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PETITIONER: SRI RAMAMOHAN MOTOR SERVICE

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, HYDERABAD

DATE OF JUDGMENT11/04/1973

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. KHANNA, HANS RAJ

CITATION:  1973 AIR 1445            1973 SCR  (3) 959  1974 SCC  (3) 116

ACT: Income-tax  Act  1922, s. 26A--Registration  of  firm--Minor shown as partner in partnership  deed--Not shown  as  having been admitted only to benefits of  partnership--Applications for registration and renewal of registration of   firm   not mentioning letter ’P’ in column 6--Partnership is void under s. 30 of Partnership Act 1932--Application under S. 26A  not complying Income-tax Rules--Registration rightly refused.

HEADNOTE: The  appellant  firm according to its partnership  deed  was constituted  of  five  partners  one of  whom  was  a  minor represented  by  his  father.   One  of  the  terms  in  the partnership  deed was that the profit and loss of the  busi- ness  would  be divided and borne between  the  partners  in equal shares.  The appellant firm made an application  under s.26A of the Income-tax Act 1922 for the registration of the firm  for  the year 1956-57 on 30-6-1955, the last  day  for making  the  application.   Along with  the  application  as required  by the rules, a copy of the partnership  deed  was submitted.   On October 8, 1955 an application was  made  to the  Registrar of Firms for registration of the  firm  under the  Partnership Act.  The Registrar raised an objection  to the effect that the partnership was invalidunder  s.30  of the  Partnership Act as one of the partners was  a  minor.On December  18,  1955  the four adult  partners  informed  the Registrar byletter  that the minor was admitted  to,  the benefits  of  the partnership and was not  liable  to  share losses.  The Registrar thereafter registered the firm.   The Income-tax  Officer registered the firm for  the  assessment year  1956-57  and renewed its registration  for  subsequent years up to 1961-62.  But the Commissioner of Income-tax  in exercise of his power under S. 33B of the act set aside  the orders made by the Income-tax Officer.  The Tribunal and the High  Court decided in favor of the Revenue.  In  appeal  to this Court by special leave. HELD  : (i) _The assessee firm was not registered under  the Indian Partnership Act before the application under s.26A of the  Act was made, nor was the partnership  deed  registered under  the  Indian Registration Act.  The  partnership  deed submitted  along  with  the  application  for   registration disclosed  that the partnership constituted under that  deed

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was  void in view of s. 30 of the Partnership Act as one  of the  five  partnership was a minor.  Hence  the  application made  for  registration  was an  invalid  application.   The subsequent  alteration of one of the terms of the  partition deed,  even  if  validity  made,  could  not  validate   the application made because the alteration in question was made long  after the time prescribed for making  the  application had expired and there was nothing to show that  the  Income- tax Officer had condoned the delay in exercise of his  power under  the  proviso  to Rule 2. If  the  original  order  of registration  was unauthorised, the subsequent  renewals  of the registration must also be held to be unauthorised.  [963 F] (ii)It  was  found  by  the  Tribunal  that  both  in   the application made for registration of the firm as well as  in the applications made for renewal of registration in  column 6  of the form-letter ’P’ was not mentioned.  On  the  other hand  the minor’s share was shown as 1/5th which  means  his share  both  in  the profits as well as in  the  loss.   The record did not show whether 960 the Income-tax officer was informed of the letter written to the Registrar of Firms on 18-12-1955 and if so on what  date he was informed about it.  From the above facts it was clear that  the applications made by the partners of the firm  did not comply with the requirements of the rules.  Hence  those applications could not be considered as valid  applications. [964 F] (iii)  Since the applications for registration  and  renewal did  not  conform  to  the  requirements  of  the  law   the registration and the renewals could not have been granted. (iv)Section 185(2) of the 1961 Act is not retrospective  in operation nor were the requirements of that section complied with.   The plea that substantial compliance with the  rules is  sufficient  stands negatived by the  decisions  of  this Court. [965G] Rao  Bahadur  Rayulu Subba Rao and Ors. v.  Commissioner  of Income-tax,  Madras, 30 I.T.R. 163 at 172,.  N. T.  Patel  & Co’ v. Commissioner of Income-tax, Madras, 42 I.T.R. 224 and Khanjan  Lal Sewak Ram v. Commissioner of Income-Tax,  U.P., 83 I.T.R. 175, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 471 to 476 of 1970. Appeals  by special leave from the judgment and order  dated July  29, 1969 of the Andhra Pradesh High Court in  Referred Case No. 34 of 1965. M.   C. Chagla, K. Mangachary, A. K. Verma, J. B. Dada- chanjiO.   C.  Mathur  and  Ravinder  Narain   for   the appellant. B.   B.  Ahuja,  S.  P. Nayar and R. N.  Sachthey,  for  the respondent. The Judgment of the Court was delivered by HEGDE J. These are connected appeals.  A common question  of law arises in these appeals.  That question is :               "Whether on the facts and in the circumstances               of the case, the assessee firm is entitled  to               registration under s. 26A of the Act." Application under S. 26A of the Indian Income-tax Act,  1922 (to  be  hereinafter  referred to as the  Act)  relating  to assessment   years 1956-57 to 1961-62,  relevant  accounting years being calendar years 1955, 1956, 1957, 1958, 1959  and

