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PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: SIVAKASI MATCH EXPORT COMPANY

DATE OF JUDGMENT: 29/04/1964

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. SHAH, J.C. SIKRI, S.M.

CITATION:  1964 AIR 1813            1964 SCR  (8)  18  CITATOR INFO :  RF         1965 SC1703  (5)  R          1966 SC1490  (7)  RF         1970 SC1343  (21)  D          1985 SC1572  (4)

ACT: Income  Tax-Partne-hip  deed-Application  for  registration- Discretion  of income-tax Officer in granting  Registration- jurisdiction of the Income Tax officer-jurisdiction of  High Court on reference on 19 questions of fact-Indian Income-tax Act, 1922 (11 of  1922), s. 26-A -Indian Income-tax Rules, 1922, rr. 2, 3, 4.

HEADNOTE: There  were  five firms in  Sivakasi  manufacturing  matches under the name and style of Shenbagam Match Works, Brilliant Match  Works, Manoranjitha Match Works, Pioneer Match  Works and  Gnanam Match Works.  The sole proprietor  of  Shenbagam Match  Works  and one partner from each of  the  four  firms entered into a partnership in their individual capacity  and executed  a  partnership  deed dated  April  1,  1950.   The Income-tax  Officer  registered the said  partnership  ’deed under  S. 26(A) of the Act; but the Commissioner of  Income- tax   acting  under  s.  33B  of  the  Act,  cancelled   the registration of the said partnership deed. On appeal, the Tribunal held that the said partnership  deed was  not a genuine one.  On a reference the High Court  held on  a  construction of the partnership deed that  the  Match Works  were not the real parties to the partnership but  the parties to the document were the real partners.  This appeal has come by way of special leave. HELD:-(i)  (per  K. Subba Rao and S. M. Sikri JJ)  that  the discretion conferred on the Income-tax Officer under s. 26-A of  the  Act  is  a judicial one and  he  cannot  refuse  to register  a firm on mere speculation, but he shall base  his conclusion  on relevant evidence.  The jurisdiction  of  the Income-tax  Officer  under  s.  20-A  is,  confined  to  the ascertaining of two facts namely, (i)  whether   the  application  for  registration   is   in conformity with the rules made under the Act, and

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(ii) whether  the firm shown in the  document.  (Partnership deed)  presented for registration is a bogus one or  has  no legal existence. (ii) In  the  present  case the partnership  deed  ex  facie conforms to the  requirements of the law of partnership as well  as  the Income-tax   Act.   There  is  no  prohibition   under   the partnership Act against a partner or partners of other firms combining  together to form a separate partnership to  carry on  a different business.  The fact that such a  partner  or partners  entered  into  a sub-partnership  with  others  in respect of their share does not detract from the validity of the  partnership; nor the manner in which the  said  partner deals  with the share of his profits is of any relevance  to the question of validity of the partnership. (iii)     The tribunal erred in holding the partnership deed as not a genuine one.  In the present case the assessde-firm has  a  separate  legal  existence,  and  as  such  the  two circumstances relied upon by the Tribunal, namely, that  one of the partners of the assessee firm, brought in the capital from  his parent firm or that the profits earned by some  of the  partners were surrendered to the parent firm, would  be irrelevant.   A partner of a firm can certainly’ secure  his capital from any source or 20 surrender  his  profits  to his  sub-partner  or  any  other person.   Those  facts cannot conceivably  convert  a  valid partnership into a bogus one. In  the  present  case the partnership  deed  is  a  genuine document  and it complies with the requirements of law.   It is not an attempt to evade tax, but a legal device to reduce its tax liability. (iv) A question of law within the meaning of s. 66(2) of the Act  arose  for  decision  in  this  case  as  the  Tribunal misconstrued  the  provisions of the  partnership  deed  and relied  upon  irrelevant  considerations in  coming  to  the conclusion. Sree  Meenakshi  Mills Ltd. v. Commissioner  of  Income-tax, Madras. [19561 S.C.R. 691, relied on. Per  Shah, J.-(i) It was exclusively within the province  of the  Tribunal  to decide the question whether  the  partners entered into the partnership in their individual  capacities or  as representing their match factories and  its  decision that  in  entering into the deed of partnership,  the  named partners  represented their respective match factories,  was not  open to be canvassed in a reference under s.  66(2)  of the Indian Incometax Act.  In a reference under s. 66(2) the High  Court was not authorised to disregard the  finding  of the  Tribunal  on a question which was  essentially  one  of fact.  In the present case the High Court was not  justified in  interfering  with  the  finding of  the  Tribunal  on  a question of fact because it was not the case of the assessee that the conclusion of the Tribunal was based on no evidence or that it was perverse. (ii) Where  the law prescribes conditions for obtaining  the benefit of reduced liability to taxation, those  conditions, unless  otherwise provided, must be strictly complied  with, and if they are not so complied with, the taxing authorities would  be bound to refuse to give the tax payer the  benefit claimed.   It  would be open to the  Income-tax  Officer  to decline  to register a ’deed, even if under the general  law of partnership the rights and obligations of the partners ex nomine thereto may otherwise be adjusted. If  the  requirements  relating to the  form  in  which  the petition  is to be presented are not complied with, and  the

