http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: MESSRS PRATAPMAL LUXMICHAND

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MADHYAPRADESH.

DATE OF JUDGMENT: 08/02/1956

BENCH: BHAGWATI, NATWARLAL H. BENCH: BHAGWATI, NATWARLAL H. DAS, SUDHI RANJAN AIYYAR, T.L. VENKATARAMA

CITATION:  1956 AIR  364            1956 SCR   91

ACT: Registration of firm-Deed of partnership and application for registration not signed by all partners-Refusal to  register by   the   Income-tax  Officer-Powers  of   the   Appellate. Assistant  Commissioner-Indian Income-tax Act (XI of  1922), s. 26-A-Indian Income-tax Rules, 1922, rule 2.

HEADNOTE: The  appellant  (a firm) consisted of seven partners  and  a deed of partnership was executed by all the partners  except one  who  happened to be in Jail being a  security  prisoner under  the  Defence  of India  Rules.   An  application  for registration of the firm under s. 26-A of the Indian Income- tax Act was made before the Incometax Officer, who, however, rejected  it on the ground that the deed of partnership  and the application for registration were not signed by all  the partners.   On appeal, the Appellate Assistant  Commissioner cancelled  the order of the Income-tax Officer and  directed him  to register the firm after obtaining the  signature  of the  partner  who  had  not  signed  before,  both  on   the application for registration and the deed of partnership. Held,  that under Rule 2(c) of the Indian Income-tax  Rules, 1922, framed under s. 26-A(2) of the Indian Income-tax  Act, the  Appellate Assistant Commissioner had only the power  to direct  registration  of  the firm if  an  application  duly signed by all the partners had been presented to him  before the assessment was confirmed, reduced, enhanced or  annulled and that he was not legally 92 competent  to direct the Income-tax Officer to register  the firm  after obtaining the signature of the partner  who  had not signed before.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 199 of 1955. Appeal  by special leave from the judgment and  order  dated the  17th  day  of April 1953 of the Nagpur  High  Court  in Miscellaneous Civil Case No. 53 of 1950. Nur-ud-din Ahmad and Naunit Lal, for the appellant.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

C.   K.  Daphtary, Solicitor-General of India, G.  N.  Joshi and B. H. Dhebar, for the respondent. 1956.   February S. The Judgment of the Court was  delivered by BHAGWATI  J.-This is an appeal with special leave  from  the Judgment and Order of the High Court of Judicature at Nagpur on  a reference made by the Income-tax  Appellate  Tribunal, Bombay Branch ’A’ under section 66(1) of the Indian  Income- tax Act XI of 1922 whereby the High Court answered the  ref- erred question against the appellant.   The  appellant, a firm of Messrs Pratapmal  Laxmichand  of Betul consisted of 7 partners, viz., Misrilal Goti,  Meghraj Goti,  Panraj  Goti,  Phulchand,  Basantibai,  Ratanbai  and Gokulchand Goti.  A deed of partnership was executed on  the 12th  February  1944 by all the partners  except  Gokulchand Goti  who happened to be in the Seoni Jail being a  security prisoner under the Defence of India Rules.  He was unable to sign  the  same  in  spite of  all  efforts  to  obtain  his signature in prison.  An application for registration of the firm  under section 26-A of the Act for the assessment  year 1943-44 was made on the 24th March 1944 personally signed by the other 6 partners of the firm and was accompanied by  the deed  of partnership which also had been signed by  those  6 partners.  The Special Income-tax Officer, Nagpur,  rejected the  application on the ground that the deed itself was  not valid inasmuch as it had not been signed 93 by  all the partners mentioned in the body and there was  no signature of Gokulchand on the deed and the application.  An appeal  was  taken to the Appellate  Assistant  Commissioner against  this decision of the Special Income-tax Officer  on the  24th April 1944.  Gokulchand appended his signature  to the  deed  of partnership in Seoni Jail on the  9th  January 1945.   The appeal was heard before the Appellate  Assistant Commissioner  on the 20th March 1947 and he passed an  order on  the  17th  February 1948 cancelling  the  order  of  the Special Income-tax Officer and directing him to register the firm after obtaining the signature of Gokulchand both on the application  for registration and the deed  of  partnership. At the instance of the Commissioner of Income-tax, C. P. and Berar, an appeal was filed against this order of the  Appel- late Assistant Commissioner by the Income-tax Officer,  Spl. I.T.  cum  E.P.T.  Circle,  Nagpur,  before  the  Income-tax Appellate Tribunal.  The Tribunal allowed the appeal by  its order  dated 11/16 October 1948 observing that  the  Special Income-tax Officer was justified in refusing to register the firm  as the application for registration was not signed  by Gokulchand,  that Rule 2(c) of the Indian Income-tax  Rules, 922, on which the Appellate Assistant Commissioner teems  to have  relied  did  not apply  and  the  Appellate  Assistant Commissioner  was not justified in directing the  Income-tax Officer "to register the firm after obtaining the  signature of Seth Gokulchand both in the application for  registration and  the deed of partnership".  The appellant applied for  a reference  to the High Court under section 66(1) of the  Act and the Tribunal referred the following question arising out of its order for the opinion of the High Court: "Whether  on the facts and in the circumstances of the case the Appellate Assistant  Commissioner was legally competent to direct  the Income-tax Officer to register the firm after obtaining  the signature  of  Seth Gokulchand both in the  application  for registration  and  in the deed of  partnership".   When  the statement  of the case was being drawn up by  the  Tribunal, counsel for the appellant suggested that the words 94

