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TMI Blog1961 (4) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ided that the share of Abdul Rahim Valibhai was 7 annas in a rupee, that of Abdulla Rehman was 5 annas in a rupee, that of Abdul Rahim Malangbhai was 2 annas in a rupee and that of the newly added partner, Abdulrehman Kalubhair was 2 annas in a rupee as from Kartak Sud 1st., Samvat year 2012, i.e., November 15, 1955. An application was made on May 8, 1956, to have this firm registered under the provisions of section 26A for the accounting year 2012. The Income-tax Officer came to the conclusion that Abdulrehman Kalubhai, the newly added partner, was not a genuine partner in the firm but was merely a benamidar for Abdul Rahim Valibhai. He took the view that a device had been adopted to divide the taxable income of Abdul Rahim Valibhai and the registration of the partnership was refused. The matter went before the Appellate Assistant Commissioner. In the course of his judgment he observed that it was not the Income-tax Officer's case that under the instrument of partnership, a partnership valid in law had not been brought into existence. He observed that the Income-tax Officer, having found that Abdulrehman Kalubhai who was given a two annas share out of the former share of 9 ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of partnership. It is further requisite that the instrument of partnership must specify the individual shares of the partners. In this case it is not disputed that the firm is constituted under an instrument of partnership. What is urged is that the instrument of partnership in question does not specify the correct individual shares of the partners. We shall deal with this argument a little later after considering the further requirements of law in this connection. Sub-section (2) of section 26A lays down that the application in this connection should 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 that it shall be dealt with by the Income-tax Officer in such manner as may be prescribed. The term "prescribed" has been denned by section 2(10) to mean "prescribed by rules made under the Act". That brings us to the rules. Section 59(5) of the Act provides that rules framed under that section would have effect as if enacted in the Act. By rule 2 of the Indian Income-tax Rules, 1922, it is provided that any firm constituted under an instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true position of the partners qua the firm. Our attention has also been drawn to rule 4 which provides that if, on receipt of the application, the Income-tax Officer was satisfied that there was a firm in existence, constituted as shown in the instrument of partnership and that the application had been properly made, he should enter in writing at the foot of the instrument or certified copy, as the case may be, a certificate in the following form : "This instrument of partnership/certified copy of an instrument of partnership, has this day been registered with me, the Income-tax Officer for ...in the State of .... under section 26A of the Indian Income-tax Act, 1922, and this certificate of registration shall have effect for the assessment for the year ending on the 31st day of March . . . . " Sub-clause (2) of rule 4 provides that if the Income-tax Officer was not so satisfied, he should pass an order in writing refusing to recognise the instrument of partnership, or the certified copy thereof, and furnish a copy thereof to the applicants. From this rule it is clear that before granting recognition to the instrument of partnership, the Income-tax Officer has to be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must correctly set out the names of the partners and the individual shares of the partners in the partnership. If the instrument of partnership does not correctly set out the names of the partners or the shares of the individual partners, then that instrument of partnership is not liable to be registered under the provisions of the Act and the Rules. While applying the provisions of law to the facts of the present case, what we have to consider is, whether the deed of partnership in question correctly sets out the names of the partners and correctly sets out the shares of the partners so far as the agreement amongst all the partners is concerned. If the deed does not set out correctly such agreement in this respect amongst the partners, then that deed of partnership is not liable to be registered. If there is an arrangement arrived at between two out of the four partners of the firm binding on those two partners alone and not binding on the partnership, the same cannot be taken into consideration for. the purpose of considering whether the instrument of partnership is one which is capable of being registered under the provisions of the Act. If there is an arrangement amongst all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners and their individual shares in the partnership and that the object of the Legislature would be defeated if a partnership where one partner holds his share benami for another to any extent is registered. Strong reliance in support of this argument has been placed upon a decision of the Bombay High Court in In re Central Talkies Circuit [1941] 9 ITR 44 (Bom.). It is a decision of a Division Bench of the Bombay High Court consisting of Chief Justice Beaumont and Kania J., as he then was. In that case the assessee was a firm carrying on business in Bombay. Till July, 1937, the partnership was constituted of one V.H. Desai, his wife, his two sons one of whom was a minor and two outsiders. The wife and minor son of V.H. Desai held a 3 annas and a 2 annas share respectively in the partnership. After the amendment of section 16(3) of the Income-tax Act in 1937, the constitution of the firm was changed and instead of the wife and the minor son being shown as being entitled to a 5 annas share, the mother of V.H. Desai was shown as being entitled to a 4½ annas share in the partnership. The remaining half anna share was added to the share of V.H. Desai. An application was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration Whether the share of an individual partner as mentioned therein is also correctly stated or not. For example, if the share of a partner were stated to be 5 annas, and on inquiry and taking evidence the Commissioner definitely came to the conclusion that the share was 4 annas, the partnership agreement as put forth by the applicants would not be correct, and there appears to be little doubt that the Commissioner would be entitled to hold that the deed executed by the applicants was not a correct partnership deed." He, however, was at pains to point out that it was not the case of the applicant firm that the mother was a trustee in respect of the share standing in her name for her son or for any other partner. He proceeds to observe that if such a case had been put forth, it would have been inquired into, and that he expressed no opinion as to what the result of the inquiry would have been. For the purpose of that case, in view of the fact that the partnership as represented by the instrument of partnership was not a genuine partnership, no other question really arose for consideration. No doubt Chief Justice Beaumont took the view that if it were shown that a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration of the firm, they must state correctly the true position of affairs qua the firm. Once that position is truly set forth, in our view, there is no impediment to the registration of the firm. If, as contended by the learned Advocate-General, Chief Justice Beaumont has laid down that where it is shown that one of the partners was only a nominee of the share allotted to him for another partner, the deed of partnership would not then of necessity specify correctly the individual shares, we are, with respect, unable to accede to the proposition. If one partner was a nominee of a share allotted to him for another as a result of an arrangement arrived at amongst all the partners, then no doubt the deed would not specify correctly the individual shares. But if that situation arises as a result of an agreement only amongst some of the partners, then it cannot be said that the other partners, who may not be party or privy thereto, were under an obligation to find out the facts and make the same a term or condition of the partnership and record the same in the deed. If such a contention is accepted, a number of firms would not be registered under the provisions of section 26A merely be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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