language in para. 4(1) is " un doubtedly unsatisfactory ". In our opinion	 any attempt to reconstruct the provisions of the relevant section and the Rules	 on the assumption that the intention of the legislature was to limit the registration of firms to only those which have been created by an Instrument of Partnership	 is	 with all respect	 erroneous. The proper way to construe the provisions of the statute is to give full effect to all the words of the relevant provisions	 to try to read them harmoniously	 and then to give them a sensible meaning. Hence	 we have to consider	 at the threshold	 the question whether the words " constituted under an Instrument of Partnership " have some meaning which can be attributed to them harmoniously with the rest of the relevant provisions. A partnership may be created or set up by a contract in writing	 653 setting out all the terms and conditions of the partnership	 but there may be many cases	 and perhaps	 such cases are more numerous than the other class	 where a partnership has been brought into existence by an oral agreement between the parties on certain terms and conditions which may subsequently be reduced to writing which will answer the description of an Instrument of Partnership. Such an instrument would	 naturally	 record all the terms and conditions of the contract between the parties which	. at the initial stages	 had not been reduced to writing. In such a case	 though the partnership had been brought into existence by an oral agreement amongst the partners	 if the terms and conditions of the partnership have been reduced to the form of a document	 it would be right to say that the partnership has been constituted under that instrument. The word " constituted " does not necessarily mean " created " or " set up "	 though it may mean that also. It also includes the idea of clothing the agreement in a legal form. In the Oxford English Dictionary	 Vol. II	 at pp. 875 & 876	 the word " constitute " is said to mean	 inter alia	 " to set up	 establish	 found (an institution	 etc.) " and also " to give legal or official form or shape to (an assembly	 etc.) ". Thus	 the word in its wider significance	 would include both	 the idea of creating or establishing	 and the idea of giving a legal form to	 a partnership. The Bench of the Calcutta High Court in the case of R. C. Mitter and Sons vs Commissioner of Income tax(1)	 under examination now	 was not	 therefore	 right in restricting the word " constitute " to mean only " to create "	 when clearly it could also mean putting a thing in a legal shape. The Bombay High Court	 therefore	 in the case of Dwarkadas Khetan and Co. vs Commissioner of Income tax	 Bombay City	 Bombay (2)	 was right in holding that the section could not be restricted in its application only to a firm which had been created by an instrument of partnership	 and that it could reasonably and in conformity with commercial practice	 be held to apply to a firm which may have come into existence earlier by an (1) 	 704	 705. (2) 	 907. 654 oral agreement	 but the terms and conditions of the partnership have subsequently been reduced to the form of a document. If we construe the word " constitute " in the larger sense	 as indicated above	 the difficulty in which the learned Chief Justice of the Calcutta High Court found himself	 would be obviated inasmuch as the section would take in cases both of firms coming into existence by virtue of written documents as also those which may have initially come into existence by oral agreements	 but which had sub. sequently been constituted under written deeds. The purpose of the provision of the Income tax Acts. 26A is not to compel the firms which had been brought into existence by oral agreements	 to dissolve themselves and to go through the formality of constituting themselves by Instruments of Partnership. If we construe the words " constituted under " in that wider sense	 we give effect to the intention of the legislature of compelling a firm which bad existed as a result of an oral agreement	 to enter into a document defining the terms and conditions of the partnership	 so as to bind the partners to those terms	 before they could get the benefit of the provisions of section 23 (5) (a). Section 23 (5) (a) confers a privilege upon partners who may find it more worth their while to be assessed upon their individual total income than upon the total income of the partnership. It is	 therefore	 very important from the point of view of the Revenue that the Department should be apprised in time of the true constitution of the partnership	 the names of the true partners and the precise share of each of them in the partnership profits (or loss	 if any). The very object of this provision will be defeated if the alleged partner ship is not genuine	 or if the true constitution of the partnership and the respective shares of the partners	 are not fully and correctly placed on record as soon as possible	 for the purpose of 