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relevant information is withheld the Income-tax Officer  may be justified in refusing registration.  In the present  case the  Income-tax Officer was bound to refuse registration  as the  application  submitted  by the  five  partners  of  the assessee did not conform to the requirements of rr. 2 and  3 of Indian Income-tax Rules.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 700 of 1963. Appeal  by special leave from the judgment and  order  dated January  11, 1961 of the Madras High Court in Case  Referred No. 131 of 1956. 21 H.   N. Sanyal, Solicitor-General, N.  D. Karkhanis and R.   N. Sachthei, for the appellant. K.   Srinivasan and R. Gopalakrishnan, for the respondent. April 29, 1964.  The judgment of SUBBA RAO AND SIKRI JJ. was delivered  by  SUBBA RAO J. SHAH J. delivered  a  dissenting opinion. SUBBA  RAO,  J.-This  appeal by special  leave  is  directed against the order of the High Court of Madras in a reference made  to  it by the Income-tax Appellate Tribunal  under  s. 66(2) of the Indian Income-tax Act, 1922, hereinafter called the Act. The facts that have given rise to the appeal may briefly  be stated.  There are 5 firms in Sivakasi manufacturing matches under the name and style of Shenbagam Match Works, Brilliant Match  Works, Manoranjitha Match Works, Pioneer Match  Works and Gnanam Match Works.  The total number of the partners of all  the  5  firms  does not exceed 1 0  or  II  in  number. Rajamoney  Nadar is the sole proprietor of Shenbagain  Match Works  and  in  the other 4 firms there are  more  than  one partner.  In the year 1948 a person from each of those firms in his representative capacity formed a partnership to carry on  the  business  of banking  and  commission  agents,  the principal  business being the marketing of the  products  of the  different match factories in Sivakasi.  When  the  said partnership applied for registration for the assessment year 1949-50, it was refused by the Income-tax Department on  the ground  that  different firms could not constitute  a  valid partnership.  Thereafter, Sankaralinga Nadar,  Arumughaswami Nadar,  Arunachala  Nadar, Palaniswamy Nadar  and  Rajamoney Nadar  the  first four being one of the  partners  of  their respective  firms and the last being the sole proprietor  of his firm, in their individual capacity entered into a  part- nership for the aforesaid purpose and executed a partnership deed  dated April 1, 1950.  They presented the said deed  of partnership to the Income-tax Officer for registration.  The Income-tax Officer by his order dated October 27, 1952, re- gistered  the  same  under  s.  26A  of  the  Act:  but  the Commissioner of Income-tax under s.33B of the Act, cancell- 22 ed the registration by an order dated October 23, 1954,  and directed the assessment to take place as that of an unregis- tered  firm.  On appeal, the Income-tax  Appellate  Tribunal held, on a construction of the partnership deed and also  on -the  basis of some other circumstances, that the said  deed "is  not  genuine  and  brought into  existence  only  as  a simulate arrangement, that the profits which are distributed under the deed to the individuals mentioned therein are  not the  true  profits of those individuals." In short  it  held that the said partnership deed was not a genuine one.  On  a reference made to the High Court of Judicature at Madras,  a

