KARNIDAN RAWATMULL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE only question in this reference is whether the assessee, an association of persons, was entitled to registration under s. 26A of the Indian IT Act. THE assessment year is 1950-51, the relevant accounting year ending on 30th April, 1950. Up to the year 1935 one Pannalal Kothari was the Karta of an HUF carrying on a joint family business under the name and style of Karnidan Rawatmull. In 1935 a partition suit was filed in the original jurisdiction of this Court wherein a decree was passed by consent on 14th Jan., 1936. By this decree Meghraj and Kissen Gopal Kothari, the adult sons of Pannalal, were declared entitled to an undivided 1/8th share each in the properties and business of the joint family. A similar declaration was made in favour of Chunilal, Heeralal and Kaniyalal Kothari, minor defendants and brothers of the plaintiffs. THE father, Pannalal Kothari, was held entitled to an undivided 3/8th share in the properties mentioned in the plaint including the business. On 23th Jan., 1937, a deed of partnership was executed whereby Pannalal Kothari, the father, was to have six annas share in the business and the five sons were each to be entitled to two annas share, the three minors being admitted to the benefits of the partnership. This deed provided that on the death of any of the parties the firm would not stand dissolved but would continue to be carried on by the remaining partners along with the heir and representative of the deceased partner subject to such terms and conditions as night be agreed upon between the surviving parties and the representatives of deceased. On the death of Kissen Gopal in 1943 a fresh deed of partnership was executed on 23th Sept., 1943. By this deed the shares were to remain as before except that, in place Kissen Gopal, his minor sons, Sreegopal and Hargopal, were admitted to the benefits of the partnership and entitled to a two annas share. Pannalal Kothari died in July, 1949. On 5th Aug., 1949, a fresh deed of partnership was drawn up and this is the document which was offered to the ITO for the purpose of registration under s. 26A. In this deed there is a reference to the deed of partnership dt. 23th Sept., 1943, and mention is made of the fact that Suraj Bai, the widow of Pannalal, was not willing to continue as a partner of the firm and that she had taken the value of her share in the business in cash and given up all her right, title and interest thereto. THE document goes on to recite that the legal representatives of Pannalal Kothari, deceased, with the exception of Suraj Bai were willing to continue the partnership business on the terms and conditions on which it used to be carried on under the deed of partnership dt. 23th Sept., 1943, with the exception that the shares of the partners would be as set out in the new document. By this time the minor sons of Pannalal had attained majority but Sreegopal and Hargopal were still minors. THE shares of the parties as given in cl. 2 of the operative portion of the document read as follows :

(2.) THE ITO refused registration on the ground that the individual shares of the two minors were not specified as required by s. 26A. Having lost all along before the IT authorities the assessee caused the reference to be made for determination of the following question :

(3.) REFERENCE was however made by counsel on both sides to several authorities either for or against their contention. Counsel for the assessee relied chiefly on the judgment of the Bombay High Court in Chhotalal Devchand vs. CIT (1958) 34 ITR 351 (Bom). In this case a firm was first registered under an instrument of partnership dt. 13th Sept., 1945. That partnership continued till 6th Nov., 1953. A new partnership deed was executed on 22nd Jan., 1954, to record the formation of the partnership as on 7th Nov., 1953. By this the constitution of the firm was altered. A further change in the constitution was recorded by a third partnership deed executed on 29th Nov., 1954. The change was brought about by reason of the death of one of the partners. The firm applied for registration on 19th Feb., 1954, and made a second application for that purpose on 27th Nov., 1954. To this application was annexed the partnership deed of 29th Nov., 1954, and it is the second application with which the Court had to deal. The application was signed by six persons who were partners of the firm under the last mentioned deed. The schedule to the application mentioned the names of the partners of the firm, their shares in the profits and loss as also the names of the partners who constituted the firm at the date of the application for registration with their shares in the profits and loss. It would appear from the judgment that the firm, of which registration was sought, was constituted of two firms and one individual and the Tribunal held that it was not a valid partnership in the eye of the law. According to Chagla C.J. :