COMMISSIONER OF INCOME TAX MADRAS IN ALL APPEALS Vs. BAGYALAKSHMI AND CO UDAMALPET IN ALL THE APPEALS

JUDGEMENT

(1.) THE following judgment of the court was delivered by

(2.) THESE appeals raise, though not the same but a similar question on which we have given a decision in The Com missioner of Income-tax, Ahmedabad v. M/s. A. Abdul Rahim and Co.(5). The assessee-firm was the Managing Agents of Palani Andavar Mills Ltd., Udamalpet. It was originally constituted by a deed of partnership, dated 1/06/1934. The following 6 persons were the partners : <FRM>JUDGEMENT_1708_AIR(SC)_1965Html1.htm</FRM> By subsequent transactions the share of G. Venkataswami Naidu was transferred to his son Vidyasagar and the share of M. A. Palaniappa Chettiar was purchased by R. Guruswamy Naidu. With the result that the 5th partner, G. Guruswamy, had 7 annas share in the partnership instead of 2 annas share which he held earlier. Guruswamy Naidu and Venkatasubba Naidu, the 5th and 6th partners, belonged to a Hindu undivided family and the beneficial interest of their shares belonged to that family; indeed, during the previous years the joint family was assessed in respect of the income pertaining to the said shares. On 24/08/1950, the said Hindu undivided family was divided and a partition deed was executed between the members thereof. Under the deed the ten annas share held by the family was divided as follows : <FRM>JUDGEMENT_1708_AIR(SC)_1965Html2.htm</FRM> After the said partition, on 30/11/1950, a new pertner-ship deed was executed between the partners of the assessee-firm. Under the said partnership deed the following shares were allotted to each of the partners : <FRM>JUDGEMENT_1708_AIR(SC)_1965Html3.htm</FRM> The point to be noticed is that the beneficial interest in 10 annas share originally belonged to the Hindu undivided family of which Guruswamy Naidu and Venkatasubba Naidu were members. But before and after the partition of the joint family the said two persons, namely, Guruswamy Naidu and Venkatasubba Naidu, were partners of the firm; before the partition the beneficial interest in the 10 annas share was in the undivided family, but after partition the beneficial interest in the partnership was in the divided members of the family including the said two partners. The assessee- firm presented the deed of partnership, dated 30/11/1950, before the Income-tax Officer for registration for the assessment years 1952-53, 1953-54 and 1954-55 and was duly registered under s. 26A of the Indian Income-tax Act, 1922, here in after called the Act. In due course Guruswamy Naidu and Venkatasubba Naidu were assessed as partners of the assessee-firm on their respective shares as shown in the partnership deed. But the Income-tax Appellate tribunal, in respect of two of the assessments made on them, accepted their contention and held that they were liable only to pay tax in respect of the shares shown in the partition deed. After the decision of the tribunal, the Commissioner of Income-tax acting under s. 33B of the Act cancelled the registration of the partnership on the ground that the partnership deed did not show the correct shares of the partners in the partnership. On appeal, the Appellate tribunal confirmed the order of the Commissioner in respect of the 3 assessment years. At the instance of the assessee firm the following questions of law were referred to the High court. (1) Whether the aforesaid order of the Commissioner under s. 33B cancelling the registration of the firm for the three years 1952-53, 1953-54 and 1954-55 is lawful. (2) If the answer to the above question is in the affirmative, whether the firm is registrable under s. 26-A for the aforesaid assessment years. A division bench of the Madras High court, which heard the reference, came to the conclusion that the partnership was a genuine one, that the partition in the joint Hindu family allotting specific shares to the members of the family might have affected the accountability of the two partners of the firm to the other members of the family, but qua the partnership their relationship with the other partners had not in any way been affected and, therefore, the tribunal went wrong in holding that the registration of the said partnership was rightly refused. In the result, it answered the first question in the negative and the second question in the affirmative. Hence the appeals.

(3.) WE have held in The Commissioner of Income-tax, Ahmedabad v. M/s. A. Abdul Rahim and Co., Baroda(1) that the Income-tax Officer can reject the registration of a firm if it is not genuine or valid and if. the application for registration has not complied with the rules made under the Act. Here we have admittedly a genuine partnership. It cannot even be suggested that it is invalid. The only objection is that Guruswamy Naidu and Venkatasubba Naidu have less shares in the partition deed than those shown in the partnership deed. If the distinction between three concepts is borne in mind much of the confusion disappears. A partnership is a creature of contract. Under Hindu law a joint family is one of status and right to partition is one of its incidents. The Income-tax law gives the Income-tax Officer a power to assess the income of. a person in the manner provided by the Act. Except where there is a specific provision of the Income-tax Act which derogates from any other statutory law or personal law, the provisions win have to be considered in the light of the relevant branches of law. A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the karta of a joint Hindu family; he may be a trustee; he may enter into a sub-partnership 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 pat-ties. Their right is only to a share in the profits of their partnerrepresentative in accordance with law or in accordance with the terms of the agreement, as the case may be. If that be so, Guruswamy Naidu could have validly entered into a genuine partnership with others taking a 10 annas share in the business, though in fact as between the members of the family he has only a 2 annas share therein. He would have been answerable for the profits pertaining to his share to the divided members of the family, but it would not have affected the validity or genuineness of the partnership. So much is conceded by the learned Attorney-General. If so, we do not see why a different result should flow if instead of one member of the divided family two members thereof under some arrangement between the said members of the family took 10 annas share in the partnership. If the contention of the Revenue was of no avail in the case of representation by a single member, it could not also have any validity in the case where two members represented the divided members of the family in the partnership. As the partnership deed was genuine, it must be held that the shares given to Guruswamy Naidu and Venkatasubba Naidu in the said partnership are correct in accordance with the terms of the partnership deed.