TMI Blog1955 (8) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 1949-50, an alleged firm, calling itself Messrs. R.C. Mitter Sons, made an application for registration and, along with the application, filed an instrument of partnership executed on the 27th of September, 1949. The relative accounting year was the period between the 14th of April, 1948, and the 13th of April, 1949. The applicant's case was the a partnership had been formed by verbal agreement on the 14th of April, 1948, and that throughout the accounting year that partnership had subsisted. In support of its case that the partnership had come into existence on the 14th of April, 1948, the applicant relied on a letter addressed to a bank on the 15th of April, 1948, whereby the constitution of the firm was communicated to the bank. It would, however, appear from that letter that if it represented the correct state of things, the firm had been constituted even earlier and what had happened on the 14th of April, 1948, was that a third son of Sri R.C. Mitter had been admitted to the partnership. The letter contained no specification of the shares of the individual partners. The Income-tax Officer rejected the application for registration and so did the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a written instrument and should be created by it. He pointed out that the section spoke of a firm constituted under an instrument of partnership and not a firm constituted by an instrument. The preposition under , Mr. Mitra contended, could not possibly connote that the instrument to which it referred would be an instrument by the force of which the firm had been constituted. Mr. Khaitan, who appeared in the next Reference, Sri D.C. Auddy Brothers v. Commissioner of Income-tax, West Bengal Reported infra at p. 713 (Income-tax Reference No. 17 of 1953) submitted to us that one of the points involved in his case was identical and prayed that before we decided the point in connection with the present Reference, he also might be given an opportunity for making his submissions. We accordingly heard Mr. Khaitan as well. He adopted the arguments of Mr. Mitra and in addition relied on the provisions of section 28(2) of the Act. It must be admitted that, as a matter of language, if section 26A contemplates a firm created by an instrument of partnership, the preposition under has been a very inappropriate preposition to use. The learned counsel for both parties made extensiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the Court was that companies constituted by law meant statutory companies. The other case to which I would refer is the case of In re Smith; Davidson v. Myrtle [1896] 2 Ch. 590, which was concerned with a provision under which certain trustees had power to invest funds in companies incorporated by Act of Parliament. The trustees invested their funds in a company properly constituted under the Companies Act and it was contended that since the Companies Act was an Act of Parliament and the company was constituted under or in accordance with the provisions of that Act, it was a company incorporated by an Act of Parliament. Once again, the Court held that such a company could not come under the description incorporated by Act of Parliament , because what the expression contemplated was a company directly incorporated under the provisions of some legislative enactment. The company in which the funds had actually been invested was only a company incorporated under an Act of Parliament, but it was not incorporated by such an Act. These decisions, to my mind, only give effect to the ordinary grammatical meaning of the words by and under and are only useful as containing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted , when used in relation to a firm or such other body, can mean anything but created when the reference is to some deed or instrument to which the inception of the firm or other body is to be traced. Apart from the textual meaning, I consider it impossible to adopt a construction which would have no room for firms really created by an instrument as distinguished from firms created by a verbal agreement which is subsequently embodied in a formal deed. The difficulty created by the word under however remains. But, in my view, any embarrassment caused by that very unfortunate preposition is removed by the use of the expression instrument of partnership , which carries, in itself, the meaning that the deed contemplated is one by which the parties thereto are agreeing in the present as to a course of business to be followed by them in the future. Whatever the ambiguity about the word constituted or the word under , there is none about the expression instrument of partnership and if such instrument can only be an instrument, speaking in the present and into the future, section 26A cannot obviously contemplate or even comprise instruments which do not bring into exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the true construction, unless it can stand alongside the rules and unless there is no disharmony between what the section, as construed, enjoins, and what the rules prescribe. The rules, as they now stand, contemplate that not only a firm existing at the time of the application for registration, but also a dissolved firm, can be registered. It was pointed out to us that the rules, as they stood originally, did not provide for the registration of