SUGAR SYNDICATE Vs. COMMISSIONER INCOME TAX

JUDGEMENT

(1.) THE Assessee is a firm called 'Sugar Syndicate' and has been formed on October 12, 1949. under a deed styled as 'Articles of Partnership. The document recites that Bankatlal Gopikishen Badruka and some others have been successful in securing the distribution of sugar in the cities of Hyderabad and Secunderabad from the Government, and the parties hereunto have agreed to form a partnership to carry out the said - scheme and any other allied business, which the partners may decide. The deed, among other things provides that the partnership is not for any fixed period, is to continue' at least till the distribution of sugar work continues and is not dissoluble on the death of any partner. Seventeen persons have signed it and their signatures are serially numbered with/ addresses against each name. According to the aforesaid list, the third partner is Bhagavandas Kaluram, the fifth is Rampal Sitaram, the eight is Haji Razack Haji Vali Mohd. and the thirteenth is Ramkishen Ramlal Darak. In proceedings whose details will be presently given, Bhagavandas Kaluram has been found to be four anna partner in the firm styled Baiaji Sbivnarayan that consists of five persons, Rampal Sitaram to be one of the three equal partners in the firm of Rampal Mohanlal, Haji Razack Haji Vali Mohd. to be one of the two partners in the firm of the same name, and Ramkishen Ramlal Darak to be a seven -anna partner in Ramsukh Chaitandas that comprises three persons. The points for "decisions in the two references are whether the other members of the aforesaid firms are also partners in the Sugar Syndicate.

(2.) IT appears that the Sugar Syndicate had submitted returns in respect of assessment years 1951 -52 and 1952 -53. The Assessee firm had also applied under Section 26A of the Indian Income Tax Act for registration for the year 1951 -52 and for renewal of the registration for the year 1952 -53. The Income Tax Officer, Hyderabad, rejected the application on the ground that the partnership consists of 26 persons, it has exceeded the maximum limit of twenty partners under Section 4 of the Companies Act, and therefore, it cannot be valid in the eye of law. He accordingly determined the status of the Assessee firm for purposes of Income Tax to be that of association of persons. Two appeals were preferred before the Appellate Assistant Commissioner on the ground that the four members of the other firms were partners in the Assessee firm in their individual capacity; but these appeals were dismissed by an order of September 22, 1953. The basis of! the dismissal is that more than twenty persons: had participated in the division of profits, whereas the deed had stated seventeen persons to be partners; that four of the partners of the Assessee firm were representing other firms with the result that the deed did not represent the true state of facts; and that the capital contributed by the aforesaid four partners was from the funds of the partnership in which they were partners. Two appeals were preferred to the Appellate Tribunal, Bombay and they also were dismissed. The tribunal had also held that the four partners represented their respective firms and were obviously not partners of the Assessee firm in their individual capacity, as the funds required by the partners were provided by their firms; and the accounts of the partners in the Assessee's book were reflected in the accounts of the Assessee firm in the books of the other firms. The tribunal particularly relied on Jabalpur Ice Manufacturing Assn. v. Commr. of Income Tax M -P. and Bhopal, (1955) : 27 ITR 88 (Nag) (A) wherein it has been held that a firm as such is not entitled to enter into a partnership with another firm or individual and if it enters into any such partnership the partners of the smaller firm would individually become partners of the bigger firm so that each of them must personally sign the application for registration. The Assessee firm filed an application for stating a case to the High Court, which was rejected on the ground that the question whether the person who represents the firm represents himself individually or his firm is a question of fact. Then a petition was filed in the High Court, which was allowed and accordingly the following questions have been referred:

(3.) WE have also the case of Pichappa Chetiar v. Chockalingam Pillai : AIR 1934 PC 192 (D), that in such a case the family as a unit does not become a partner but only such of its members as in fact entered into a contractual relation with the stranger.