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Division Bench of that High Court, on a construction of  the document,  came to the conclusion that the Match Works  were not  the real parties to the partnership but the parties  of the  document  were the real partners.   Hence  the  present appeal. Learned  counsel for the Revenue raises before us  the  fol- lowing two points, namely, (i) the findings of the Appellate Tribunal  was  one of fact and that the High  Court  had  no jurisdiction to canvass the correctness of its finding on  a reference made under s. 66(2) of the Act, and (ii) the  con- clusion  arrived at by the Tribunal was the correct one  and the High Court erroneously interfered with it. It  is  common  place  that under s.  66(2)  of  the  Act  a reference to the High Court lies only on a question of  law. The  scope of the provision has been elaborately  considered by  this Court in Sree Meenakshi Mills Ltd. v.  Commissioner of   income-tax,  Madras(’).   Therein  the  scope  of   the provision  has been laid down under different  propositions. On  the basis of the judgment it cannot be gainsaid that  if the order refusing registration goes beyond the scope of the jurisdiction  conferred on the Income-tax Officer  under  s. 26A  of  the  Act and the Rules made thereunder  or  if  the decision  depends upon the construction of  the  partnership deed  or if there is no evidence to sustain the  finding  of the Tribunal, then the High Court will have jurisdiction  to entertain  the reference under s. 66(2) of the Act.  In  our view,  the finding of the Tribunal falls squarelv under  the said  three heads.  The relevant provisions of the Act  read thus: (1)  [1956] S.C.R. 691. 23 Section  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. (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. In exercise of the powers conferred by s. 59 of the Act, the Central Board of Revenue made the following rules: Rule  2.  Any  firm  constituted  under  an  instrument   of partnership specifying the individual shares of the partners may,  under  the  provisions of Section 26A  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 given by all the  partners  (not being minors) personally and shall be made------ (a)  before the income of the firm is assessed for any year under Section 23 of the Act, or Rule 3. The application referred to in Rule 2 shall be  made in the form annexed to this rule and shall be accompanied by the original Instrument of Partnership under which the  firm is constituted, together with a copy thereof; 24 FORM I For of Application for Registration of a Firm tinder section 26A of the Indian Income-tax Act, 1922 Rule 4.  If,  on receipt of the application referred  to  in

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Rule 3, the Income-tax Officer is satisfied that there is or was  a  firm  in  existence  constituted  is  shown  in  the instrument of partnership and that the application has  been properly made, lie shall enter in writing at the foot of the instrument  or  certified  copy,  as  the  case  may  be,  a certificate in the following form, namely:--. Rule  6B.   In  the event of the  Income-tax  Officer  bein- satisfied  that  the certificate granted under  Rule  4,  or under  Rule  6A,  has been obtained without  there  being  a genuine firm in existence, he may cancel the certificate  so granted. A  combined effect of s. 26A of the Act and the  rules  made thereunder  is that if the application made by a firm  gives the  necessary  particulars  prescribed by  the  rules,  the Income-tax  Officer cannot reject it, if there is a firm  in existence as shown in the instrument of partnership.  A firm may be said to be not in existence if it is a bogus or not a genuine   one,  or  if  in  law  the  constitution  of   the partnership  is  void.  The jurisdiction of  the  Income-tax Officer  is, therefore, confined to the ascertain I  ing  of two   facts,  namely,  (i)  whether  the   application   for registration is in conformity with the rules made under  the Act,  and (ii) whether the firm shown in the  document  pre- sented  for  registration  is a bogus one or  has  no  legal existence.   Further, the discretion conferred on him  under s. 26A is a judicial one and he cannot refuse to register  a firm  on mere speculation. but he shall base his  conclusion on relevant evidence. What  are  the facts in the present case?   The  partnership deed  is dated April 1, 1950.  In the document five  persons are  shown as its partners.  The name of the firm is  given, the 25 objects of the partnership business are described, the dura- tion of the business is prescribed and the capital fixed  is divided  between  them  in equal share.  Clause  16  of  the Partnership deed, on which the Tribunal relied, reads: "This  firm shall collect a commission of half an  anna  per gross on the entire production of the match factories of the partners,   respectively,   the   Brilliant   Match   Works, Manoranjitha  Match  Works, Pioneer Match  Works,  Shenbagam Match  Works and Gnanam Match Works produced from 1st  April 1950  whether sales were effected through this firm  or  not and  a further commission of half an anna per gross  on  the sales  effected through this firm.  This commission will  be collected  on  all  kinds  of  matches  produced  from   the abovesaid  factories.   The commission of half an  anna  per gross  on the entire production of these  factories  accrued due  at  the  end of every month shall  be  debited  to  the respective factories under advice to them." Clauses 22 and 23 which throw further light on the  question raised read: Clause 22.  The business of this firm shall have and has  no connection with the match manufacturing business carried  on now  by  the  partners separately  or  in  partnership  with others. Clause 23.  Any loss to the firm by way of fire accident  or by any other cause during the course of the business of  the firm,  notwithstanding  the fact that the  loss  might  have arisen  on the sale of or transaction relating to the  match manufacturing concerns of the -partners to this deed,  shall be  borne by this firm and shall be equally divided  between the partners to this deed. It  is  not  disputed that the  partnership  deed  ex  facie conforms  to the requirements of the law of  partnership  as

