COMMISSIONER OF INCOME TAX Vs. AGARDIH COLLIERY COMPANY

JUDGEMENT

(1.) In this case the assessee is a partnership firm constituted under a deed of partnership dated 15 -9 -1944. The partners were Renu Bala Devi and Ratilal Manishankar Dave each having eight annas share. The object of the partnership was to carry on the business of coal mining and to deal in coal and coke. One of the clauses of the partnership deed was that neither of the partners should mortgage or charge his share in the assets or profits of the firm without the consent of the other partner. Later on, on 23 -11 -1945, there was another deed of partnership executed as between Ratilal Manishankar Dave and five other persons who were Deochand A. Mehta, Raja Khengarji, Shamji Mandan, Mulji Goabhai and Talewar Ram. By this document, it was agreed that eight annas share in the profits of the first partnership would be divided between the six partners who are mentioned in the second partnership deed. It was agreed that Ratilal Manishankar Dave would get two annas share and Deochand A. Mehta would get another two annas share, and the other four partners would be granted a share of one anna each. We are concerned in this case with the four assessment years, 1945 -46, 1946 -47, 1947 -48 and 1948 -49. For these assessment years, applications were made by the two partners Renu Bala Devi and Ratilal Manishankar Dave under S.26A, Income Tax Act, for registration of the partnership constituted under the first deed dated 15 -9 -1944. The Income -tax Officer rejected these applications on the ground that the names of all the seven partners were not mentioned in the applications. The Income -tax Officer took the view that the partnership deed of 15 -9 -1944 did not correctly represent the persons who were the partners of the firm, or the correct shares held by the partners. The assessee firm preferred an appeal to the Appellate Assistant Commissioner, who allowed the appeal and ordered that the firm should be registered for all the years in question. The Appellate Assistant Commissioner considered that the second: partnership agreement of 23 -11 -1945 did not affect the first partnership constituted on 15 -9 -1944 between Renu Bala Devi and Ratilal Manishanker Dave. The Income -tax Department appealed to the Appellate Tribunal against the order of the Appellate Assistant Commissioner, and the ground of appeal was that the deed of partnership dated 15 -9 -1944 did not give a correct picture of the manner in which the profits of the business were actually shared. The appeal was dismissed by the Appellate Tribunal who affirmed the order of the Appellate Assistant Commissioner on the ground that there was nothing to show that Renu Bala Devi was a party to the second deed of partnership, or that she had knowledge thereof.

(2.) IN these circumstances, the Income -tax Appellate Tribunal has referred the following question of the law for the determination of the High Court: "Whether in the circumstances, the assessee firm constituted under the deed of partnership dated 15 -9 -1944, was registerable under S.26A, Indian Income -tax Act, in the assessment year 1945 -46, 1946 -47, 1947 -48 and 1948 -49 respectively -

(3.) IN view of the statutory provision, it is clear that the five persons who entered into the second contract of partnership with Ratilal Manishanker Dave could not be held to be partners of Srimati Renu Bala Devi under the first contract of partnership. The result of the second contract was to constitute what is called a sub -partnership between Ratilal Manishanker Dave and the five other persons. But this document would in no way affect the first contract of partnership executed on 15 -9 -1944. The legal position has been explained very well at page 69 of Lindley's Law of Partnership, eleventh edition: "A sub -partnership is as it were a partnership within a partnership; it presupposes the existence of a partnership to which it is itself subordinate. An agreement to share profits only constitute a partnership between the parties to the agreement if, therefore, several persons are partners and one of them agrees to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constitute what is called a sub -partnership, that is to say it makes the parties to it partners inter se; but it in no way affects the other members of the principal firm. In the language of civilians, Socius mei socii, socius meus non est."