TMI Blog1957 (5) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... GMENT The judgment of the court was delivered by BHAGWATI, J.---This appeal with special leave is directed against a judgment and order of the High Court of Judicature at Calcutta delivered on a reference by the Income-tax Appellate Tribunal (Calcutta Bench) under section 66(1) of the Indian Income-tax Act (XI of 1922) hereinafter referred to as "the Act" whereby the High Court answered the referred question in the negative. The facts leading up to this appeal may be shortly stated as under : Prior to November 29, 1928, Steel Bros. Co. Ltd. (hereinafter referred to as "Steels") and Ellerman's Arracan Rice and Trading Co. Ltd. (hereinafter referred to as "Ellermans") carried on trade in Burma rice and/or its by-products in Burma in London and elsewhere inter alia through Burma and London Bullenger Rice Pool and the New General Rice Co. Ltd. Apart from the selling of rice, both these companies had rice milling machines and produced rice from paddy. There was another company known as the Burma Co. Ltd. (hereinafter referred to as "Burma"). This company also had a few rice mills. It never purchased paddy or sold rice. All the shares of this company were held by Steels, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vember 29, 1928, which was relied upon as the instrument of partnership of which registration was sought. By two separate orders dated March 19, 1948, and March 31, 1949, the Income-tax Officer, District V, Calcutta, refused registration of the partnership on the ground (i) that the partnership was not constituted of Steels and Ellermans only but was constituted of those two parties and a third party, viz., Burma, and that the partnership deed did not specify the shares of the said three partners and (ii) that the loss arising during the previous year had not been properly allocated proportionately to the said three partners the whole of the loss falling to the shares of Steels and Burma having been borne by Steels only. The assessee carried an appeal before the Second Additional Appellate Assistant Commissioner of Income-tax, "A" Range, Calcutta, who upheld the orders of the Income-tax Officer on the grounds that the application for registration was signed by two partners, Steels and Ellermans, whereas the partnership deed showed that it was a partnership of three partners and that the individual shares of Steels and Burma were not shown separately. The assessee preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was rightly refused. The assessee applied for a certificate of fitness under section 66A(2) of the Act which was, however, refused by the High Court with the result that the assessee applied for and obtained from this court special leave to appeal under article 136 of the Constitution. The sole question that arises for our determination in this appeal is whether on a proper construction of the agreement dated 29th November, 1928, and having regard to the facts and circumstances of the case the applications by the assessee for the registration of the partnership showing Steels and Ellermans as the only partners thereof (with their specific shares set out as against each of them and signed only by them) were rightly refused by the Income-tax Officer. Section 26A of the Act provides : " (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 time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idual share of Burma specified in clause 3(a) of the agreement. The determination of this appeal, therefore, turns on the true construction of the agreement dated 29th November, 1928, regard being had to the relevant facts and circumstances of the case. The relevant facts and circumstances of the case find their place in the referred question as framed and were also sought to be imported under section 6 of the Indian Partnership Act, 1932, which provides : " 6. Mode of determining existence of partnership.---In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together." The facts and circumstances which were thus sought to be relied upon by the appellant were : (i) that all the shares of Burma were owned by the Steels, (ii) that according to the findings of the Tribunal Burma never purchased paddy or sold rice, (iii) that no share of the profits of the Combination had ever been paid to or received by Burma and (iv) that in the carrying out of the agreement the only earnings of Burma had been by way of milling hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of furlough passages to and from Europe for all members of Steels, Burma and Ellermans staffs employed for the purpose of the Combination whose leave is due and taken during the period of the agreement and the cost of medical attendance to which Steels, Burma and Ellermans staff employed for the purpose of the Combination are entitled under their respective agreements are chargeable to the Combination (clause 7). All Bullenger Settlements are to be for account of the Combination and are to be embodied in the Combination P and L a/c for distribution in the ratios laid down in clause 3 thereof (clause 10). The agreement is to come into effect on the 1st December, 1928, and can be terminated on 30th November, 1930, or any subsequent 30th November, by any party giving notice to that effect to the others not later than the preceding 1st August (clause 12). In the event of any dispute arising out of or in relation to the agreement other than a dispute for the settlement of which specific provision has been therein made, the same is to be decided by arbitration in accordance with the provisions of the Arbitration Act, 1889 (clause 13). It is further declared that in entering into the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be classed as repairs or renewals (clause 4c). (4) A similar right given to their superintending engineers to decide what mill stores are likely to be required for purposes of the Combination and to fix the current market value thereof (clause 4e). (5) The right to have an assurance that the mills owned by them shall get a fair share of all paddy landed and that the mills taken over for the purposes of the Combination, will be worked as far as possible to full capacity (clause 4f). (6) The right to refer matters under sub-clauses (c) and (e) of clause 4 to arbitration (clause 5). (7) The right of their superintending engineers along with those of the Steels to satisfy themselves that the cargo boats, motor barges and towing launches of all parties employed for the purposes of the Combination are in efficient working order (clause 6). (8) The right to the utilization of the finance provided by them (clause 11a). (9) The right to the use of their bankers in connection with bills and drafts (clause 11b). (10) The right to have their London office drawn upon for a fair share of clean drafts (clause 11c). (11) A specific provision made in clause 14 for the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as providing roughly two shares between the Steels and Burma bracketed together and one share for the Ellermans who were the third partner in the Combination. As between Steels and Burma however it was not thought necessary to distribute the profits any further for the simple reason that whatever profits went to Burma would ultimately find their way to Steels---the Steels having owned all the 100 per cent. shares of Burma. Even though this distribution of the shares in the ratios mentioned above was thus provided in clause 3a of the agreement (reserving for Steels and Burma jointly and for Ellermans individually the particular shares in the profit or loss as therein specified), clause 3 went on to provide that the profit or loss of the Combination will be shared by and divided between Steels and Ellermans. The Steels were to receive whatever came to the joint shares of the Steels and Burma and what they did thereafter was purely a matter between them and Burma. Burma agreed under clause 3a of the agreement to have a joint share in the profit or loss of the Combination along with Steels and also agreed that whatever came to their joint share should be received by the Steels and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirming party thereto. We shall however consider the facts and circumstances on which particular reliance has been placed on behalf of the appellant in view of the fact that the referred question has been framed in a manner which requires the consideration of such facts and circumstances of the case. Adverting to these facts and circumstances, we find that there is nothing in them which runs counter to the conclusion which we have reached above. The fact that all the shares of Burma were owned by the Steels really explains why Burma was not given any specific rights like Ellermans in the agreement dated 29th November, 1928, for the protection of its interests, inasmuch as the interests of Burma were absolutely safe in the hands of the Steels and no provision was required to be made for the protection of Burma's interests as such. The fact that Burma never purchased paddy or sold rice is also devoid of significance because Burma had contributed its properties to the Combination and there could not be any independent purchase of paddy or sale of rice by Burma after the Steels assumed and carried on the management of the business of the Combination. The circumstance that no share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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