a dissolved firm and that it was only by an amendment made in 1941 that dissolved firms were brought within the purview of the rules. Taking up the rules now, it is not necessary to refer to any of them for the present purpose, except rule 2(a), which provides for the normal case and lays down that an application for registration must be made before the income of the firm is assessed for any year under section 23 of the Act. What really requires attention is the form of application prescribed by the rules and the directions as to procedure and other matters contained in some of the paragraphs. I may say at once that some of the paragraphs of the form appear to be ill adjusted to the provisions of the Act and the rules, as they now s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst sub-paragraph is relevant. It says that on receipt of an application for registration, the Income-tax Officer shall enter a certificate of registration at the foot of the instrument or certified copy, if he 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. I am bound to say that this paragraph, if it is to be taken literally and containing the whole provision as to what the Income-tax Officer is to be satisfied about, 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 firm 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. If one takes paragraph 4(1) by itself, it undoubtedly directs the Income-tax Officer as to what he is to do before he agrees to grant a certificate of registration and the direction given is that he must see if there exists, or existed in the past, a firm of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfess that however much one might try to reconcile the language of paragraph 4(1) with what, to my mind, section 26A clearly means and implies, some disharmony remains. The effect of the disharmony is strengthened by the provision contained in sub-section (2) of section 26A to the effect that the application for registration shall be dealt with by the Income-tax Officer in such manner as may be prescribed. If the manner prescribed in paragraph 4(1) of the form be that the Income-tax Officer shall only see whether the constitution of the firm is as shown in the instrument of partnership, it would seem that an instrument, not creating the partnership but merely placing on record its creation at an earlier point of time by a verbal agreement, might get past the Income-tax Officer and earn a certificate of registration. I prefer to think, however, that the defect in paragraph 4(1) is a drafting error and that the ruling provision is that contained in paragraph 2 which requires an instrument of partnership, specifying the individual shares of the partners, and nothing else or less to be filed, before any action is taken or can be expected to be taken by the Income-tax Officer. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an instrument in writing, the instrument could not have retrospective effect and registration of the firm with respect to its assessment for any period prior to the date of the instrument could not be claimed. In Padam Prasad Rattan Chand v. Commissioner of Income-tax, Delhi [1954] 25 I.T.R. 335, and Bery Engineering Co. Delhi v. Commissioner of Income-tax, Delhi [1955] 28 I.T.R. 227, the proposition laid down in the two cases, which I have just referred to, was carried a little further and it was held that the fact that an instrument of partnership recorded the formation of the firm at an earlier date by a verbal agreement would not bar the registration of the firm with effect from the date on which the instrument was executed. Two other cases cited at the Bar do not appear to have any relevancy to the point under examination. In Khimji Walji Co. v. Commissioner of Income-tax, Bihar and Orissa [1954] 25 I.T.R. 462, there were two instruments and it was held that no registration could be had on the basis of either, inasmuch as the first one did not specify the shares of the partners and the second one came into force only on the 1st of April of the year succeeding the relative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. An application for registration could succeed only in respect of the firm constituted as on the date of the deed and with reference to the period commencing with and subsequent to that date. As was pointed out by Rowlatt, J., in Waddington v. O'Callaghan ([1931] 16 T.C. 187), when people enter into a deed of partnership and say that they are to be partners as from some date which is prior to the date of the deed, that does not have the effect that they were partners before the beginning of the deed. No one, the learned Judge observed, could alter the past by an agreement. As Lord Lindley observed in another connection, when parties agree to form a partnership and agree further that the partnership shall be deemed to have commenced on some date in the past, that only means that they agree to take their accounts back to a prior date as between themselves but it does not mean that they become partners in law or are entitled to be so treated by third parties. Taking next the second case, where a partnership has originated in a verbal agreement and after it has existed for sometime, a formal deed of partnership is executed, there can be no question that, so far as the period prio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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