The judgment of the court was delivered by
KAPUR, J.--This is an appeal against the judgment and
order of the High Court of Judicature at Madras. The assessee is the appellant
and the Commissioner of Income-tax is the respondent.
A partnership consisting of four persons was formed by a
deed of partnership dated March 31, 1949. On July 27, 1951, another partner was
taken into partnership and a new deed was drawn up. The previous partnership
deed was considered as the principal deed. The new partnership like the old one
was to end on March 31, 1954. On March 29, 1954, a new partnership was entered
into and a sixth partner was taken and a new deed was executed. The new partner
contributed Rs. 40,000 as his share to the capital but in the partnership deed
no express provision was made as to the manner in which profits and losses were
to be divided between the partners. In order to rectify this, a deed of
rectification was executed on September 17, 1955, which was after the close of
the account year 1954-55. This deed recited that an error had crept in typing
the partnership deed dated March 29, 1954, by omitting to type clause 21 of the
old partnership deed in the new deed. The parties had, therefore, agreed to
rectify the error by adding clause 20-A as follows :
" We hereby agree that for purpose of clarification
the following clause shall be added as clause 20-A in the partnership instrument
dated 29th March, 1954 :
' The parties shall be entitled to shares in the profits
and losses of the firm in proportion to the contribution of the capital of each
of the partners and whenever fresh capital is required for the business, each
partner shall be liable to contribute the additional capital in the same
proportion as the paid up capital referred to in clause 4 of the deed dated 29th
March, 1954'. "
This is signed by all the partners.
Up to the end of assessment year 1954-55, the old firms,
i.e. ; the one constituted of four partners and the other constituted of five
partners were registered under section 26A of the Income-tax Act (hereinafter
termed the " Act "). The appellant firm then applied for registration
for the assessment year 1955-56. The Income-tax Officer pointed out to the
appellant firm that there was no specification of shares of the partners in the
deed of partnership. Thereupon, the appellant submitted the deed of
rectification dated September 17, 1955, above mentioned and submitted that the
original deed did specify the shares of the partners and the deed of
rectification only clarified the position. But the registration was refused by
the Income-tax Officer and an appeal taken against that order to the Assistant
Commissioner was dismissed. Further appeal was taken to the Income-tax Appellate
Tribunal which also failed. At the request of the appellant the following
question was referred to the High Court for its opinion :
" Whether the assessee firm is entitled to
registration under section 26A of the Income-tax Act for the assessment year
1955-56 ? "
The High Court held that under section 26A of the Act the
factual existence in the year of account of an instrument of partnership was
necessary, a requisite which, in the present case, was lacking and, therefore,
the provisions of section 26A were not satisfied and that the specification of
shares only took place on September 17, 1955, when the deed of rectification was
executed. The question was, therefore, answered in the negative. Against this
judgment and order, the appellant has come in appeal to this court by
certificate of the High Court.
It was contended that clauses 9, 11, 34 and 41(a)
sufficiently specified the shares of the partners and satisfied the requirements
of the law. These clauses were as follows :
" 9. Such extra contribution made by the partners
shall be credited to the respective partners under an account called 'Extra
Capital Subscription Account' and for the period of the utilisation of the whole
or part thereof during the course of the year or years, it shall be treated as
capital contribution only for the purpose of dividing profit but it shall
otherwise in no circumstances be added to the paid up capital. "
" 11. In addition to the share of profits in
proportion to the contribution to the extra capital subscription account, the
amount so advanced shall carry an interest equal to the highest rate at which
the company may have to pay in the event of borrowing the same from Multani
money market and shall carry twice the said rate of interest in the year or
years of loss. "
" 34. The senior partner may at any time during the
subsistence of the partnership bring in one or more of his other sons other than
partners of the 5th and 6th part herein to the partnership and in the event of
their so becoming partners they will be liable for the same duties as the other
partners herein and shall be entitled to remuneration and profits in proportion
to their capital contribution. "
" 41(a). In the event of the dissolution of the
partnership the capital available for distribution as per the balance sheet,
except for debts outstanding for collection and reserve fund, shall be paid off
to the outgoing partner in proportion of the capital contribution of the
outgoing partner to the total contribution of all the partners, including extra
capital subscription paid, if any, under clause 9. "
None of these clauses specify the shares of the partners.
Clause 9 has reference to extra contribution made by the partners which was to
be treated as capital contribution for the purpose of dividing profits but was
not otherwise taken to be paid up capital. Clause 11 provides for interest on
the extra capital subscribed. Clause 34 authorises the senior partner during the
subsistence of the partnership to bring in one or more of his sons as partners
who on being so brought in were entitled to remuneration and profits in
proportion to their capital contribution. Clause 41(a) provides that in the
event of dissolution of the partnership the capital available except for debts,
etc., was to be paid to the outgoing partners in proportion to the capital
contribution of the outgoing partner. But in none of these clauses is it stated
what the shares of the partners in the profits and losses of the firm were to be
and that in our opinion was requisite for registration of the partnership under
section 26A of the Act and as that was wanting, registration was rightly
refused. Registration under section 26A of the Act confers a benefit on the
partners which the partners would not be entitled to but for section 26A. The
right can be claimed only in accordance with the statute which confers it and a
person seeking relief under that section must bring himself strictly within the
terms of that section. The right is strictly regulated by the terms of that
statute : Ravulu Subba Rao v. Commissioner of Income-tax. Section 26A provides :
" 26A. (1) Application may be made to the Income-tax
Officer on behalf of any firm, constituted under an instrument of partnership
specifying the individual shares of the partners, for registration for the
purposes of this Act and of any other enactment for the time being in force
relating to income-tax or super-tax. "
For the purpose of this case the relevant words of that
section are " constituted under an instrument of partnership specifying the
individual shares of the partners. " Therefore, unless the instrument of
partnership specified the individual shares of the partners the instrument of
partnership does not conform to the requirements of the section. In R. C. Mitter
& Sons v. Commissioner of Income-tax it was held that the instrument of
partnership to be registered should have been in existence in the accounting
year in respect of which an assessment is being made. At page 202, Sinha, J. (as
he then was), said :
" It is, therefore, essential, in the interest of
proper administration and enforcement of the relevant provisions relating to the
registration of firms, that the firms should strictly comply with the
requirements of the law, and it is incumbent upon the income-tax authorities to
insist upon full compliance with the requirements of the law. "
In the present case an instrument of partnership was in
existence but it did not specify the shares which was one of the requirements
for registration and that condition was fulfilled by the deed of rectification
dated September 17, 1955. Therefore, it cannot be said that there was the
requisite instrument of partnership specifying the individual shares of the
partners during the year of account. The High Court, in our opinion, was right
in answering the question in the negative.
We, therefore, dismiss this appeal with costs.
Appeal dismissed