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1960  were made by the appellant to the Income-tax  Officer. The Income-tax Officer accepted the application relating  to the  assessment  year 1956-57 and granted  the  registration asked  for, by his order dated 30-6-1960.  At the same  time he granted renewals of the registration in respect of  other assessment  years.   But the Commissioner of  Income-tax  in exercise of his, powers under S. 33-B of the Act called  for and  examined the-papers of the case and after  hearing  the assessee  set  aside  the  orders  made  by  the  Income-tax Officer.   The assessee took up the matter in appeal to  the Income-tax  Appellate Tribunal.  The Tribunal  rejected  its appeal. Thereafter the question of law set out earlier was 961 referred to the High Court under s. 66(1) at the instance of the assessee.  The High Court answered that question in  the negative, and in favour of the Revenue.  Hence these appeals by special’ leave. The   assessee  firm  was  constituted  under  a   deed   of partnership dated 5-2-1955; but the deed shows that the firm came into existence on January 1, 1955.  The firm  consisted of  five partners namely (1) B. Satyanarayanamurti;  (2)  B. Bapaiah  Pantulu; (3) B. Seetaramaiah; (4)  B.  Subrahmanyam and  (5)  B. Rammonanrao.  The last one was  a  minor.   The partnership  deed  shows that he was a party  to  the  same, being represented by his father, B. Satyanarayanamurty.  One of the terms of the partnership deed is that the profit  and loss  of a business should be divided and borne between  the partners in equal shares.  The application under s. 26A  for the assessment year 1956-57 was made on 30-6-1955, the  last date   for   making  the  application.   Along   with   that application,  as  required  by  the rules,  a  copy  of  the partnership deed was also sent to the Income-tax Officer. On  October  18,  1955,  an application  was,  made  by  the partners  of the firm to the Registrar of Firms to  register the firm.  The Registrar,. by his letter dated December  13, 1955 objected to the registration of the firm on the  ground that  the  partnership  was  invalid  under  s.  30  of  the Partnership Act, as one of the partners was a minor.   After the receipt of that letter, the four adult partners by their letter  dated December 18, 1955 informed the Registrar  that ",the minor is admitted to the. benefits of the  partnership with the consent of all the partners.  He, has nothing to do with  the loss of the firm.  We therefore agree  to.  record our  consent and amend the application accordingly and  send the  same to the Registrar of Firms as directed." After  the receipt  of that letter, the Registrar of  Firms  registered the  assessee  firm, on January 10, 1956.  It is  not  known whether  a copy of that letter had been sent to the  Income- tax Officer and if so when it was sent. As  mentioned earlier, the Commissioner of  Income-tax,  set aside  the registration granted by the  Income-tax  Officer. He  came to the conclusion that the partnership in  question was  ab  initio void.  He rejected the contention  that  the letter  sent  to  the  Registrar  of  Firms  validated   the partnership  deed.   He further opined that several  of  the terms  in the partnership deed adversely affected the  minor and  therefore the partnership cannot be held to  be  valid. On  appeal, the Tribunal upheld the conclusions  reached  by the   Commissioner.    In  addition,  it   held   that   the applications for registration as well as for renewal did not conform to the requirements of the law and consequently they were invalid applications. 962 The  High  Court,  in an  elaborate  judgment  affirmed  the decision of the Tribunal that the partnership was not  valid

