MALWA KNITTING WORKS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, under Section 256(1) of the Income-tax Act, 1961, has referred the following question for our opinion :

(2.) THE facts leading to the present reference are as follows : THEre was a Hindu undivided family carrying on business under the name of M/s. Malwa Knitting Works till March 31, 1958. On April 1, 1958, there was a partial partition between the family members and on that very day, a partnership was formed, which with effect from that date carried on the former family business. THE partners of the firm were Shri Jagdishrai, advocate, his younger brother, Shri Amritlal, and their mother, Smt Satyawatibai. This partnership firm applied for registration for the assessment year 1959-60, which was refused by the Income-tax Officer, the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal. On a request by the assessee, the present reference was made by the Appellate Tribunal to this court.

(3.) IN view of the specific finding, we are of the opinion that the facts stand amply established that although the clauses of the partnership empowered Shri Jagdishrai, advocate, to act on behalf of the firm or to actively participate in its business, the said clauses remained a dead letter and Shri Jagdishrai, advocate, never participated in the business of the firm. The suggestion of the learned counsel for the department was that the partnership deed would be rendered illegal in such a matter. We are unable .to accept the suggestion. Suppose, if Shri Jagdishrai; advocate, had actively participated in the business of the firm, the partnership itself would not have been rendered illegal. But, at the most, he would have made himself liable for disciplinary action under the INdian Bar Councils Act, 1926. Even under that Act an advocate could not actively participate in the affairs of the business, but he could certainly be a sleeping partner in such business. Therefore, it is not possible to hold that merely because there was a clause in the partnership deed empowering Shri Jagdishrai, advocate, to act on behalf of the firm or to actively participate in the business of the firm, the partnership itself would be rendered illegal. IN this view of the matter, there can be no doubt that the petitioner-firm was entitled to registration for the assessment year 1959-60.