MANVI BROTHERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is one of those references where the IT Department has taken much too technical a view of the income -tax law. The question that arises is with regard to the registration of a firm, and the brief facts are that there was an HUF consisting of S. A. Manvi, the father, and S. S. Manvi and C. S. Manvi, the sons. The joint Hindu family continued up to the 31st March, 1945, and it was disrupted on the 1st April, 1945. Then the father and the two sons entered into a contractual partnership. S. S. Manvi, the elder of the two sons, died on the 18th March, 1947, and it appears that the partnership was continued, the widow of S. S. Manvi stepping into the shoes of her deceased husband and representing the interest of her three minor sons. The partnership deed was executed on the 8th April, 1948. On the strength of this partnership deed the partnership was registered for the asst. yrs. 1946 -47, 1947 -48, and 1948 -49. In 1949 -50, the ITO refused to register the firm, and on appeal the AAC differed from the ITO, but the Tribunal concurred with the decision of the ITO, and the first reference arises from the decision of the Tribunal. On this decision being given, the CIT reviewed the decision of the ITO for the year 1948 -49, and cancelled the registration. From that decision an appeal was preferred which came ultimately before the Tribunal, and the Tribunal held that the cancellation of registration was not justified. That gives rise to the second reference before us, viz., Reference No. II of 1954. But substantially the question that we have to consider in both the references is the same -''whether on the facts and circumstances of the case the firm constituted by the partnership deed of the 8th April, 1948 , should have been registered ?''

(2.) THERE is no dispute between the assessee and the Department that there was a genuine partnership. It is admitted that a firm came into existence on the disruption of the joint family on the 1st April, 1945. Nor is it disputed that the partners of that firm were the father and the two sons. It is also not disputed that on the death of the elder son the partnership was not dissolved but continued. In the partnership deed there is this obvious error that it fails to account for the earlier history of this partnership, and it states that the partnership which is referred to in the partnership deed came into existence on the 1st April, 1945. That is not strictly correct because, as already pointed out, the partnership that came into existence on the 1st April, 1945, was a different partnership from the partnership referred to in the partnership deed of the 8th April, 1948. The partnership deed of the 8th April, 1948, refers to three parties as constituting the partners. One is the father S.A. Manvi, the second is the younger son C.S. Manvi, and the third is described in this way -"the names of the three minor sons by minor guardian mother Mrs. Manvi." Clause 5 of the partnership deed provides that the shares of the parties both in profits and losses in the said concerns shall be equal; and cl. 8 provides that the relation of the parties shall be governed by the Indian Partnership Act of 1932. The partnership deed is signed by the father and son and by the mother on behalf of the minor sons.

(3.) IT is common ground that the partnership existed and the firm was a genuine firm. If the Tribunal intended to convey by this observation that the partnership deed being executed on the 8th April, 1948, retrospective effect could not be given to it, then the Tribunal was overlooking the fact that the registration was being sought for the year 1949 -50, and the partnership deed would be retrospective only to the extent of the first eight days of April. Further, as far as this registration was concerned, the Tribunal had nothing whatever to do with the partnership as it was constituted before the 18th March, 1947. After the 18th March, 1947, the partnership was the partnership as shown in the partnership deed. But the Tribunal unfortunately did not have before it a recent decision of this Court in Dwarkadas Khetan & Co. vs. CIT (1956) 29 ITR 903 (Bom) : TC33R.1210, where we have pointed out that there is nothing in law to prevent a partnership deed being executed after a firm actually comes into existence. All that S. 26A requires is that the firm must be constituted under an instrument of partnership and not by an instrument of partnership, and so long as there is an instrument of partnership which is put forward for the purpose of the registration of the firm, it does not make the slightest difference as to when that instrument of partnership was executed.