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TMI Blog1966 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted under a deed dated June 14, 1952, which provided, inter alia; "If any one of the executants enters into business individually or along with another person, all the partners of the firm shall be entitled to the profit and liable for the loss, accruing from that business according to the shares hereinbefore mentioned." One Gosain Chander Bhan was a partner of both the assessee-firm and the Ferozepore firm. In the course of proceedings arising out of the application for registration of the assessee-firm under section 26A, Harbhajan Lal, one of its partners, stated on January 30, 1954 : " I, Harbhajan Lal, son of Shri Ram Chand of Rupar, solemnly declare that firm, M/s. Chander Bhan Harbhajan Lal, consisted of 14 partners as mentioned in the return and deed of partnership. Gosain Chander Bhan was a partner not in his individual capacity but on behalf of the firm, M/s. Gosain Chander Bhan and Company, Ferozepur, having about six partners . . . Other partners are partners in their individual capacity." It seems that the other partners of the assessee-firm made similar statements on February 27, 1954. The capital of the assessee-firm was supplied by Gosain Chander Bhan. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal, Delhi Bench, upheld these findings of the Appellate Assistant Commissioner, and held that those findings were supported by the decisions in Commissioner of Income-tax v. Agardih Colliery and Commissioner of Income-tax v. Laxmi Trading Co. The Commissioner of Income-tax, Punjab, then applied to the Appellate Tribunal under section 66(1) of the Indian Income-tax Act requiring the Tribunal to refer the following questions to the Punjab High Court : " 1. Whether the Income-tax Appellate Tribunal was right in applying the decision of the Patna High Court in the case of Commissioner of Income-tax v. Agardih Colliery Company and the Punjab High Court in the case of Commissioner of Income-tax v, Laxmi Trading Company to the facts of this case ? 2. If the answer to question No. 1 is, in the affirmative whether the rulings noted above lay down a correct law ? 3. Whether there is any material to show that there was a sub-partnership formed by Gosain Chander Bhan with other persons at Ferozepur ? 4. Whether, in the circumstances of the case, the correct status of the assessee was firm or association of persons and whether registration under section 26A of the Indian Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a partner in a representative capacity on behalf of the Ferozepore firm, or that the Ferozepore firm was the partner in the assessee-firm. On the materials on the record, the Appellate Tribunal was entitled to come to the conclusion that Gosain Chander Bhan and not the Ferozepore firm was the partner in assessee-firm. The capital of the assessee-firm was supplied by Gosain Chander Bhan. Gosain Chander Bhan in his turn had taken the amount of the capital from the Ferozepore firm, but there is no evidence to show that he took the money otherwise than in his individual capacity. The clause in the partnership deed constituting the Ferozepore firm to the effect that all the partners of the Ferozepore firm are entitled to the profits and liable for the losses accrued in the share of Gosain Chander Bhan in the assessee-firm may show that there is a partnership between Gosain Chander Bhan and other partners of the Ferozepore firm in respect of the share of Gosain Chander Bhan in the profits and losses of the assessee-firm. This partnership, if any, between the members of the Ferozepore firm does not make the Ferozepore firm a partner in the assessee-firm. The Ferozepore firm is not a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the share of Gosain Chander Bhan in the assessee-firm. Counsel then contended that in law, a sub-partnership can be entered only after the partnership is constituted, and, therefore, there was no sub-partnership between the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan in the assessee-firm. In support of this contention, counsel relied on the following passage in Lindley on Partnership, 12th edition, pages 99-100 : " A sub-partnership is, as it were, a partnership within a partnership; it presupposes the existence of a partnership to which it is itself subordinate. " We need not enquire into the correctness of the counsel's assumption that this passage is an authority for the proposition that there cannot be an agreement of sub-partnership in anticipation of the head partnership coming into existence. But the question whether the relevant clause in the deed dated June 14, 1952, created a sub-partnership in respect of the share of Chander Bhan in the assessee-firm having regard to the fact that this deed was executed before the assessee-firm came to be constituted is not material for the purpose of the case, and need not be decided. The clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause assuming that there was no sub-partnership, the members of the Ferozepore firm did not become partners in the assessee-firm by virtue of the relevant clause in the deed dated June 14, 1952, or otherwise. We are, therefore, satisfied that no substantial question of law arises out of the order of the Appellate Tribunal. Counsel for the appellant submitted that as a question of law arose out of the order of the Tribunal, the High Court was bound to call for a statement of case. We are not inclined to accept this contention. Where, as in this case, the question of law is not substantial and the answer to the question is self-evident, the High Court is not bound to require the Tribunal to refer the question. In our opinion, the High Court in the exercise of its discretion under section 66(2) rightly rejected the appellant's application. In the result, the appeal is dismissed with costs. MUDHOLKAR J.