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well  as  the  Income-tax  Act.  Under  s.4  of  the  Indian Partnership Act partnership is the relation between  persons who have agreed 26 to  share the profits of the business carried on by  all  or any of them acting for all persons who have entered into the partnership  with one another called  individually  partners and  collectively  a  firm  and the  name  under  which  the business  is  carried  on  is called  the  firm  name.   The document  certainly conforms to the said definition.   There is  also no prohibition under the Partnership Act against  a partner  or  partners of other.firms combining  together  to form  a  separate  partnership  to  carry  on  a   different business.  The fact that such a partner or partners  entered into  a  sub-partnership. with others in  respect  of  their share does not detract from the validity of the partnership; nor  the  manner in which the said partner  deals  with  the share of his profits is of any relevance to the question  of the  validity of the partnership.  The document,  therefore, embodies a valid partnership entered into in conformity with the law of partnership. But  the  Tribunal has held that the partnership  is  not  a genuine  one for the following reasons: (i)  previously  the firm entered into a partnership but the registration of  the same was rejected; (ii) under cl. 16 of the partnership deed the  firm  has the right to collect the  commission  of  the entire  match production of the larger partnerships  whether they  effect their sales through the firm or not; (iii)  the books  of  Gnanam  Match Works show  unmistakably  that  the capital  was  contributed not by Palaniswamy  Nadar  in  his individual capacity but by the larger firm as such; and (iv) regarding  the  other  three larger firms  also  the  profit delivered  by their representatives from the  assessee  firm was  divided  amongst all the partners  according  to  their profit  sharing  ratio in the larger firms.   On  the  other hand,  the  High  Court  found, on  a  construction  of  the relevant  clauses of the partnership deed that the  business was the business of the partners of the firm, alone and that the  two  circumstances  relied upon by  the  Tribunal  were irrelevant  in acertaining whether the said partnership  was real or not.  We have already pointed out that the  document ex facie discloses a valid partnership.  The partnership was avowedly  entered into by the partners in  their  individual capacity   as   their   previous   partnership   in    their representative  capacity  was not registered on  the  ground that such a part- 27 nership was illegal.  If the larger firms cannot  constitute members of a new partnership, some of the partners of  those firms can certainly enter into a partnership shedding  their representative capacity if they can legally do so.  If  they can  do  so,  the mere fact that one of  them  borrowed  the capital from a parent firm-we are using this expression  for convenience of reference--or some of them surrendered  their profits  to  the  parent firm cannot make  it  anytheless  a genuine  firm.   Nor  does cl. 16 of  the  partnership  deed detract  from its genuineness: that clause does  not  create any  right in the partnership to collect the commission;  in view  of the close Connection between the assessee firm  and the  parent firms, the parent firms were expected to  effect all their sales through the assessee firm.  If they did  not and  if  they refused to pay commission,  the  assessee-firm could  not enforce its right under the said clause.   Clause 22  in express terms emphasizes the separate  identities  of the assessee-firm and the parent firms, and cl. 23  declares