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

appearing in para 6 of the statement, viz., "No  application was  submitted  to  the  Appellate  Assistant   Commissioner seeking his permission under Rule 2(c) of the Indian Income- tax   Rules"  be  deleted.   He  also  suggested  that   the concluding words in the question referred to the High Court, viz., "after obtaining the signature of Seth Gokulchand both in  the  application  for registration and in  the  deed  of partnership"   be  deleted.   With  regard  to  the   latter suggestion  the Tribunal observed that they were  unable  to delete  the same inasmuch as the words sought to be  deleted were  the  concluding  words  appearing  in  the   Appellate Assistant,  Commissioner’s  order dated the  17th  February, 1948  giving directions to the Income-tax Officer  and  were words  which were material to the question before  the  High Court.  With regard to the first suggestion counsel for  the appellant had stated that the appellant had submitted  three applications  to  the Appellate Assistant  Commissioner  all dated  20th March, 1947 and that it would be wrong to  state that no application was submitted to the Appellate Assistant Commissioner.   The  allegation made by  the  appellant  was properly  investigated  subsequently and  the  Tribunal  was satisfied  that the appellant did not appear to have put  in the  application  dated 20th March, 1947 as  alleged.   This being the position the Tribunal stated that no change in the statement  of  case  was  called for  as  suggested  by  the appellant.   It was on this statement of case by the Tribunal that  the referred  question came to be determined by the High  Court. Before the High Court the appellant had applied on the  27th November, 1950 that the three certified copies of the  three applications dated 20th March, 1947 made by the appellant to the  Appellate Assistant Commissioner with  their  originals should  be  sent  for by the High Court  from  the  Incomeax Tribunal  and  an order had been made accordingly.  he  High Court  was  of  the  opinion  that  the  Appelate  Assistant Commissioner  should  have ordered egistration of  the  firm provided there was an application before him duly signed  by all the partners.  As, 95 however,  there was no such application, he could  not  have directed  the Income-tax Officer to register the firm  after obtaining the signature of Gokulchand on the application and also  in the partnership deed . The High  Court  accordingly answered the referred question in the negative.  An  application  under  section 66-A(2) of the  Act  for  a certificate  for leave to appeal to this Court against  that order  was  dismissed by the High Court  but  the  appellant obtained special leave to appeal against the same from  this Court on the 6th December, 1954.   The  main  question that arises for our  determination  in this  appeal  is:-What  are  the  powers  of  the  Appellate Assistant  Commissioner on the hearing of an appeal  against the  refusal  by the Income-tax Officer to register  a  firm under  section  26-A  of the Act and Rule 2  of  the  Indian Incometax Rules, 1922?   Section 26-A of the Act provides:--   " (1) Application maybe 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 supertax.  (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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