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in law.  It did not address: itself to the question  whether the  applications  made, for registration and  renewal  were otherwise invalid.  We are of opinion that the  applications for  registration  and  renewal  did  not  conform  to   the requirements of the law and consequently the registration or the renewals as the case may be could not have been granted. In that view we have not thought it necessary to go into the question  whether the partnership was validated as a  result of the letter written by he adult partners to the  Registrar of Finns on 18-12-1955. Section 26A prescribes               " ( 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.               (2)The  application shall be made  by  such               person or persons, and at such times and shall               contain such particulars and shall be in  such               form,  and be verified in such manner, as  may               be  prescribed; and it shall be dealt with  by               the  Income-tax Officer in such manner as  may               be    prescribed."               Sub-s. (5) of S. 59 prescribes that               "Rules  made  under  this  section  shall   be               published in    the Official Gazette and shall               thereupon have effect as  if  enacted in  this               Act."               Rule 2 framed under the Act says that               "Any  firm constituted under an Instrument  of               partnership  specifying the individual  shares               of the partners may, under the provisions,  of               section  26-A  of the Indian  Income-tax  Act,               1922  (hereinafter in these rules referred  to               as  the  Act), register  with  the  Income-tax               Officer, the particulars contained in the said               Instrument on application made in this behalf.               Such  application shall be signed by  all  the               partners (not being minors) personally, or  in               the  case of a dissolved firm by  all  persons               (not  being minors) who were partners  in  the               firm immediately before dissolution and by the               legal  representative of any such partner  who               is  deceased,  and  shall,  for  any  year  of               assessment up to and including the, assessment               for the year ending on the 31st day of  March,               1953, be, made before the 28th                                    963               February,,   1953,   and  for  any   year   of               assessment subsequent thereto, be made               (a)where  the firm is not registered  under               the Indian Partnership Act, 1932 (IX of  1932)               or  where,  the deed of  partnership,  is  not               registered under the Indian Registration  Act,               1908  (XVI of 1908), and the, application  for               registration is being made for the first  time               under the Act.-               (i)within  a  period of six months  of  the               constitution of the firm or before the end  of               the  ’Previous year’ of the firm whichever  is               earlier,  if the firm was constituted in  that               previous year,               (ii)before  the end of the previous year  in

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             any other case;               (b)where the firm is registered under,  the               Indian Partnership Act, 1932 (IX of 1932),  or               where  the deed’ of partnership is  registered               under  the Indian Registration Act, 1908  (XVI               of 1908), before the end of the previous  year               of the firm; and               (c)where  the application is or renewal  of               registration  under  Rule,  6  for  any  year,               before the 30th day of June of that year               Provided  that  the  Income-tax  Officer   may               entertain an application made after the expiry               of  the time-limit specified in this rule,  if               he is satisfied that the firm was prevented by               sufficient  cause from making the  application               within the specified time." The  assessee  firm  was not  registered  under  the  Indian Partnership  Act before the application under s. 26A of  the Act  was made nor was the partnership deed registered  under the Indian Registration Act.  The Partnership deed submitted along  with the application for registration disclosed  that the partnership constituted under that deed was void in view of s. 30 of the Partnership Act as one of the five  partners was  a minor.  Hence the application made  for  registration was  an invalid application.  The subsequent  alteration  of one  of  the terms of the partition deed,  even  if  validly made,  cannot  validate  the application  made  because  the alteration  in  question  was  made,  long  after  the  time prescribed for making the application had expired and  there is  nothing on record ’to show that the  Income-tax  Officer had  condoned the delay in exercise of his power  under  the proviso to Rule2. If the original order of registration  was unauthorised,  the subsequent renewals of that  registration must also be held to be, unauthorised. 964 Rule 3 requires. the assessee to make application under that rule in the form annexed to that rule.  Column 6 of the form requires the applicants to mention the "Share in the balance of ’profits (or loss) (annas and pies in the rupee)".   Note 2 in that form lays down that "If any partner is-entitled to share  in  profits  but is not liable  to,  bear  a  similar proportion  of any losses this fact should be  indicated  by putting against his share in column 6 the letter "P". Rule 4(1) prescribes the conditions and the manner in  which the Income-tax Officer can grant the certificate asked  for. Sub-rule (2)of  that  rule says that  it  the  conditions mentioned in sub-rule (1)are not satisfied, the Income- tax Officer "shall pass an order inwriting, refusing to recognise the instrument of partnership, or-the  certified copy  thereof,  and  furnish a copy of  such  order  to  the applicants". Rule 6 lays down the form in which renewal applications were required  to be made.  Column 6 of that form is  similar  to Column 6 of the form under rule 3. Note 2 under that form is similarly worded as note 2 in the form under rule 3. It  was found by the Tribunal that both in the application made  for registration  of  the firm. as well as in  the  applications made  for  renewal of registration in column 6 of  the  form letter "P" was not mentioned.  On the other hand the minor’s share  was shown as 1/5th which means his share both in  the profits  as well as in the loss.  As mentioned earlier,  the record  before  us  does not  show  whether  the  Income-tax Officer was informed of the letter written to the  Registrar of  Firms  on  18-10-1955, and if so on  what  date  he  was informed about it.

