COMMISSIONER OF INCOME TAX PATLALAversusM/S. JAGANNATH PYARELAL

                                                                     735


                                                                            A
                    COMMISSIONER OF INCOME TAX PATlALA
                                       v.
                           M/S. JAGANNATll PYARELAL

                                AUGUST 2 9, 1985
                                                                            B
               [ SABYASACllI MUKllARJI AND RANGANATH MISRA, JJ • ]

           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 regis-
      tration made beyond prescribed time - Held; Firm not entitled to
      registration.                                                         c
           The respondent-fiilll had 11 partne~s on 8.10.19.56, ineluding
      Shri Rsbinder Kumar who left Ind1s for abrosd on 29.1.19.59 for
      prosecuting his studies •. A fresh partnership deed was executed to
      that effect on 1.4.19.59. The respondent-firm filed an application
      on 30.9.19.59 for regist.ration of the said firm under section 26A    D
      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 Rsbinder Kumar had not signed it •

             In a reference made under section 66(2) of the Act, the
      Higli Court held that the firm was··entitled to be , registered for   E
      two reasons, namely, (i) that another opportunity should have
      been given to show whether the firm wan actuslly in existence or
      not; and (ii) that Rsbinder Kumar had acquiesced in the
      constitution of the firm and had accepted the position.

            Allowing the appeals,                                           F

            HELD: l. I (i) 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]

           l.(ii) The lsw enjoins that the deed of partnership must be      G
      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 is earlier,. if the firm was constituted in
      that previous year. [738 B]                                           H
        736             SUPREME COURT REPORTS            [1985] SUPP.2 s.c.R.


A            In the instant case, factually neither the deed of partner-
        ship was signed by Rabinder Kumar nor was the applicatiun for
        registration in accordance with the Rules, and these findings of
        fact were not negatived by the High Court. Therefore the
        registration of the firm was rightly refused. [737-H, 738 C-D]

B            B..c. Mitter & Sons v. ea-<ea<oaer' of me- Tax, Calcutta
        36 I.T.R. P• 194 and llao Bahedqr Jlavulu Subba llao & Ors. v.
        eo-<seiooer of lDcfxE Tax, lladras 30 I.T.R. 163 at page 166,
        relied upon.

                CIVIL APPELLATE JURISDICTION     Civil   Appeal   No. 124 of
        1974.
c
              From the Judgment and Order dated 22nd February, 1973 of
        the Punjab & Haryana High Court in Income Tax Reference No. 7 of
        1972.
                                         AND
                         Civil Appeal Nos. 4122-23 of 1985.

D             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.

E               P.K. Mukharjee for the Respondent.

                The Judgment of the Court was delivered by

                SABYAsAcl!l MUKHARJI, J, Special leave is granted in the
        above-mentioned two Petitions.
F
                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
G       Act, 1922 to thr 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?"

    H           Originally there were 10 partners who were members of two
          C.I.T. v. JAGM't;A'ffi [SABYASACHI MUKl:AIWI, J.]    737


farr1ilies and a firm came into existence under the instrument        A
dated 27 .3 .1952, when Fadam Kumar was a minor. When he attained
majority on 1.10.1956, he opted to continue as a full-fledged
partner and a fresh instrUII!ent of partnership was exec~ted 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        E
26-A of the·said Act w•s filed on 30.9.1959. Shri Rabinder Kumar
had left Indian for United States- of America for prosecuti.ng 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. frorr 29.1.1959. This finding was not challenged by the
assessee before the High Court. The Tribunal held· that the firm      c
was not genuine and the application was not proper as Rabinder
Ktmlar had not signed and the application for registration of
partnershii:- 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 Kurrar had acquiesced in
the firm and f1ad accepted the Position and as such the firm was
entitled to be registered. The conditions required to be ful-
filled have been laid down by this Court in the case of R.C.
Mitter & Sons v. Ccmmissioner of Incooe Tax, Calcutta 36 I. T .R.
P• 194. This Court held that in
                                                                      E
           "order that a firm may le entitled to registration
           under section 26A of the Incorr,e-tax Act, the follcwing
           essential conditions nn.ist te satisfied viz. (i) the
           firn should· Ce constituted under an instrument of
           partnership, srecifying the individual shar€s of the
           partners; (ii) an application on tehalf of, and signed     F
           by, all the partners and containing all the parti-
           culars as set out .in the Rules must be made; (iii) the
           application should be u.ade before the assessment of
           the firn; under section 23, for that rarticular year;
           (iv) the profits of losses if any of the business
           relating to the accounting year should have been divi-     G
           ded or credited, as the case may be, in accordance
           with th~ tenrs of the instn.irnent; and (v) the partner-
           ship must l:e genuine and must actllally have existed in
           conforrri ty with the. terns and conditions of the
           instrument of partnership,. in the, accounting year."
                                                                      H
     As it arpears, factually neither the deed Qf partnership was
signed by I\abinder Ku~ar nor was the applicatjon for registration
     .
         738\             SUPREME COURT REPORTS        [1985) SUPP.2 s.c.R.·


.A       in accrodance 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 Bahac!11r Ravulu Sobba Rao & Qrs.
B        v. ec-tssioner of Iucane Tax:, Madras 30 LT .R• 163 at page
         166, Furthermore, Rules 2 and 4 of the Income Ta& Rules, 1922
         enjoins that the application for registration must be made within
         a per.iod of six months of the constitution of the firm or before
         the end of the "previous year" of the firm whichever is earlier,
c        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
D        finil and· the High Court was not right in holding otherwise. The
         question referred must be answered by saying that the registra-
         tion of the firm was rightly refused.

              The appeals are, therefore, allowed and the decision of the
 E       Tribunal is restored. The appellant is entitled to the costs of
         these appeals.




         M.L.A.                                            Appeals allowed.