Messrs. R. C. Mitter & Sons v. The Commissioner Of Income-Tax, West Bengal, Calcutta

(2) S.C.R. SUPREME COURT REPORTS 641 The conclusion at which we have arrived is that the Act and its several provisions do not suffer from the vice of extra-territoriality in the sense .suggested by learned counsel for the respondent and there is no such conflict of jurisdiction as learned counsel for the res-pondent has suggested. Accordingly, the Act is good and applies to the Baidyanath temple and the proper-ties appertaining thereto. The result, therefore, is that the appeal succeeds and is allowed with costs. The judgment and order of the High Court dated October 9, 1953, are set aside and the petition under Art. 226 of the Constitution made by the respondent must stand dismissed with costs. Appeal allowed. I959 The State of Bihar &· Others v. Bhabapritananda Ojha S. K. Das]. MESSRS. R. C. MITTER & SONS THE COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA (B. P. SINHA, J. L. KAPUR and M. HIDAYATULL~H, JJ.) Income-tax-Registration of firm-Procedure-" Constituted under an instrument of partnership", Meaning of-Indian Income-tax Act, r922 (XI of r922), s. 26A, Rules 2 to 6B. The question for determination in these two appeals was whether the appellant firms were entitled to registration under s. 26A of the Indian Income-tax Act and the common point of law involved was the interpretation of the WOjds "constituted under an instrument of partnership " occurring in that section. In Appeal No. 85 the assessee firm was said to have been consti-tuted by a verbal agreement in April, 1948, and the deed of partnership was drawn up in September, 1949. The application for registration under s. 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 1959 April r5. tl959] Supp. June, 1944· and a memorandum of partnership was executed in June 1948. The application for registration under s. 26A for the assessment years 1945-46 and 1946-47 was made on August 24, 1949. Messrs. R. C. Mitter &- Sons The applications were rejected by the Income-tax Officer and tbe appeals preferred tbe appeals preferred appeals preferred by the assessees were also dismissed the assessees were also dismissed by the Income-tax Appellate Tribunal. The High Court took the view thats. 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 so long as the assessment was not made, they were entitled to registration irrespective of the year in which the instrument of partnership came into exist-ence. This was controverted on behalf of the Revenue and their case was that a firm seeking registration under s. 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 assess-ment in respect of which the application for registration was made. . . The Commissioner and tbe appeals preferred tbe appeals preferred appeals preferred by the assessees were also dismissed the assessees were also dismissed 0!· Income-tax, West Bengal, Calcutta Held, that the words "Constituted under an instrument of partnership" occurring in s. 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 partnerehip in writing. Dwarkadas Khetan & Co. v. Commissioner of Income-tax, Bombay City, Bombay, [1956] 29 I.T.R. 903, approved. 15[th] April, 1959 Section: CONCLUSION Kalsi Mechanical Works, Nandpur v. Commissioner of Income-tax, Simla, [1953] 24 I.T.R. 353, Padam Parshad Rattan Chand v. Commissioner of Income-tax, Delhi, (1954] 25 I.T.R. 335, Bery Engineering Co., Delhi v. Commissioner of Income-tax, Delhi, [1955] 28 I.T.R. 227, Income-tax Commissioner, Delhi v. Messrs. Birdhi Chand Girdhari Lal, [1955] 28 I.T.R. 280 and Khimji Walji & Co. v. Commissioner of Income-tax, Bihar and Orissa, [1954] 25 I.T.R. 462, 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 s. 26A of the Act,- (1) that i' 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 assess-ment of the income of the firm was made under s. 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, 1959 (5) that the partnership must be genuine and in actual existence in conformity with the terms and conditions of the Instrument. · The. Commissioner of Income-tax, West Bengal, Calcutta Where, therefore, as in the instant cases, the partnership did not admittedly function in terms of an instrument of partner-ship which was operative during the accounting year, it could not be registered during the following assessment year. Commissioner of Income-tax, Bombay North v. Shantilal Vrajlal & Chandulal Dayalal & Co. [1957] 31 I.T.R. 903, dis-approved. Per M. HrnAYATULLAH, J.-While it was clearly not possible to read "constituted by" for the words "constituted under" occurring in s. z6A of the Act, it was doubtful whether the instru-ment of partnership sought to be registered must be in existence in the accounting year in order to entitle it to registration. Dwarkadas Khetan & Co. v. Commissioner of Income-tax, Bom-bay City, Bombay, [1956] 29 I.T.R. 903, referred to. CIVIL APPELLATE JURISDICTION: Nos. 85 & 389 of 1957. Civil Appeals Appeal from the judgment and order dated August 26, 1955, of the Calcutta High Court in Income-tax Referen~es Nos. 44 of 1954 and 17 of 1953. S. 