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From  the  facts  set  out  above,  it  is  clear  that  the applications made by the partners of the firm did not comply with   the   requirements  of  the   rules.    Hence   those applications cannot be considered as valid applications. In Rao Bahadur Ravulu Subba Rao and ors. v. Commissioner  of Income-tax, Madras(1), Venkatarama Ayyar J. speaking for the Court observed:               "Thus,  if a firm is registered, it ceases  to               be  a  unit for purposes of taxation  and  the               profits earned by it are taken, in  accordance               with  the general law of partnership  to  have               been earned by the individual partners accord-               ing.  to  their shares and they are  taxed  on               their individual income including their shares               of profits.  The, advantages of this provision               are obvious.  The rate of tax chargeable  will               not be on the higher scale provided for                (1)  I. T. R. 163 at 172;               965               incomes on the higher levels but on the  lower               one  at  which the income  of  the  individual               partner  is  chargeable.   Thus,  registration               confers on the partners a benefit to which they               would  not have been entitled but for  section               26A, and such a right being a creature of  the               statute,  can  be claimed only  in  accordance               with  the  statute, which confers  it,  and  a               person who seeks relief under section 26A must               bring himself strictly within its terms before               he  can  claim the benefit of  it.   In  other               words,  the right is regulated solely  by  the               terms of the statute and it would be repugnant               to  the character of such a right to,  add  to               those  terms by reference to other laws.   The               statute  must  be construed as  exhaustive  in               regard to the conditions under which it can be               claimed." This decision lays down that before a person can claim,  the benefit  of  s.  26A,  he  must  strictly  comply  with  the requirements of that section.  In view of sub-s. (2) of that section, he is also required to comply with the requirements of  the relevant rules.  Failure to comply either  with  the requirements  of  sub-s.  (1)  or  sub-s.  (2)  of  s.  26A, disentitles  the applicant to the benefit of  that  section. The same view was taken by this Court in N.T. Patel & Co. v. Commissioner of income-tax, Madras(").  The decision of this Court  in Khanjan Lal Sewak Ram v. Commissioner  of  Income- Tax, U.P.(2) lends support to that conclusion. It  was  contended by Mr. Chagla, learned  Counsel  for  the appellant that we should not allow technicalities to come in the  way  of our doing substantial justice to  the  parties. According  to him substantial compliance with the rules  set out  above  is sufficient to meet the ends of  justice.   In support of his plea he’ placed reliance on s. 185(2) of  the Income-tax  Act,  1961.   We are unable to  accede  to  that contention  ?  Section  185  (2) of  the  1961  Act  is  not retrospective in operation nor were the requirements of that provision   complied  with.   The  plea   that   substantial compliance with the rules is sufficient stands negatived  by the decisions referred to earlier. Yet another contention taken by Mr. Chagla was that the High Court did not base its decision on the grounds mention- (1) 42 I. T. R. 224. (2) 83 I. T. R. 175., 966

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ed  above;  but  it decided against the  appellants  on  the ground  that  the partnership is ab initio void.   Hence  we should not take up those grounds afresh.  This contention is irrelevant.   As mentioned, earlier, one of the  grounds  on which the Tribunal upheld the order ,of the Commissioner was that   the  applications  made  did  not  conform   to   the requirements or the law.  We agree with that conclusion. In  the result these appeals, fail and they  are  dismissed. Taking  .into consideration the facts and  circumstances  of the case, we ,direct the parties to bear their own costs  in this Court. Appeals dismissed. 967