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that notwithstanding the fact that the loss to the assessee- firm  has arisen on the sale or transaction relating to  the match manufacturing concerns, the assessee-firm alone  shall bear  the  loss and thereby indicates that the loss  of  the assessee-firm will not be borne by the parent firms.  If the assessee-firm  has  a  separate  legal  existence,  the  two circumstances  relied  upon by the  Tribunal,  namely,  that Palaniswamy Nadar, one of the partners of the assessee-firm, brought  in  the capital from his parent firm  or  that  the profits  earned by some of the partners were surrendered  to the parent firms, would be irrelevant.  A partner of a  firm can  certainly  secure  his  capital  from  any  source   or surrender  his  profits  to his  sub-partner  or  any  other person.   Those  facts cannot conceivably  convert  a  valid partnership into a bogus one. The  Tribunal mixed up the two concepts, viz., the  legality of  the  partnership  and the ultimate  destination  of  the partners’  profits.   It also mixed up the question  of  the validity of the partnership and the object of the individual partners  in entering into the partnership.  If to  avoid  a legal  difficulty  5 individuals, though four  of  them  are members  of  different  firms,  enter  into  a   partnership expressly  to comply With a provision of law, we do not  see any question of fraud 28 or  genuineness involved.  It is a genuine document  and  it complies with the requirements of law.  It is not an attempt to  evade  tax,  but  a  legal  device  to  reduce  its  tax liability.  The fact that all the partners of all the  firms did  not exceed 12 in number and if they chose all  of  them could have entered into the partnership indicates that there was  no  sinister inotive behind the  partnership.   As  the Tribunal misconstrued the provisions of the partnership deed and  relied upon irrelevant considerations in coming to  the conclusion it did., the High Court rightly differed from the view of the Tribunal.  In the circumstances, in view of  the decision  of this Court in Sree Meenakshi Mills’ case(’),  a question  of  law within the meaning of s.66(2) of  the  Act arose  for  decision.  The High Court rightly  answered  the question in the negative. In the result, the appeal is dismissed with costs. SHAH  J.-Sivakasi Match Export Companv-hereinafter  referred to as ’the assessee’-is a partnership "carrying on  business as  bankers,  commission  agents  and  distributors  of  the products  of  different match factories at Sivakasi  in  the State  of  Madras".  The assessee was formed  under  a  deed dated  April 1, 1950.  There were five partners of the  firm (1)  N. P. A. M. Sankaranlinga Nadar (2) K. S. S.  Arumugha- swami  Nadar (3) K. A. S. Arunuchala Nadar (4) K. P.  A.  T. Rajamoney  Nadar  and  (5) V. S. V.  P.  Palaniswamy  Nadar. Before  April  1,  1950, there existed  a  firm  also  named Sivakasi  Matches  Exporting Company which "consisted  of  a combine  of  six match factories"  at  Sivakasi  constituted under a partnership deed dated March 12, 1948.  Registration of  this  partnership under s. 26-A of the  Income-tax  Act, 1922,  was refused on the ground that the  partnership  deed did  not  specify  the  actual  shares  of  the   individual partners.   Thereafter a deed forming the partnership  which is sought to be registered in these proceedings was executed on  April  1,  1950.  It was recited in  the  preamble  that originally  four out of the five partners had been  carrying on  business  in  partnership as  representatives  of  their respective  match concerns, and it was found necessary  that they  should carry on the said business from April 1,  1950, jointly  in their individual capacity, and it was agreed  to

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admit into their part- (1)  [I956] S.C.R. 691 29 nership  as and from April 1, 1950 the fifth person,  namely V. S. V. Palaniswamy Nadar.  The following are the  material paragraphs of the agreement of partnership: "(16)  This firm shall collect a commission of half an  anna per gross on the entire production of the match factories of the  partners,  respectively,  the  Brilliant  Match  Works, Manoranjitha  Match  Works, Pioneer Match  Works,  Shenbagam Match Works and Gnanam Match Works, produced from 1st  April 1950  whether sales were effected through this firm  or  not and  a further commission of half an anna per gross  on  the sales  effected through this firm.  This commission will  be collected  on  all  kinds  of  matches  produced  from   the abovesaid  factories.   The commission of half an  anna  per gross  on the entire production of these  factories  accrued due  at  the  end of every month shall  be  debited  to  the respective factories under advice to them. "(22)  The  business  of this firm shall  have  and  has  no connection with the match manufacturing business carried  on now  by  the  partners separately  or  in  partnership  with others. (23) Any loss to the firm by way of fire, accident or by any other  cause during the course of the business of the  firm, notwithstanding the fact that the loss might have arisen  on the  sale of or transaction relating to the  match  manufac- turing concerns of the partners to this deed, shall be borne by  this  firm  and shall be  equally  divided  between  the partners to this deed." It  is common ground that each partner was concerned in  the manufacture  of matches either as owner or as  partner  with others.   Sankaralinga  Nadar  carried  on  business  as   a manufacturer  of matches with two others in the name of  the Brilliant Match Works; Armughaswamy Nadar as a partner  with three  other,, in the name of the Manoranjitha Match  Works; Arunachala Nadar as a partner with two others in the name of the Pioneer Match Works, Rajamoney Nadar 30 as  a  sole  proprietor of the Shenbagam  Match  Works,  and Palaniswamy Nadar as a partner with three others in the name of the Gnanam Match Works. On October 27, 1952, the Income-tax Officer passed an  order under  s.  26-A  granting registration  of  the  partnership constituted  under  the deed dated April 1,  1950,  but  the Commissioner  of Income-tax, Madras,  exercising  revisional jurisdiction  under s. 33-B of the Act, set aside the  order and  directed that the partnership be assessed to tax as  an unregistered  firm.   In the view of  the  Commissioner  the partnership deed did not represent the true state of affairs and  that  "the actual position as  distinguished  from  the recitals  in the partnership deed was that all the  partners of  the  Match  Factories  were  directly  partners  of  the assesses" and as the names of all the partners were not  set out  in  the  deed and the other  requirements  relating  to registration  had  not been complied with,  registration  be refused.   The order was confirmed in appeal to the  Income- tax Appellate Tribunal. At the direction of the High Court of Madras Linder s. 66(2) of  the Indian Income-tax Act, 1922, the  Tribunal  referred the following question: "Whether on the facts and the circumstances of the case  the refusal  of registration of the assessee firm under s.  26-A of the Income-tax Act was correct in law?" The  High  Court  answered this question  in  the  negative.

