COMMISSIONER OF INCOME TAX Vs. NATIONAL GARAGE

JUDGEMENT

(1.) THIS is a reference under Sub -S. (1) of S. 66 of the Indian INCOME TAX ACT, 1922, at the instance of the Department. We are here concerned with the two asst. yrs. 1958 -59 and 1959 -60, the relevant accounting periods being from November 3, 1956, to October 23, 1957, and from October 24, 1957, to November 11, 1958. The assessee is a partnership firm and the question that falls for consideration arises out of the assessee -firm's claim for its registration under the Indian Registration Act. Facts relevant for both the assessment years are for all material purposes identical.

(2.) FACTS in brief are: Some time in July, 1951, the Premier Automobile Ltd., Bombay, entered into an agreement with M/s Raoji Deochand, Valchand Deochand, Ratanchand Sakharam and Mrs. Shantabai Gulabchand, trading in the name and style of "National Garage, Nagpur". Under the said agreement the said four persons were given exclusive rights to sell within certain territories certain cars and trucks manufactured by the said Premier Automobile Ltd. It was this agreement that was said to have been exploited by the present assessee -firm constituted under the instrument of partnership made on November 15, 1955. The terms on which the partners agreed to do business are incorporated in the instrument of partnership of date November 15, 1955. On the basis of this partnership deed the assessee -firm was granted registration for the asst. year 1957 -58 and the assessee claimed its renewal for the two asst. yrs. 1958 - 59 and 1959 -60 with which we are concerned.

(3.) THE ITO took the view that inasmuch as the partnership did not specify the individual shares of 5 per cent. shall be paid as commission to the managing partner No. 6,, Shri Pamulal Raoji Modi,, for managing the day -to -day affairs of the firm. 20 per cent. shall be paid as agency commission to partners Nos. 1 to 3,, M/s Sakharam Deochand,, Raoji Deochand and Valchand Deochand. the three partners in the aforesaid 20 per cent. of the gross profits, the requirements of S. 26A were not satisfied, and in this view of the matter he rejected the application of the assessee -firm for renewal of its registration. The AAC confirmed the view of the ITO and dismissed the appeal of the assessee. The assessee took second appeal to the Tribunal. The Tribunal, disagreeing with the view taken by the IT authorities, held that the assessee -firm was entitled to the renewal of registration under S. 26A. On an application made by the Department, the Tribunal has stated the case referring to us the following question of law: