CHHOTALAL DEVCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is not the first instance in which the Taxing Department has insisted on adherence to the letter of the law and overlooking the substance. But in this case it has excelled even itself. We are concerned with a question of registration and Mr. Joshis contention is that Section 26A is a technical section, it must be construed technically, it must be administered technically, irrespective of the injustice it may do. We realise that the Income -tax Act is a technical Act and questions of equity cannot be incorporated in construing the provisions of the law. But even the Income -tax Act must be construed according to some principles of commonsense. Even the Income -tax Act must he construed so that the Court, as far as it can possibly do so, construe a section in favour of the assessee and against the Department where in so construing it does not deprive the Department of revenue and it saves the assessee from a palpable injustice.

(2.) NOW the facts are that the assessee firm sought registration and it was denied registration by all the three authorities - the IT.O. the A.C.C. and the Tribunal. It was in existence and registered under the Indian Income -tax Act from 1945 and the registration which was refused was for the assessment year 1954 -55. It is rather significant that it is conceded by the Department that the partnership which is sought to be registered is a genuine partnership. It is conceded by the Department that every document on which the assessee relies for the purpose of registration is a genuine document; and yet it is urged that because of a certain aspect of law which was not present to the mind of the Department for all these years, it is entitled to refuse registration in the assessment year 1954 -55. Undoubtedly, if the law permits the Department to go back upon an accepted position from 1945 that the partnership was entitled to be registered, then it can do so. But we must very carefully scrutinise the provisions of the law before we come to the conclusion that it is open to the Department under the circumstances of this case to refuse registration to the assessee firm.

(3.) UNDER Section 26A the firm that is to be registered is the firm which is to be assessed for the year of account; and the instrument of partnership must he the instrument of partnership which constitutes that firm. Therefore, we must first turn to the partnership deed which constituted the firm which was in existence in the Samvat Year 2009 and in respect of which the registration was sought. This partnership deed dated the 13th of September, 1945 recites that the agreement of partnership is being arrived at between three parties and the three parties are the partnership firm of Karsondas Premji, the partnership firm of Chhotalal Devchand and an individual by the name of Padamsey Premji. But it is important to note that in the recital the names of the four partners constituting the firm of Karsondas Premji and the names of the two partners constituting the firm of Chhotalal Devchand are set out and it is equally important to note that the partnership deed is signed by all the seven partners. Clause 4 of the partnership deed provides that the capital of the partnership shall be contributed equally by the parties to the extent of Rs. 1 lakh by each of them. Clause 7 nominate; one partner each on behalf of the firms of Karsondas Premji and Chhotalal Devchand as the representative who will manage those partnership businesses. Clause 8 provides that the partners shall divide the profits and bear the losses in equal shares; and Clause 11 provides for arbitration, which includes arbitration between a partner and the executor or administrator of another partner. Now, when the assessee made the application on the 27th of November, 1954, it did not annex the partnership deed of the 13th of September, 1945, but it is common ground that that partnership deed was already on the file. The assessee only annexed to its application the partnership deed of the 29th of November, 1954. The Tribunal has refused registration on four grounds and we now proceed to consider each one of these four grounds.