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Against that order, with special leave, the Commissioner  of Income-tax has appealed to this Court. The  Tribunal  held  that  the  covenants  in  the  deed  of partnership and especially in paragraphs 3 and 16 viewed  in the  light  of the entry in the books of account  of  Gnanam Match Works debiting the capital contributed in the name  of Palaniswamy Nadar to the assessee, and not in the name of  its partner, and division of the profits  received  from the  assessee by Palaniswamy Nadar, Sankarlinga Nadar,  Aru- maghaswamy Nadar and Arunachalam Nadar with others owners of their respective business, indicated that the named partners were acting as representatives of those owners.  The 31 High  Court also held that cl. 16 of the partnership  agree- ment  did  not impose any liability upon  the  manufacturing concerns to pay any commission as stipulated therein on  the "  production of the match factories".  The High  Court  ob- served: "Clause 16 does not lay any liability upon the manufacturing concerns  and  cannot  operate as  an  enforceable  contract against those other match companies.  If one of those  match companies  should decline to put through its sales  business through the assessee-firm, the only result would perhaps  be that the partnership would not advance moneys or finance  to that  manufacturing  concern;  it might  also  be  that  the particular  partner interested in the manufacturing  concern might  stand to lose the benefit of this  partnership.   But that   is  not  the  same  thing  as  to  say   that   those manufacturing concerns themselves had become partners of the assessee partnership." The  High  Court  also observed that the  assessee  was  not concerned  with the disposal of the profits received by  its partners.   Finally the High Court observed that  "an  indi- vidual  member  of  the partnership is  not  prevented  from engaging in business as member of another partnership.   The law does not prohibit such a course and even the  Income-tax law  relating to registration of partnerships  only  refuses registration  when  the formation of  such  partnerships  is intended  to evade the incidence of income-tax  and  nothing more.   We  are not satisfied that  the  Tribunal  correctly appreciated  the facts of the present case in coming to  the conclusion  that  the match works were the real  parties  to this instrument of partnership". The   Solicitor-General  appearing  for   the   Commissioner contended that the High Court had in exercising its advisory urisdiction,  in substance assumed appellate powers and  had ought to reappraise the evidence on which the conclusion  of the  Tribunal  was  founded.   Counsel  contended  that  the Tribunal had recorded a clear finding on the facts that the 32 "match works were the real" partners, and the High Court was bound  on the question framed to record its opinion  on  the questions of law referred on the basis of that finding. Section  26-A  of  the  Indian  Income-tax  Act  enacts  the procedure for registration of firms.  By that section on be- half of any firm application may be submitted to the Income- tax  Officer  for registration, if the firm  is  constituted under   an   instrument  of  partnership,   specifying   the individual  shares of the partners.  The application has  to be  made  by such person or persons and at  such  times  and shall contain such particulars and shall be in such form  as may  be  prescribed.   It  is open to a  firm  to  carry  on business without registration under the Indian  Registration Act.  By obtaining an order of registration, the partners of the  firm are enabled to -et the benefit of lower  rates  of