such  manner,  as may be prescribed; and it shall  be  dealt with  by  the Income-tax Officer in such manner  as  may  be prescribed". Rule  2 of the Indian Income-tax Rules, 1922, which  was  in force  at the relevant period, in so far as is material  for the  purpose of this appeal, provided:   "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  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 96 (not being minis) personally and shall be made- (a)  before he income of the firm is assessed for any year  under section 23 of the Act, or (b).. ........  or  (c) with   the  permission  of  the   Appellate   Assistant Commissioner hearing an appeal under section 30 of the  Act, before  the  assessment is confirmed, reduced,  enhanced  or annulled, or   (d)   (e) The  decision  of the Income-tax Officer in  regard  to  the invalidity of the deed of partnership inasmuch as it did not bear  the signature of Gokulchand was not challenged by  the appellant  at  any  stage  of the  proceedings  nor  in  the statement  of  case before us.  Counsel for  the  appellant, however,  relying on a passage in the "Law and  Practice  of Income-tax  by Kanga and Palkhivala", 3rd Ed., at page  754, urged that it was not necessary that the partnership  agree- ment  should  be  signed  by all the  partners  and  if  the agreement  had  not been signed by one of the  partners  but that  partner  had  assented to the  agreement  and  put  it forward along with the other partners for registration,  the agreement  would  be admissible for  registration.   In  the first instance, it was not open to the appellant to urge any point which was not taken in the statement of case and  even if  it  was open to him to urge that contention  we  do  not think it necessary to express any opinion on the correctness or  otherwise of the statement above referred to in view  of the  construction  which  we put on Rule  2  of  the  Indian Income-tax Rules, 1922.  The Rules were framed under section 26-A(2) of the Act  and bad  statutory  force.  Under Rule 2,  the  application  for registration  of the firm was to be made to, the  Income-tax Officer  and the particulars contained in the Instrument  of Partnership specifying the individual shares of the partners were  to  be registered with him on an application  made  in that  behalf signed by all the partners (not  being  minors) personally.   No  such  application  was  submitted  to  the Special Income-tax Officer in this case before he 97 made his order on the 18th March 1944, and on the  materials as  they  stood  on record then, the order  of  the  Special Income-tax   Officer  was  perfectly  justified.   No   such application signed by all the partners of the firm including Gokulchand was also available before the Appellate Assistant Commissioner  when  he heard the appeal on  the  20th  March 1947.  The appellant contended that he had in fact filed  in the  office of the Appellate Assistant Commissioner  on  the said  20th  March 1947 three applications one of  which  was such  an application signed by all the  partners  personally including  Gokulchand  and it was strenuously urged  on  his