---This is an appeal from a judgment of the High Court of Punjab rejecting a petition made by the Commissioner of Income-tax, Punjab, under section 66(2) of the Indian Income-tax Act, 1922, for calling upon the Income-tax Appellate Tribunal to refer certain questions of law to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be registered. He further came to the conclusion that as in reality all the partners of the Ferozepore firm and not Gosain Chander Bhan alone were also partners along with 13 other persons in the Rupar firm, the total number of partners exceeded 20. Such a partnership being invalid in law the firm could not be registered under section 26A of the Act. He, therefore, dismissed the application by his order dated February 27, 1954. In appeal his order was, however, reversed by the Appellate Assistant Commissioner by his order dated August 12, 1954. The appeal preferred therefrom by the Income-tax Officer before the Income-tax Appellate Tribunal (Delhi Bench) was dismissed by it by its order dated September 5, 1955. In doing so the Tribunal based itself on the decision in Commissioner of Income-tax v. Agardih Colliery Co. and Commissioner of Income-tax v. Laxmi Trading Co. The Commissioner of Income-tax then applied to the Tribunal under section 66(1) to refer to the High Court four questions of law. The Tribunal, however, rejected the application on March 5, 1956. The Commissioner thereupon preferred a petition before the High Court under section 66(2) for directing the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of law arises it is not substantial or that it is well settled it can reject the petition. What we have, therefore, to ascertain is whether a question of law at all arises in this case and if so whether it is a substantial question of law. In order to ascertain whether a question of law arises it is necessary to ascertain the facts which have been found established by the income-tax authorities. I will recapitulate the facts found by the Income-tax Officer. (1) The original firm, Gosain Chander Bhan & Co., was formed at Ferozepore on December 29, 1948. (2) Gosain Chander Bhan had a major share therein. (3) This firm was dissolved and reconstituted on June 14, 1952. (4) In the original firm there were only 5 partners including Gosain Chander Bhan while in the reconstituted firm there were 8 partners including Gosain Chander Bhan. (5) The largest share in the reconstituted partnership was that of Gosain Chander Bhan. (6) The partnership deed of December 5, 1952, specified the names of 14 persons including Gosain Chander Bhan as partners but did not specify the names of all the partners of Gosain Chander Bhan & Co. of Ferozepore. (7) The funds invested by Gosain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise of the firm and also for satisfying himself about compliance with the requirements of law. Paragraphs 2 and 3 of the order of the Appellate Assistant Commissioner, however, show that he has treated the recitals in the partnership deed of December 5, 1952, as conclusive of the question as to who were the real partners in the Rupar firm. I can find no discussion or even reference to the findings of the Income-tax Officer which I have earlier summarised. No doubt in paragraph 4 he has referred to some of the facts found by the Income-tax Officer and the inference drawn by him and rejected them. Leaving these facts out of account there are other facts which are relevant for consideration but they appear to have been ignored by the Appellate Assistant Commissioner. Ascertainment of the legal effect of those facts would, in my judgment, be a question of law. It is not disputed before us that the application for registration should set out the names of all the persons who are the real partners of the firm and, therefore, it is incumbent on the income-tax authorities to ascertain whether any of the partners had joined the partnership in his individual capacity or as representing a grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears to have been lifted from the head-note of the decision in Commissioner of Income-tax v. Laxmi Trading Co. The question which fell for decision in that case was : " Whether there could in law be a partnership between a partner in a head-firm and another individual in respect of the partner's share in the head-firm so as to entitle the partners in the sub-firm to apply for registration thereof under section 26A, Income-tax Act, 1922 ?" and it was answered in the affirmative. A sub-partnership can also, as stated by the learned Appellate Assistant Commissioner, apply for registration under section 26A. But where does it all lead to ? Here the question which arises is whether the headfirm as such has entered into partnership with another or whether only one of the partners of the head-firm has entered into partnership with another. For, that is what the question really is. According to the appellant, the Ferozepore firm as a firm has become partner in the Rupar firm and not merely Gosain Chander Bhan. The learned Appellate Assistant Commissioner has not addressed himself to this aspect of the case. At the end of the paragraph, the learned Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax v. A. Abdul Rahim & Co. In that case this court held that the circumstance that one of the partners was a benamidar for another does not justify a refusal to register the firm under section 26A and reiterated the essential conditions which must be satisfied by the firm seeking registration which have been stated in Commissioner of Income-tax v. Dwarakadas Khetan and Co. It does not advance the respondent's case any further. The third decision is that in Commissi oner of Income-tax v. Bagyalakshmi and Co. There Subba Rao J., speaking for the court, has observed : " A partner may be the karta of a joint Hindu family; he may be a trustee; he may enter into a sub-partnersbip with others; he may, under an agreement, express or implied, be the representative of a group of persons; he may be a benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity; qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties. Their right is only to a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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