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tax  than those applicable to the whole income of the  firm, when charged as a unit of assessment.  In the relevant  year of  assessment if the firm was unregistered the tax  payable by  it  had  to be determined as in the case  of  any  other distinct entity and tax had to be levied on the firm itself. If,  however, the firm was registered, the firm did not  pay the  tax and therefore the tax payable by the firm  was  not determined,  but the share of profit received from the  firm was added to the income of each partner, and on the total so determined tax was levied against the partners individually. It  is  manifest  that if the firm desired  to  secure  this privilege  it  had to conform strictly to  the  requirements prescribed  by law.  Under the rules framed under s.  59  of the Indian Income-tax Act. 1922, rules    2 to 6B deal with registration and renewal of registration of firms.  The application for registration has to be signed by   all   the   partners   (not   being   minors) personally, and  the  application has to be in the fornm  prescribed  by rule  3.  The form prescribed requires the partners  of  the firm  to  disclose the names of each partner,  his  address, date  of  admittance  to  Partnership,  and  other  relevant particulars  including each Dartrer’s share in  the  profits and  loss,  "particulars of the firm as constituted  at  the date"   of   the  application,  and   particulars   of   the apportionment of the income, profits of gains or loss of the business,  profession  or  vocation  in  the  previous  year between the partners who in that previous 33 year were entitled to share in such income, profits or gains or loss, where the application is made after the end of  the relevant  previous  year.   If  the  Income-tax  Officer  is satisfied  that there is a firm in existence constituted  as shown  in the instrument of partnership and the  application has  been properly made, he has to enter in writing  at  the foot  of the instrument or certified copy, as the  case  may be,  a certificate of registration of the partnership  under s.  26-A  of  the Act.   This  certificate  of  registration ensures only for the year mentioned therein, but the firm is entitled to obtain renewal of the registration. On  the  conclusion  recorded  by  the  Tribunal  that   the partnership  deed dated April 1, 1950 was in truth  an  ins- trument  relating to an agreement to carry on  business  ’by all  the persons who owned the five businesses of which  the representatives  signed the deed, the application  submitted by  the live named partners of the assessee did not  conform to  the  requirements of rules 2 and 3  and  the  Income-tax Officer  was bound to refuse registration.  It is true  that the ,ground given by the Tribunal that the share of  profits received   by  individual  partners  of  the  assessee   was distributed  by four of those partners who had entered  into partnership contracts with other persons in the business  of their respective match factories, standing independently  of other grounds, may not be of much value in deciding  whether all the partners of the match factories were intended to  be partners  of  the  assessee.  It is open to  a  partner  who receives his share in the profits of the firm to dispose  of that  share in any manner he pleases, and no inference  from the distribution of the share of such profits alone can lead to  the ,inference that the persons who ultimately  received the  benefit of the profits are partners of the  firm  which had  distributed the profits.  But the Tribunal adverted  to three  circumstances.  The terms of the deed of  partnership purported  to impose an obligation to pay Commission on  the

