TMI Blog1964 (2) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... signment dated 10th December, 1951, executed by Anil Krishna Paul and the legal heirs of Jogendralal Nandy. By an instrument dated 9th August, 1954, the said Sunil Krishna Paul and Amar Krishna Poddar entered into a partnership to share the commission receipts. They also employed staff in order to verify the correctness of the sales of the company, from which they derived commission and expenses incurred by them for verifying the sales of the company, have also been allowed by the department. A true copy of the deed dated 9th August, 1954, is annexure A hereto forming part of the case. 4. For the assessment year 1956-57 an application was made on behalf of the said partnership to the Income-tax Officer for registration of the firm under section 26A of the Income-tax Act. The Income-tax Officer found that no business whatever was carried on by the applicant and, therefore, it did not constitute a partnership which could be registered under section 26A. The Income-tax Officer, therefore, treated the applicant as an association of persons and made the assessment in that status. No other defect was mentioned by the Income-tax Officer for refusing registration. An appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills. The said Jogendra Nath Nandi died on the 7th June, 1950. Along with Anil Krishna Paul, he entered into an agreement dated 26th January, 1950. The benefits of the agreement were transferred in favour of the applicants, Sunil Krishna Paul and Amar Krishna Poddar, by a deed of assignment dated 10th December, 1951, executed by Anil Krishna Paul and the legal heirs of Jogendra Nath Nandi. On the 9th of August, 1954, the assignees, Sunil Krishna Paul and Amar Krishna Poddar, entered into a partnership to share the commission receipts and the instrument of partnership was executed on the said date. It was alleged by the applicants that they carried on the business of partnership by employing staff in order to verify the correctness of the sales of the company. Such expenses at the time of assessment were allowed as deductions by the department. The relevant year of assessment is 1956-57. For this assessment year an application was made on behalf of the said partnership to the Income- tax Officer for registration of the firm under section 26A of the Act. The Income-tax Officer found that no business was carried on by the applicant and therefore it did not constitute a partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually entered upon: (5) Proper records and accounts of this partnership shall be kept at the principal place of business and shall be open to inspection by both the partners at any time during the working hours. (6) Accounts of this partnership shall be closed and adjusted at the end of every Bengali year. (7) Profits and/or losses of this partnership shall be borne by the said two partners in two equal shares. It has already been said that the aforesaid applicants employed staff in order to verify the correctness of the sales of the company. Further, it appears from the aforesaid clauses that provision for maintenance of record and the closing of yearly accounts at the end of each Bengali year was made and the principal place of business was also specified. On the basis of the above intrinsic evidence in the instrument, it has been mainly argued by Mr. Subimal Roy that a business in the true sense of the term was being carried on by the applicants, and, therefore, an actual partnership business was created in order that it may come within the ambit of section 4 of the Indian Partnership Act. He also lays great stress upon the fact that the elements of a business are prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. Mr. Roy has referred us to the observations of this court in the case of Rogers Pyatt Shellac Co. v. Secretary of State for India*. At page 1088 their Lordships observed that the word business is one of large and indefinite import and connotes something which occupies attention and labour of a person for the purpose of profit. The word means almost anything which is an occupation or a duty requiring attention as distinguished from sport or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profits. A concern by reason of which one can be said to have connection with such an occupation is business connection. In making this observation their Lordships of this court referred to the decision of Smith v. Anderson*, Rolls v. Miller** and Commissioners of Inland Revenue v. Marine Steam Turbine Co. Ltd.*** These cases were also referred to us by Mr. Subimal Roy. In the case of Rolls v. Miller**, it appears that the lease of a house contained a covenant that the lessee should not use, exercise or carry on upon the premises any trade or business of any description whatsoever. As there was a breach of covenant a suit was instituted for inju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earned income was properly coming into their coffers. Accordingly, it cannot be said that the applicants were carrying on a business within the meaning of section 4 of the Indian Partnership Act. The expression to share the profits of a business carried on in section 4 really means that there must be some contribution by the partners to the growth or enlargement of business and with this end in view the partners must be pursuing the business in such a manner that it can apparently be seen that they were prosecuting or promoting the business. Such elements are absolutely absent in the instrument of partnership in so far as earning the profits from the Annapurna Cotton Mills Ltd. is concerned and, as such, if we construe the true import of the words used in section 4 of the Indian Partnership Act, it cannot be said that any business was being carried on by the applicants. This being the position, it may very well be said that there is no partnership, as there is absence of combination for carrying on the business. The mere fact that the applicants own in common something which produces returns and divide this return according to respective interest, does not make them partners. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants under section 26A of the Act. Section 23(5)(a) of the Act provides that in the case of a registered firm the income-tax payable by the firm itself shall be determined. In order to invoke this provision a firm need be registered under section 26A of the Act. This section contemplates that certain conditions are essential to the registration of a firm. It is necessary that on behalf of the firm an application should be made to the Income-tax Officer by such persons and at such times and containing such particulars and being in such form and verified in such manner as are prescribed by rules 2 to 6B framed under the Act. Another condition, inter alia, is that the partnership must be valid and genuine and must actually exist in the terms specified in the instrument. When an instrument is presented for registration under section 26A, the Income-tax Officer is entitled to enquire whether the instrument is intended by the parties to have real effect as governing their rights and liabilities, inter se, in relation to the business or whether it has been executed by way of pretence in order to escape liability from tax. So if the Income- tax Officer has exercised his judicial discretio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, it cannot be said that there was any partnership within the meaning of section 4 of the Indian Partnership Act. 2. Applying the provisions of section 6 and Explanation 1 thereto of the Indian Partnership Act, it appears clear that there was no case of partnership but the applicants were merely co-owners. 3. Unless there is a business carried on (prosecuted or promoted by active endeavour for earning profits) by the parties to the instrument, there can be no partnership in law. The provisions in the instrument relating to the maintenance of proper records and accounts or as to profits and losses being borne by the parties equally will not make any difference as to the legal position that no business was carried on as aforesaid. 4. The mere registration under the Partnership Act will not be conclusive on the point that a partnership was really in existence as the principal element as to the carrying on of the business is lacking. 5. The Appellate Tribunal found as a fact that no business was carried on in the relevant accounting year. As such even assuming but not finding that there is a partnership in the instant case within the meaning of section 4 of the Indian Par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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