Sri Ramamohan Motor Service Vs.
Commissioner of Income-Tax, Hyderabad  INSC 79 (11 April 1973)
KHANNA, HANS RAJ
CITATION: 1973 AIR 1445 1973 SCR (3) 959 1974
SCC (3) 116
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.
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 business 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 invalid under 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 by letter 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 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,
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. DadachanjiO. 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 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
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 a 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 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
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 any other
(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 in writing, refusing to recognise the instrument of
partnership, or-the certified copy thereof, and furnish a copy of such order to
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.
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
In Rao Bahadur Ravulu Subba Rao and ors. v.
Commissioner of Income-tax, Madras(1), Venkatarama Ayyar J. speaking for the
"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 according. 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 mentioned (1)
42 I. T. R. 224.
(2) 83 I. T. R. 175., 966 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
Taking .into consideration the facts and
circumstances of the case, we ,direct the parties to bear their own costs in