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production  of the five match factories, representatives  of which  sought to join as partners eo nomine.  Imposition  of such  ,an  obligation  was  in  the  view  of  the  Tribunal inconsistent  -with the representatives of  those  factories being   partners  of  the  assessee  in   their   individual capacities.  Again it was 51 S.  C.-3 34 found that Gnanam Match Works had contributed capital to the assessee directly and not through its representative.  These wo circumstances, coupled with the ultimate distribution  of profits by the individual partners among the partners of the match factories, led to the inference that each partner  who signed  the deed dated April 1, 1950 was acting not  in  his personal  capacity, but as representing his  match  factory. Granting  that  the evidence from which  the  inference  was drawn  was not very cogent, it was still exclusively  within the province of the Tribunal to decide that question on  the evidence  before it, and its decision that in entering  into the  deed  of partnership, the  named  partners  represented their respective match factories, was not open to be canvas- sed  in a reference under s. 66(2) of the Indian  Income-tax Act.  The High Court observed that cl. 16 of the partnership deed  did  no, impose any obligation upon  the  partners  or their representatives of the five firms to pay commission as stipulated  under  that clause.  Undoubtedly,  there  is  no covenant  expressly  imposing such liability upon  the  mach factories,  but it was open to the Tribunal from  he  incor- poration of such an unusual covenant to infer that the named partners  of the assessee were acting as representatives  of their respective factories.  To assume from the erms of  cl. 16  that the owners of these match factories were not  bound by the covenants contained in cl. 16 is to assume the answer to  the  question  posed for opinion.  There  was  also  the circumstance  that  in the books of account  of  the  Gnanam Match Works of which Palaniswamy Nadar was a representative, capital  was debited as contributed to the  assessee.   This indicated   that  the  Gnanam  Match  Works   was   directly interested in the partnership.  If that factory had made  an advance  to  Palaniswamy  Nadar  to  enable  the  latter  to contribute  his  share  of the capital,  the  entry  in  the factory’s  books of account would have been in the  name  of its partner and not in the name of the assessee.  That  also is  a circumstance justifying an inference that in  entering into the deed dated April 1, 1950 Palaniswamy acted for  and on  behalf  of all the partners of the Gnanam  Match  Works. Sharing  of  profits received by the  named  partners,  with their partners in the respective match factories may not, as I have 35 already observed, by itself be a decisive circumstance.  But that did not authorise the High Court to disregard the find- ing of the Tribunal on a question which was essentially  one of  fact.   When  the High Court  observed  that  they  were satisfied  that the Tribunal had not  correctly  appreciated the  evidence in arriving at the conclusion that each  Match factory was the real party in the instrument of partnership, they  assumed to themselves jurisdiction which they did  not possess. It  was  not  the case of the assessee  that  there  was  no evidence on which the conclusion arrived at by the  Tribunal could  be founded, nor was it the case of the assessee  that the  conclusion was so perverse that no reasonable  body  of men  properly  instructed in the law could have  arrived  at that  conclusion.  It is also clear from the record that  no such  question  was  even  canvassed  before  the  Tribunal.

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Manifestly such a question could not arise out of the  order ,of  the  Tribunal, and none such was referred to  the  High Court.   By  the question actually  referred,  the  Tirbunal sought  the opinion of the High Court whether on  the  facts and   circumstances   refusal   of   the   application   for registration of the assessee was correct in law.  If it  was the case of the assessee that the conclusion of the Tribunal was based on no evidence, or that it was perverse, the  High Court  could  be  asked to call for  a  reference  from  the Tribunal on that question.  But that was never done. It is true that the object of enacting s. 26-A and the rules relating  to  the procedure for registration is  to  prevent escapement  of  liability to tax.  But it is  not  necessary that before an order refusing registration is made, it  must be  established that there was evasion of tax  attempted  or actual.   It is always open to a person,  consistently  with the  law, to so arrange his affairs that be may  reduce  his tax  liability  to the minimum permissible tinder  the  law. The  fact  that the liability to tax may be reduced  by  the adoption  of an expedient which the law permits,  is  wholly irrelevant  in considering the validity of  that  expedient. But  where the law prescribes conditions for  obtaining  the benefit of reduced liability to taxation, those  conditions, unless  otherwise provided, must be strictly complied  with, and if they are not 36 so  complied with, the taxing authorities would be bound  to refuse  to  give  the taxpayer the  benefit  claimed.   When application  for  registration  of the  firm  is  made,  the Incometax Officer is entitled to ascertain whether the names of  the partners in the instrument are of persons  who  have agreed  to  be  partners, whether the  shares  are  properly specified and whether the statement about the shares is real or  is  merely  a cloak for distributing the  profits  in  a different  manner.  If all persons who have in truth  agreed to be partners have not signed the deed or their shares  are not  truly set out in the deed of partnership, it  would  be open  to  the Incometax Officer to decline to  register  the deed,  even  if  under the general law  of  partnership  the rights and obligations of the partners eo nomine thereto may otherwise  be  adjusted.   As a corollary to  this,  if  the requirements  relating to the form in which the petition  is to  be  presented are not complied with,  and  the  relevant information  is  withheld,  the  Incometax  Officer  may  be justified in refusing registration. In  my  view the High Court was in error in holding  on  the question  submitted  that the registration of  the  assessee under s. 26-A of the Income-tax Act was wrongly refused. The answer to the question referred to the High Court should be in the affirmative.                            ORDER In  accordance with the opinion of the majority, the  appeal is dismissed with costs. Appeal dismissed