'assessment. In this connection	 the provisions of section 28(2) of the Act	 are also worth noticing. That sub section provides that if the Income tax Officer or the Appellate Authorities under the Act	 are satisfied that the profits of a registered firm have been distributed otherwise than 655 in accordance with the shares of the partners	 as shown in the Instrument of Partnership registered under the Act	 and governing such distribution	 and that any partner has concealed any part of his profits	 the penalty prescribed therein may be imposed upon such a partner. Unless the Instrument of Partnership has been registered in respect of the accounting year and before the assessment has been done	 the penal provisions aforesaid cannot be enforced. 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. But	 in our opinion	 there is no warrant in the words of the relevant provisions of the statute for restricting registration under section 26A of the Act to those firms only which have been created or brought into existence by an Instrument of Partnership. In our opinion	 it is more in consonance with the terms of the relevant provisions of the Act	 referred to above	 to hold that the words " constituted under an instrument of partnership " include not only firms which have been created by an Instrument of Partnership but also those which may have been created by word of mouth but have been subsequently clothed in legal form by reducing the terms and conditions of the partnership to writing. We have already indicated that there has been a conflict of judicial opinion in the different High Courts in India on the question now before us. But on a consideration of the facts in each case	 it will be found that the decision arrived at in most of the cases	 was correct	 though the reasons given appear to have gone beyond the requirements of the case. The decision of the Bombay High Court in Dwarkadas Khetan & Co. vs Commissioner of Income tax	 Bombay City	 Bombay (1)	 discloses that the partnership then in question had come into existence with effect from the beginning of 1946	 though the Instrument of Partnership (1) [1956) 	 907. 656 was executed on March 27	 1946. Thus	 the Instrument of Partnership came into existence during the accounting year	 whatever that year may have been	 because the year 1946 was the starting year of the partner Ship. Hence	 even the earliest assessment year	 presumably the year 1947 48	 would be governed by the terms and conditions of the written Instrument of Partnership aforesaid. The decision of the Bombay High Court was followed by the same Bench of that Court in the case of Commissioner of Income tax	 Bombay North vs Shantilal Vrajlal & Chandulal Dayalal & Co. (1). In the second case	 the learned Judges ruled that the second partnership deed of September 12	 1951	 which set out the names and shares of all the partners who constituted the partnership	 could be registered in respect of the accounting year November	 1948 to October	 1949. This conclusion was arrived at without even a mention	 far less a discussion	 of the relevant provisions of the Act. Apparently	 the matter was not critically placed before the learned Judges	 when they decided the second case. The con clusion in this case is	 with all respect	 apparently wrong in view of our conclusion that the Instrument of Partnership should have been in existence in the accounting year. In the High Court of Punjab	 the question was fully discussed in a judgment of a Division Bench	 given by one of us (Kapur	 J.	 as he then was)	 in the case of Kalsi Mechanical Works	 Nandpur vs Commissioner of Income tax	 Simla (2). In that case	 the firm had come into existence by a verbal agreement in June	 1944. The deed of partnership was drawn up as late as May 9	 1949. The application for registration of the firm under section 26A for the assessment year 1949 50	 was dismissed by the lncome tax Authorities as also by the Tribunal. The High Court	 after an elaborate examination of the relevant provisions of the Act	 including the Rules and the Forms	 upheld the orders of the Department. The conclusion of the Bench was in these terms: " The sections of the Income tax Act show that (1) (2) 	 361. 657 for the purpose of registration it is necessary that the firm should be constituted by an instrument of partnership and in my opinion the Rules read with Sections 26 and 28 of the Act indicate that such a firm as is constituted under an instrument of partnership should have been in existence during the account period and should not come into existence during the assessment year	 and if it was not in existence during the account period it cannot be registered so as to affect the liabilities of the partners for income tax accruing during the account period. " The conclusion reached is correct	 except	 with all respect	 for the observation that under section 26A	 it is necessary that the firm should be constituted " by " an instrument of partnership. That