N.T. Patel and Co. v. Commissioner of Income Tax, Madras, (SC) BS111979
SUPREME COURT OF INDIA

Before:- J.L. Kapur, M. Hidayatullah and J. C. Shah, JJ.

Civil Appeal No. 424 of 1960. D/d. 13.3.1961.

N.T. Patel and Co. - Appellant

Versus

Commissioner of Income Tax, Madras - Respondent

For the Appellant :- Mr. A .V. Viswanatha Sastri, Senior Advocate, M/s. J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, Advocates of M/s. Rajinder Narain and Co.

For the Respondent :- Mr. H. N. Sanyal, Addl. Solicitor-General and Mr. K. N. Rajagopal Sastri, Senior Advocate, Mr. D. Gupta, Advocates.

Income Tax Act, 1922, Section 26A - Partnership - Registration of firm - Requirements of - Instrument of partnership as it existed in the year of account in respect of which an assessment was being made did not specify individual shares of partners - Which was one of the requirement for registration - That condition was fulfilled by the deed of rectification - 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 and the assessee firm was not entitled to registration under Section 26A for the account year.

[Para 4]

Cases Referred :-

R. Subba Rao v. Commissioner of Income Tax, Madras, 1956 SCR 577 at p. 588.

R. C. Mitter and Sons v. Commissioner of Income Tax, 195936 ITR 194.

JUDGMENT

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.

2. 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. 40,000 as his share to the capital but in the partnership deed no express provisions 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 195455. This deed recited that an error had crept in typing the partnership deed dated March 29.1954, by omitting to type Clause 21 of the old partnership deed in the new deed. The parties had therefore agreed to rectify the error by adding Clause 20A as follows :-

This is signed by all the partners.

3. Up to the end of assessment year 195455, the old firms i.e., 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 of 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 :-

The High Court held that under Section 26A 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 26A 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 Clauses 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 :-

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. Commissioner of Income Tax, 195936 ITR 194 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) Sinha J. (as he then was) said :-

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.

5. We therefore dismiss this appeal with costs.

Appeal dismissed.