NATIONAL MOTOR COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Sub -S. (1) of S. 66 of the Indian IT Act. The assessee is a partnership firm consisting of three partners. It appears that these three partners entered into an agreement of partnership on 18th April, 1946. The terms and conditions on which they agreed to do partnership business were reduced to writing in a deed executed on 1st April, 1947. The partnership was constituted for five years from 18th April, 1946. That period of five years expired on 17th April, 1951. We are here concerned with, the asst. year 1958 -59, the relevant previous year being the calendar year 1957. Now, even though the period mentioned in the aforesaid deed of partnership had expired on 17th April, 1951, the partnership business of the assessee firm seems to have continued to carry on the business in the relevant assessment year. The assessee firm applied for renewal of registration of the partnership for the relevant assessment year. That application was made on 17th June, 1958. The IT authorities refused to grant registration and rejected the application. The Tribunal also has affirmed the view taken by the IT authorities. Hence this reference. The question referred to us is as follows :

(2.) MR . Kaka, appearing for the assessee, first contended that the assessee firm is constituted under a deed of partnership of dt. 1st April, 1947. That deed specifies the respective shares of the partners in the profits and losses of the firm ; and that even after the period of duration of the partnership, namely, five years, mentioned in the deed, expired on 17th April, 1951, as a result of s. 17(b) of the Indian Partnership Act, the firm continues to be constituted under the deed of partnership. In our view, the contention has little force. The effect of S. 17(b) is not what is stated by Mr. Kaka. Sec. 17(b) provides that "subject to contract between the partners, where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will." It will be seen that all that this clause provides is that after the expiry of the term mentioned in the partnership deed, only the mutual rights and duties would remain the same as mentioned. It is not the same thing as to say that the partnership that continues to do business after the expiry of the period is a partnership constituted under that deed of partnership. There is a vital difference between the two types of partnership, i.e., partnership for a fixed duration under a deed of partnership and the partnership that continues to carry on the business after the expiry of the period mentioned in the deed. In the one case, it is a partnership for a fixed duration, which can be dissolved only after the expiry of the period, save and except where on account of the misconduct of a partner dissolution is called for at the hands of the Court. Now, the partnership that continues to do business after the expiry of the term is a partnership at will, and any partner can, by giving a notice to all the partners, dissolve it or put it to an end at his sweet will. In our opinion, therefore, the partnership that continues to do business after the expiry of its term cannot be said to be a partnership constituted under the deed of partnership. The first contention raised by Mr. Kaka should therefore fail.

(3.) RULE 6 requires a firm, to whom a certificate of registration has been granted, to apply for renewal in each assessment year before a particular date mentioned therein. The form in which an application for renewal is to be made is also similar to that for the original registration of the firm, and cl. (2) of this application form also requires that an instrument of partnership in original or its certified copy has to accompany the application for renewal of registration. Rule 6A is in the following terms :