is the leading judgment in the High Court of Punjab. It was followed by another Division Bench of that Court in the case of Padam ParshadRattan Chand vs Commissioner of Income tax	 Delhito the effect that constituted under an instrument in section 26A	 meant created or formed by a formal deed". In this case	 the business of the firm had started from April 1	 1947	 but the Instrument of Partnership was executed on April 10	 1950. The application for registration was made in respect of the assessment year 1948 49. It is clear with reference to these dates that the Instrument of Partnership was not in existence either during the accounting year or even during the assessment year	 and the Court	 therefore	 rightly held that the partnership could not be registered in respect of the assessment year; but they proceeded further to observe that there was no objection to the firm being treated as having been constituted under the Instrument as from the date of the Instrument itself. The answer of the Court to the question posed	 was that the firm could be registered not in respect of the assessment year for which the application had been made	 but with effect from the date of the Instrument. Apparently	 the attention of the Court was not drawn to the Rules aforesaid	 particularly	 Rules 2 and 3	 which require (1) 83 658 that the application has to be made before the assessment is completed and for a particular assessment year. More or less to the same effect	 are two other Division Bench rulings Of that High Court in Bery Engineering Co.	 Delhi vs Commissioner of Income tax	 Delhi (1) and Income tax Commissioner	 Delhi vs Messrs. Birdhi Chand Girdhari Lal (2). In all these cases in the Punjab High Court	 the deeds came into existence later than the accounting year or the assessment year	 and therefore	 could not have been registered. The actual decisions in these cases were correct	 though there are orbiter dicta to the effect that section 26A requires that the firm should have been created or set up by an Instrument of Partnership. In the Patna High Court	 the very same question was discussed at great length by a Division Bench of that Court	 presided over by Ramaswami	 C. J.	 in the case of Khimji Walji & Co. vs Commissioner of Income tax	 Bihar and Orissa (3). The learned Chief Justice	 after an elaborate examination of the relevant provisions of the Act	 came to the conclusion in these terms " It is necessary for the purpose of registration under Section 26A that the partnership should be constituted by an instrument of partnership and that such a partnership as is constituted under an instrument of partnership should have been in existence during the accounting year ". It is on the same lines as the leading judgment of the Punjab High Court	 supra. With reference to the dates given in the judgment	 the decision is right	 though	 in this case also	 the words " constituted under " have been construed as " constituted by "	 without discussing the necessity for so amending the words of the statute	 even as in the Punjab High Court decisions. As a result of the above discussion	 the conclusion is reasonably clear that unless the partnership business was carried on in accordance with the terms of an Instrument of Partnership which was operative during (1) (2) (3) 	 470. 659 the accounting year	 it cannot be registered in respect of the following assessment year. As in these cases	 the partnership did not admittedly function under such a deed of partnership	 the Department and the High Court were right in refusing registration. We would	 therefore	 dismiss these appeals	 but for different reasons to those given below. The respondent is entitled to his costs one set of hearing fees to be paid half and half by the appellants. HIDAYATULLAH	 J. I have had the advantage of reading the judgment just delivered by my brother	 Sinha	 J. I agree that section 26A of the Indian Income tax Act must be read as it is. The words of the section	 as they stand	 are not meaningless	 and in view of the decision in Commissioners for special Purpose of the Income tax vs Pemsel (1) it is not possible to read for the expression " constituted under " the words constituted by ". I entertain	 however	 some doubt as to whether the instrument sought to be registered	 should be in existence in the accounting year	 before registration can be claimed. There is nothing in the Act which says this specifically. My brother has reasoned from the contents of the Act and the Rules that such a condition is implied. While I entertain some doubts	 I am not prepared to record a dissent	 more so as the Board of Revenue has issued instructions that all firms should be registered	 whether the documents under which they were constituted existed in the accounting year or not	 provided the Income tax Officer was satisfied about the genuineness of the firms. In the result	 I agree that the appeals should be dis. missed with costs. Appeals dismissed. (1) ; 542.

