COMMISSIONER OF INCOME TAX Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) BY this reference under S. 66(1) of the Indian INCOME TAX ACT, 1922, r/w S. 21 of the EPT Act, the question that is referred for our determination is :

(2.) DUE to scarcity of cloth in C. P. and Berar, the Government evolved a scheme for distribution of cloth under its supervision and control. Three categories of dealers in the new set up were classified. Under this scheme they were known as importers, semi - wholesalers and retailers. Government selected and appointed certain people out of the wholesale dealers of cloth who were importers of cloth from other States as a group of importers. These importers were not permitted to do business in cloth except as directed by the Government ; no person other than a person or a party who was selected in the importers' group could import textile cloth into the area. Pursuant to this policy, in Akola District, five dealers whose names are specified in the statement of case were appointed as a group of importers for the district. At each time of selection of groups, a nominee was chosen by the Government for the purpose of distribution to semi -wholesalers under the directions of the Deputy Commissioner. The nominee so selected on each occasion made distribution of cloth as directed by the authorities and collected the sale proceeds. The net profits as a result of these operations were distributed amongst the five members of the group in certain fixed proportion on each occasion. The proportion was arrived at by taking into account the turnover of each importer in a basic period.

(3.) MR . Joshi, on behalf of the Revenue, has contended that all essential ingredients required to constitute a partnership in law are fulfilled ; that there was an agreement entered into by all the members of the group of importers concerned ; that the agreement provided for sharing the profits of the business and that the business was carried on by a nominee appointed by Government on behalf of the members of the group. According to his submission, these factors are established in the present case and are sufficient to constitute a partnership in law. When a partnership comes into existence is provided in S. 4 of the Partnership Act, 1932. A 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. Before a partnership is constituted under law, three requirements must be fulfilled, viz., (1) there must be an agreement entered into by all the persons concerned, (2) the agreement must be to share the profits of a business and (3) the business must be carried on by all or any one of the persons concerned acting for all. In view of these ingredients, an agreement inter se between the partners is sine qua non for the constitution of a partnership. It is not necessary that such agreement must be in writing. It can be even implied either from conduct or otherwise. Mr. Joshi is unable to point out any piece of evidence which goes to support that such an agreement existed between the five persons of the wholesalers' group. The members of the group themselves have no choice as to who should be selected for the wholesalers' group, the selection being made by the Government, the members so selected have no choice but to act as contemplated under the scheme. Thus, there is no evidence whatsoever that an agreement existed between the persons concerned to form a partnership of the importers' group.