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

behalf that the Appellate Assistant Commissioner passed  his order  dated  the  17th  February  1948  ignoring  the  said application  which  had been filed in his  office.   It  was urged  that,  if the Appellate  Assistant  Commissioner  had before  him the said application dated the 20th  March  1947 signed by all the partners personally including  Gokulchand, it was his duty to direct a registration of the firm himself without  anything more inasmuch as the deed  of  partnership had  been signed by Gokulchand on the 9th January  1945  and the application for registration of the firm dated the  20th March  1947 bore his signature.  The direction given by  the Appellate  Assistant Commissioner to the Income-tax  Officer to register the firm was, it was contended, therefore proper and  we were asked to treat the words "after  obtaining  the signature  of Seth Gokulchand in the application for  regis- tration and in the deed of partnership" as superfluous.   We  are  not  impressed with this  argument.   As  appears abundantly  clear  from the terms of the order made  by  the Appellate  Assistant Commissioner himself and also from  the statement of case prepared by the Tribunal, the  application signed  by all the partners personally including  Gokulchand was  not  before the Appellate Assistant  Commissioner.   An application  had been made by the appellant before the  Tri- bunal to amend the statement of case by deleting from para 6 thereof  the  words  "no application was  submitted  to  the Appellate Assistant Commissioner 13 98 seeking his permission under Rule 2(c) of the Indian Income- tax Rules" but the same had been rejected by the Tribunal as a   result   of  proper  investigation   conducted   by   it subsequently, the Tribunal stating that they were  satisfied that  the  assessee  did  not  appear  to  have  put  in  an application  dated  the  20th March 1947  as  alleged.   The reference  was beard by the High Court on this statement  of case prepared by the Tribunal and no steps were taken by the appellant before the High Court for having the statement  of case  amended  by  the  Tribunal or  for  having  a  further statement  of  case  submitted  by  the  Tribunal  recording therein  the  facts  alleged by  the  appellant.   We  must, therefore,  decide  this appeal on the facts stated  in  the statement of case by the Tribunal and on the basis that  the application  for  registration  dated the  20th  March  1947 signed  by all the partners personally including  Gokulchand was not before the, Appellate Assistant Commissioner.   If  that  was  the  position, the  only  power  which  the Appellate Assistant Commissioner bad under Rule 2(c) was  to accord  permission to the appellant to make the  application in  proper form to the Incometax Officer signed by  all  the partners   personally   including  Gokulchand   before   the assessment  was  confirmed, reduced, enhanced  or  annulled. The Appellate Assistant Commissioner had, under the Rule, no power to direct the Income-tax Officer to register the  firm after  obtaining  the signature of Gokulcband  both  in  the application for registration and in the deed of  partnership as  he did.  As a matter of fact the appellant did  not  ask for   such   permission   from   the   Appellate   Assistant Commissioner  nor  was any revision taken by  the  appellant before  the  Commissioner  under section  33-A  of  the  Act against   the   said  order  of  the   Appellate   Assistant Commissioner.  The appellant contented himself with  arguing that the order made by the Appellate Assistant  Commissioner was  justified and the sole controversy which arose  between the  parties  and  was the subject matter  of  the  referred question  was whether the Appellate  Assistant  Commissioner

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

was legally competent to direct the Income- 99 tax  Officer  to  register  the  firm  after  obtaining  the signature   of  Gokulchand  both  in  the  application   for registration and in the deed of partnership.  The  appellant attempted  no doubt to have the words "after  obtaining  the signature  of  Seth Gokulchand both in the  application  for registration  and in the deed of partnership"  deleted  from the referred question.  That attempt, however, failed and no steps  were taken by the appellant before the High Court  at the  hearing  of the reference to either have  the  referred question  amended  or  reframed  in  order  to  bring   into prominence  his  contention in regard to the powers  of  the Appellate Assistant Commissioner.   On the question as framed, the only answer which the  High Court   could   give  was  that  the   Appellate   Assistant Commissioner was not legally competent to direct the Income- tax  Officer  to  register  the  firm  after  obtaining  the signature   of  Gokulchand  both  in  the  application   for registration  and  in the deed of  partnership.   Rule  2(c) above-quoted   did  not  empower  the  Appellate   Assistant Commissioner  to do anything of the sort and we are  of  the opinion  that  the  answer given by the High  Court  in  the negative was, therefore, correct.   Counsel for the appellant tried to support his argument by referring to the provisions of the earlier partnership deeds between the several partners of this firm in the years  1929 and  1941 which specifically provided that in the  event  of retirement, or death of, or relinquishment, of his share  by a partner, the partnership will not be dissolved but will be continued, in case of death of any of the partners, by  such of the partners as remained and the legal representatives or nominees  of  the  deceased  partner  and  in  the  case  of retirement of any of the partners by such of the partners as remained.  We fail to understand what bearing these  clauses have on the determination of the referred question.  In  the result,  the  appeal of the appellant fails and  must  stand dismissed with costs. 100