HASSAN ROWTHER Vs. I T OFFICER

JUDGEMENT

(1.) THIS is a reference by the Income-tax Appellate Tribunal, trivandrum, under Section 113 (I) of the Travancore Income tax Act, 1121, (section 56 (1) of the Indian Income-tax Act, 1922), the main question referred being whether the agreement dated 9-10-1110 between the applicant and his three brothers evidences a partnership capable of registration under section 39 (1)of the Travancore Income-tax Act, 1121, which corresponds to section 26a (1) of the Indian Income-tax Act, 1922. The order of reference contains a full statement of the material facts of the "case and is reproduced below:- "this is an application by the respondent in appeal no. 49 of 1123 for referring to the High Court a question of law arising out of the order of the Tribunal dated 20-10-112 3 deciding the said appeal. The question which according to the applicant has to be referred to the High Court is "whether in the circumstances of the case there is not in law a partnership between the applicant and his brothers as constituted by the document of 1110 capable of registration under Section 39 [1] of the Income Tax Act. "

(2.) STATEMENT of the case. "the applicant and his three brothers made an application on 31-1-1122 for registering them as a firm under section 39 (1) of the Income-tax Act, on the strength of a registered document executed by them on 9-10-1110. They contended that the document created a partnership between them. The main business of the partnership was in respect of a tea estate owned by them. The Income-tax Officer, Alleppey, refused registration on the grounds that the brothers were the joint owners of the tea estate and that there were clauses in the document prohibiting alienation of the partners' interests and division of the estate. From the order refusing registration and assessing them to income-tax, the present applicant filed an appeal to the Appellate Assistant Commissioner of income-tax, Kottayam. He set aside the Income-tax Officer's order and remanded the case to the Income-tax Officer for a fresh disposal, and from his appellate order the Income-tax Officer, Higher Circle, alleppey, filed Appeal No. 49 of 1123 before the Tribunal. The Tribunal allowed the Department's appeal by an order, the relevant portion of which reads as follows: "we have carefully gone through the document of 1110 and we are unable to hold, that it creates a partnership consisting of four brothers. It is styled an Udampadi and the object is said to be, to get the maximum benefit, by keeping the estate in common and managing and enjoying the same together. No doubt, the shares of the brothers are defined and they are entitled to enjoy the profits as per their shares. We find that the Income Tax officer was wrong, in observing that the right of alienation of the shares is denied. Nevertheless, there is one important clause in the document, which shows beyond any doubt, that it is not a deed of partnership. The right to get the property divided by metes and bounds is expressly denied. The right to have a partnership dissolved is an inherent right and that is definitely excluded by this document. The fact, that profits are divided as per the shares of the assessees does not constitute the document a deed of partnership. The object for which the document was brought into existence and the omission to include the right to get the property divided, are in our view, sufficient for recording the finding, that no partnership is created by this document. We are unable to accept the argument of the learned advocate for the respondent that the clause relating to the prohibition of division is inconsistent with the other provisions of the document and that therefore, that clause has to be ignored. When we remember what the motive that induced the brothers to enter into an agreement like this and when we also remember the nature of the estate owned by them, it is clear beyond any doubt, that this clause is an important one and that it controls the other provisions of the document, The arguments advanced by the learned Assistant Commissioner for holding that it is a deed of partnership are unsound and flimsy. It may be noted, that though the document came into existence as early as 1110, the first application for registration was made only in 1122. In these circumstances, we are compelled to hold that the brothers are only an association of persons and not partners. The application for registration therefore, has to be, and is rejected. " 4. The Tribunal has found that the Income-tax Officer's view that the document prohibits alienation of partners' interest is wrong. But it has taken the view that the clause restraining division of the estate by metes and bounds amounts to a total prohibition of the dissolution, of the partnership and that such a prohibition precludes the creation of a partnership by the document. These are important questions of law relating to the construction of the document and arising out of the Tribunal's decision. 5. We therefore, refer the following questions of law for the decision of the High Court: (i) Whether the clause in the document of 9-10-1110 restraining division of the estate by metes and bounds operate as a total prohibition of the dissolution of the partnership? If the clause would so operate, is it fatal to the constitution of a partnership in law? Can that clause alone be treated as null and void, and effect be given to the remaining clauses and a partnership be deemed to have been created? (ii) Whether a partnership between the applicant and his brothers capable of registration under section 39 (1) of the Income-tax Act has been constituted by the document of 9-10-1110 ?" 2. Section 2 (6b) of the Indian Income-tax Act, 1922, provides that the words "firm", "partner" and "partnership" shall have "the same meanings respectively as in the Indian Partnership Act, 1932, (IX of 1932); provided that the expression "partner" includes any person who being a minor has been admitted to the benefits of partnership". According to section 4 of the Indian partnership Act, 1932, "partnership" is "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all" and according to section 2 (b) of the said act, "business" includes "every trade, occupation and profession".

(3.) THERE is no dispute in the instant case as regards the satisfaction of all or any of the four conditions enumerated above except the question as to whether the instrument concerned spells a partnership or not. We have scrutinised the Udampadi of 9-10-1110 and have come to the conclusion that the contract embodied therein constitutes a partnership capable of registration under section 26 A of the Indian Income-tax Act, 1922.