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. 1959. April 15. The judgment of Sinha and Kapur, JJ., was delivered by Sinha, J. Hidaya-tullah, 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 s. 66A(2) of the Indian Income-tax Act, 1922, is the effect and scope of the words "constituted under an instrument of partnership" in s. 26A of the Income-tax Act, which, in the course of this judgment, will be referred to as the Act. Sinha ]. 644 SUPREME COURT REPORTS [1959] Supp. 1959 The facts of the two cases, leading upto these ap-peals, though not dissimilar, are not identical. They Miller~ Mess1's. R. Sons C. are, th ereiore, se ou " t t separa t ] e y. v. In Civil Appeal No. 85 of 1957, Messrs. R. C. Mitter The Commissioner and Sons, 54, Rani Kan to Bose Street, Calcutta, claim of Income-tax, to be a firm said to have been constituted in April West Bengal, 1948 with four persons whose names and shares in the Calcutta ' . . nett profits of the partnership busrness, are stated to Sinha ]. be as under :- West Bengal, Calcutta Sinha ]. (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 pro-fits. . (d) Sushi! Chandra Mitter-10 per cent. of the nett profits. . (d) Sushi! Chandra Mitter-10 per cent. of the 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 part-ners aforesaid, and that the deed so drawn upt will be forwarded to the bank in due cours!J. 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 12, 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 s. 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, 19~3. The ground of the order of the Tribunal was that as the firm admittedly was formed by a verbal agreement in April 1948, and ·r959 not September 27, 1 49, by or under 9 an an d instrument in writing dated as t e assessment was h ,. 1or t e h Mitter Messrs. c;. R. Sons C. year 1949-50, for which registration of the firm was v. sought, the registration could not be ordered. The The Commissioner Tribunal also referred to the letter aforesaid to the of Income-tax, Bengal Central Bank, and observed that the letter w~~1::~;az, merely contained information as to the formation of the partnership and of the personnel thereof, but it Sinha J. 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 Tribu-nal further observed, the letter might be useful for consideration on the question of the genuineness of the ·firm, but it could not fulfil the resiuirements of s. 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 s. 26A of the Act. Thereupon, the assessee nioved the Tribunal under s. 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 pre-vious year ". · The High Court Bench, presided over by Chakra-varti, 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 inappro-priate'', after having convinced himself that " consti-tuted" could be equated with "created". He also found no difficulty in observing that " some of the 646 SUPREME COURT REPORTS [1959] Supp. r959 paragraphs of the Form appear to be ill-adjusted to the provisions of the Act and the Rules". In the end, ;,;;;;'~ R50~;, therefore, he concluded with the remarks: "It appears v. to me to be desirable that the language of the section, The Commission" as also that of the Rules should receive legislative of Income·tax, attention". In Civil Appeal No. 389of1957, Messrs. D. C. Auddy & Brothers, Calcutta, claim to be a partnership consist-ing of Dula! Chand Auddy, Prem Chand Auddy, Gora Chand Auddy and Kalipada Nandy. The partnership business is said to have begun in June, 1944. An ap-plication was made on August 24, 1949, for the regis-tration 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 con-stituted under an instrument of partnership within the meaning of those words in s. 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." West BengrJl, Calcutta Sinha ]. 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 s. 66A(2), read with art. 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. (2) S.C.R. SUPR:t!1ME COURT REPORTS It is convenient at this stage to set out the relevant r959 provisions of the Act. Section 26A is in these terms:-" 26A. Procedure in regisuation of firms.-(1) Ap-:/;:::;s&, R;,0<;;s plication may be made to the Income-tax Officer on v. behalf of any firm, constituted ·under an instrument of The Commissioner partnership specifying the individual shares of the of Income-tax, partners, for registration for the purposes of this Act West Bengal, and of any other enactment for the time eing b in .Loree " Calcutt,, relating to income-tax or super tax. Sinha J. (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."