TMI Blog1954 (3) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 annas interest in the partnership. On the 1st of May, 1931, all these five members of the families of Khimji Walji and Khora Ramji entered into a new partnership called Khimji Walji Company. Panchan and Devram were minors and the deed of partnership was executed on their behalf by their guardian Gangabai. In this deed of partnership the three sons of Khimji Walji were collectively shown as having 10 annas share and the heirs of Khora Ramji were also shown collectively for 6 annas share. After the two minor sons, Panchan and Devram, attained majority, applications were made to the Income-tax authorities for the registration of the firm. For the assessment years 1945-46 and 1946-47 two separate applications were made dated the 21st of November, 1945, and 24th of July, 1946. On 1st of April, 1947, a second deed of partnership was executed between these five persons. This deed affirmed the first deed of partnership and in addition specified the individual share of the five persons. Purushottam, Panchan and Devram were shown in this document as having 3 annas 4 pies share each and Jeevram and Dharamshi were shown as having 3 annas share each. For the assessment year 1947-48 an appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed of partnership and in the application forms was a mere procedural irregularity and the power of the Income-tax authorities to register the firm under Section 26A was not affected. The question at issue depends upon the proper interpretation of Section 26A of the Indian Income-tax Act which states:- (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (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. Section 26A makes it clear that the instrument of partnership should specify the individual shares of the partners and only a firm constituted under such an instrument of partnership should apply for registration under the section. Section 26A(2) provides that the application shall contain s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmined. In the case of an unregistered firm, the Income-tax Officer may either determine the sum payable by the firm itself or, in the alternative, proceed in the manner laid down for a registered firm if he is of opinion that the aggregate amount of the tax payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm. It is manifest that Section 26A and the rules framed under Section 59 and the particulars required to be stated in the form are all intended to facilitate assessment on registered firms in the manner provided under sub-section (5) (a) of Section 23 of the Act. It is highly important therefore that the real partner should be disclosed and the precise share of each of the partners should be mentioned both in the application and in the deed of partnership upon which the application is based. The object of the whole scheme will be defeated if it is found that either the partnership is not genuine or the shares mentioned in the deed of partnership are not correct. The provisions of Section 28(2) of the Act are also important. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the smaller firm which was a member of the partnership. The application for registration under Section 26A was refused by the Income-tax authorities on the ground that the deed of partnership did not specify the shares of the partners of the smaller firm. The action of the Income-tax authorities was upheld by a Full Bench of the Madras High Court. At page 61 the learned Judges state:- The shares of the partners in M.K. Naicker Sons were each Re. 0-1-9 totalling 7 annas and as that partnership had previously been registered, a reference to the instrument relating to it, a copy of which was filed with the Income-tax authorities, would show this. Not only would the Income-tax authorities be aware of the shares of the partners-and it is conceded that they did know-but the application for registration itself set out the individuals shares of the partners of M. K. Naicker Sons. Notwithstanding this knowledge, the Income-tax Officer-and his action has been upheld by the Commissioner-presumably took the view that he was rigidly bound by the words of the section and that as in the instrument of partnership these individual shared were not given,' registration must be refused. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting period. In the present case the second deed of partnership was executed on the 1st of April, 1947, and the document specifically states that the rights and liabilities of the partners, according to the new partnership, would take effect from 1st of April, 1947, This is expressly mentioned in paragraphs 3 and 4 of the deed of partnership which is printed at page 21 of the paper book. It is clear therefore that the partnership firm as constituted by the second deed of partnership dated the 1st of April, 1947, was not in existence in the accounting year which expired on the 31st of March, 1947. It follows that the assessee was not entitled to have the second partnership deed dated the 1st of April, 1947, registered under Section 26A. This view as to the interpretation of Section 26A is supported by important considerations. It is clear, as I have already pointed out, that the object of registration under Section 26A is to facilitate assessment of income-tax on registered firms in the manner provided under Section 23(5) of the Act. But this object cannot be carried out unless the document of partnership for the accounting year is produced for registration. In the second place, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p deed for the assessment year 1950-51 would, on the other hand, show the respective incomes to be ₹ 37,500 and ₹ 12,500 which figures have no utility whatever in the assessment proceedings for 1950-51 (Indian Income-tax Act, 4th edition, page 846). In the light of all these considerations I have reached the conclusion that the second deed of partnership dated the 1st of April, 1947, could not have been registered under Section 26A in the present case and the application for the assessment year 1947-48 made on behalf of the assessee was rightly rejected by the Income-tax authorities. A similar view as to the construction of Section 26A has been taken by the learned Judges of the East Punjab High Court in Kalsi Mechanical Works, Nandpur v. Commissioner of Income-tax [1953] 24 ITR 353 . In that case a firm was alleged to have come into existence by a verbal agreement in June, 1944, but the instrument of partnership was drawn up only in May, 1949, after the expiry of the relevant accounting year. It was held by the learned Judges that the firm was not entitled to be registered under Section 26A for the purpose of assessment for the year 1949-50. For the reasons express ..... X X X X Extracts X X X X X X X X Extracts X X X X
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