Summary:
The question for determination in these two appeals was whether the appellant firms were entitled to registration under section 26A of the Indian Income tax Act and the common point of law involved was the interpretation of the words " constituted under an instrument of partnership " occurring in that section. In Appeal No. 85 the assessee firm was said to have been constituted by a verbal agreement in April	 1948	 and the deed of partnership was drawn up in September	 1949. The application for registration under section 26A of the Act for the assessment year 1949 1950 was made thereafter to the Income tax Officer. In Appeal NO. 389 the assessee firm was verbally constituted in 81 642 June	 1944	 and a memorandum of partnership was executed in June 1948. The application for registration under section 26A for the assessment years 1945 46 and 1946 47 was made on August 24	 1949. The applications were rejected by the Income tax Officer and the appeals preferred by the assessees were also dismissed by the Income tax Appellate Tribunal. The High Court took the view that section 26A of the Indian Income tax Act contemplated a firm created or brought into existence by an instrument of partnership and answered the questions against the assessees. It was contended on their behalf that solong as the assessment was not made	 they were entitled to registration irrespective of the year in which the instrument of partnership came into existence. This was controverted on behalf of the Revenue and their case was that a firm seeking registration under section 26A of the Act should be created by an instrument of partnership	 or at any rate	 such instrument should be in existence during the relevant accounting year	 i. e. the year previous to the year of assessment in respect of which the application for registration was made. Held	 that the words " Constituted under an instrument of partnership occurring in section 26A of the Indian Income tax Act included not only firms that were created by instruments of partnership but also those that were subsequent to their creation	 clothed in legal form by reducing the terms and conditions of the partnership in writing. Dwarkadas Khetan & Co. vs Commissioner of Income tax	 Bombay City	 Bombay	 	 approved. Kalsi Mechanical Woyks	 Nandpur vs Commissioner of Income tax	 Simla	 	 Padam Parshad Rattan Chand vs Commissioner of Income tax	 Delhi	 	 Bery Engineering Co.	 Delhi vs Commissioner of Income tax	 Delhi	 	 Income tax Commissioner	 Delhi vs Messrs. Birdhi Chand Girdhari Lal	 and Khimji Walji & Co. vs Commissioner of Income tax	 Bihar and Orissa	 	 dissented from. Section 26A	 read with SS. 26	 28 and Rules 2 to 6B	 laid down the following essential conditions that a firm must fulfil before it could claim registration under section 26A of the Act (1) that it must be constituted under an Instrument of Partnership	 specifying the individual shares of the partners; (2) that an application on behalf of and signed by	 all the partners	 containing all the particulars as set out in the Rules	 must be made; (3) that the application must be made before the assessment of the income of the firm was made under section 23 Of the Act for that particular year; (4) that the profits (or loss	 if any) of the business relating 643 to the previous year	 i. e.	 the relevant accounting year	 must be divided or credited	 as the case may be	 in accordance with the terms of the Instrument ; and lastly	 (5) that the partnership must be genuine and in actual existence in conformity with the terms and conditions of the Instrument. Where	 therefore	 as in the instant cases	 the partnership did not admittedly function in terms of an instrument of partnership which was operative during the accounting year	 it could not be registered during the following assessment year. Commissioner of Income tax	 Bombay North vs Shantilal Vrajlal & Chandulal Dayalal & CO. 	 dis approved. Per M. HIDAYATULLAH	 J. While it was clearly not possible to read " constituted by " for the words " constituted under " occurring in section 26A of the Act	 it was doubtful whether the instrument of partnership sought to be registered must be in existence in the accounting year in order to entitle it to registration. Dwarkadas Khetan & Co. vs Commissioner of Income tax	 Bombay City	 Bombay	 	 referred to.