SHAH PURSHOTTAMDAS GHELABHAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference made at the instance of the assessee, which purports to be a partnership firm carrying on business in cotton textiles, relates to assessment years 1957 -58 to 1961 -62. The assessee -firm was initially registered for the purpose of assessment to income -tax under section 26A of the Indian Income -tax Act, 1922, in assessment year 1057 -58 and the registration was thereafter renewed from year to year up to assessment year 1961 -62. The registration was, however, cancelled subsequently by the Income -tax Officer under rule 6 -B of the Income -tax Rules, 1922, principally on the ground that, in the facts and circumstances of the case, two of the partners of the firm who were coparceners of a Hindu undivided family could not have validity entered into partnership family and that the firm was, therefore, not lawfully constituted. On appeal, the Appellant Assistant Commissioner upheld the said decision but came to the conclusion that where a partnership was illegal or non est, rule 6B could not be invoked an, therefore, the order cancelling the registration of the firm was ultra vires. On further appeal, the Income -tax Appellate Tribunal concurred with the decision of the taxing authority to the effect that the firm was not validity constituted. On the question of application of rule 6B, there appears to have been some different of opinion between the Judicial Member and Accountant member of the Tribunal. Still, however, the Tribunal ultimately came to the conclusion that the registration of the assessee -firm was validity cancelled under rule 6B. The assessee -firm thereupon moved the Tribunal to state a case and the Tribunal has accordingly referred the following two questions for the opinion of this court : '(1) Whether, on the fact and in the circumstance of the case, there was a valid and/or genuine partnership amongst C. P. Shah, as representing the Hindu undivided family, and Anubhai Chimanlal and Rajnikant being the son and grandson respectively of C. P. Shah, in their individual or separate capacities ? (2) Whether, on the facts and in the circumstances of the case, the Income -tax Officer had jurisdiction to cancel the registration under rule 6B ?'

(2.) A few facts required to be stated in detail in order to appreciate the points involved in the reference. Prior to November 15, 1955, a Hindu undivided family consisting of Chimanlal P. Shah (karta) his son, Anubhai Chimanlal, his adult grandson, Rajnikant Anubhai and three other grandsons was carrying on business in cotton textiles in the name and style of 'Shah Purshottamdas Ghelabhai'. Anubhai, and Rajnikant were also regular employees of the said family firm and they were remunerated at the rate of Rs. 3,6000 and 1,500 per annum, respectively, for the services rendered by them. The remuneration received by each of them was treated as his separate income and it was assessed to income -tax in their respective hands in their individual capacity.

(3.) IT appears that in due course an application was made on behalf of the partnership firm for registration of the firm for the purpose of assessment to income -tax. By an order dated November 15, 1957, made by the Income -tax officer under section 26A of the Indian Income -tax Act, 1922, the firm was granted registration initially for the assessment year 1957 -58. As stated earlier, the registration was, thereafter, renewed from year to year up to the assessment year 1961 -62. The assessee's assessment to income -tax was completed for the aforementioned assessment years treating it as a registered firm. Anubhai and Rajnikant were also separately assessed to income -tax in their individual capacities.