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PETITIONER: COMMISSIONER OF INCOME TAX PATIALA

       Vs.

RESPONDENT: MlS. JAGANNATH PYARELAL

DATE OF JUDGMENT29/08/1985

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) MISRA RANGNATH

CITATION:  1986 AIR  123            1985 SCR  Supl. (2) 735  1985 SCC  (4) 181        1985 SCALE  (2)595

ACT:      Indian Income  Tax Act,  1922, Section  26A and Rules 2 and 4  of Income  Tax Rules  1922 -  Registration of  firm - Partnership deed  not  signed  by  one  of  the  partners  - Application for  registration made  beyond prescribed time - Held, Firm not entitled to registration.

HEADNOTE:      The respondent  had 11 partners on 8.10.1956, including Shri Rabinder  Kumar who  left India for abroad on 29.1.1959 for prosecuting  his studies.  A fresh  partnership deed was executed to  that effect  on 1.4.1959.  The  respondent-firm filed an  application on  30.9.1959 for  registration of the said firm  under section  26A of  the Indian  Income Tax Act 1922. The  Tribunal rejected  the application  on the ground that the  firm was  not  genuine  and  the  application  for registration of  partnership firm was not in accordance with the rules as Rabinder Kumar had not signed it.      In a reference made under section 66(2) of the Act, the High Court  held that the firm was entitled to be registered for two reasons, namely, (1) that another opportunity should have been  given to  show whether  the firm  was actually in existence  or   not;   and  (11)  that  Rabinder  Kumar  had acquiesced in  the constitution of the firm and had accepted the position.      Allowing the appeals, F ^      HELD: 1. (1) The firm was not  entitled to registration under section  26A of  the Act  as it  did not   fulfil  the conditions laid down for its registration. [738 A]      1.(11) The  law enjoins  that the  deed of  partnership must be  signed personally  by  each  partner.  Furthermore, Rules 2  and 4 of the Income Tax Rules 1922 require that the application for registration must be made within a period of six months of the constitution of the firm or before the end of the  previous year"  of the firm whichever 18 earlier, if the firm was constituted in that previous year. 1738 B] 736      In the  instant case,  factually neither  the  deed  of partnership  was  signed  by  Rabinder  Kumar  nor  was  the application for  registration in  accordance with the Rules, and these  findings of  fact were  not negatived by the High

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Court. Therefore  the registration  of the  firm was rightly refused. [737-H, 738 C-D]      R.C. Mitter  & Sons  v.  Commissioner  of  Income  Tax, Calcutta 36 I.T.R. p. 194 and Rao Bahadur Ravulu Subba Rao & Ors. v.  Commissioner of Income Tax, Madras 30 I.T.R. 163 at page 166, relied upon.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeal No. 124 of 1974.      From the  Judgment and  Order dated 22nd February, 1973 of the  Punjab &  Haryana High Court in Income Tax Reference No. 7 of 1972.                             AND              ClVIl Appeal Nos. 4122-23 of 1985.      From the  Judgment and  Order dated  11th July, 1979 of the Punjab  & Haryana High Court in Income Tax Cases Nos. 21 and 22 of 1974.      C.M. Lodha and Miss A. Subhashini for the Appellant.      P.K. Mukharjee for the Respondent.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. Special leave is granted in the above-mentioned two Petitions.      These appeals  by special leave arise out of a decision and judgment  of the  Punjab & Haryana High Court in respect of the assessment year 1960-61, under Indian Income Tax Act, 1922 holding  that the  registration of the firm was wrongly refused. A  reference was  made under  section 66(2)  of the Indian Income-Tax  Act, 1922 to the High Court in respect of the following question:           "Whether on  the facts and in the circumstances of           the case, the registration of the firm has rightly           been refused?      Originally there  were 10  partners who were members of two 737 families and a firm came into existence under the instrument dated 27.3.1952,  when Padam  Kumar was  a  minor.  When  he attained majority  on 1.10.1956,  he opted  to continue as a full-fledged partner  and a  fresh instrument of partnership was executed  on 8.10.1956  by 11  partners  including  Shri Rabinder Kumar.  A fresh deed was executed to that effect on 1.4.1959 and an application dated 2.9.1959  for registration of the  said firm  under section  26-A of  the said  Act was filed on  30.9.1955. Shri Rabinder Kumar had left Indian for United States  of America  for prosecuting  his  studies  on 29.1.1959. It  was found by the Tribunal that Rabinder Kumar had not  signed the  application but  indeed he  was away to U.S.A. from  29.1.1959. This  finding was  not challenged by the assessee  before the  High Court. The Tribunal held that the firm  was not genuine and the application was not proper as Rabinder  Kumar had  not signed  and the  application for registration of  partnership was  not in accordance with the rules. These  findings were  not challenged  before the High Court. The  High Court,  however, was  of the  opinion  that another opportunity  should have  been given to show whether the firm,  was actually  in existence or not. The high Court held that  Rabinder Kumar had acquiesced in the firm and had accepted the  position and as such the firm, was entitled to be registered.  The conditions required to be fulfilled have been laid  down by  this Court  in the case of R.C. Mitter & Sons v.  Commissioner of  Income Tax,  Calcutta 36 I.l.R. p. 194. This Court held that in

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         "Order that a firm may be entitled to registration           under section  26A  of  the  Income-tax  Act,  the           following essential  conditions must  be satisfied           viz. (i)  the firm  should be constituted under an           instrument   of    partnership,   specifying   the           individual  shares   of  the   partners;  (ii)  an           application on  behalf of,  and signed by, all the           partners and containing all the particulars as set           out  in   the  Rules   nust  be  made;  (iii)  the           application should  be made  before the assessment           of the  firm under section 23, for that particular           year; (iv)  the Profits  of losses  if any  of the           business relating  to the  accounting year  should           have been divided or credited, as the case nay be,           in accordance  with the  terms of  the instrument;           and (v)  the partner ship nust be genuine and nust           actually have existed in conformity with the terns           and conditions  of the  instrument of partnership,           in the accounting year.      As  it   appears,  factually   neither  the   deed   of partnership  was  signed  by  Rabinder  Kumar  nor  was  the application for registration 738 in accordance  with the  rules. Therefore,  the firm was not entitled to  registration under s. 26-A of the Indian Income Tax Act,  1922. The law enjoins that the deed of partnership must be  signed personally by each partner and this position is settled  by the  decision of  this Court  in Rao  Bahadur Ravulu Subba  Rao &  Ors.. v.  Commissioner of  Income  Tax, Madras 30 I.T.R. 163 at page 166, Furthermore, Rules 2 and 4 of the  Income Tax  Rules, 1922 enjoins that the application for registration  must be made 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, at the  firm was  constituted in that previous year. Neither of  these   conditions  was   fulfilled  in  the  facts  and circumstances of the case as found by the Tribunal and these were  not   negatived  by   the   High   Court.   In   these circumstances, we  are of  the opinion that the Tribunal was right in refusing the registration of the firm and  the High Court was not right in holding otherwise. The question  referred must  be answered  by saying that the registration of the firm was rightly refused.      The appeals are, therefore, allowed and the decision of theTribunal is  restored. The  appellant is  entitled to the costs of these appeals. M.L.A.                                      Appeals allowed. 739