Juggilal Kamlapat vs Commissioner of Income Tax

Das, J.—This is a reference u/s 66(1) of the income tax Act in proceedings for registration of a firm Juggilal Kamlapat, Calcutta, u/s 26A of the income tax Act.

The facts as set out in the statement of the case are as follows:

Prior to the assessment year 1943-1944, the three Singhania brothers, Sir Padampat Singhania, Kamalapat Singhania and Lakshmipat Singhania, used to carry on a hosiery business at Belur under the name and style of Messrs. Juggilal Kamlapat. The business was a branch of a business of the same name, at Cawnpore.

On November 29, 1939, a partnership deed in respect of the said business was entered into between the said Singhania brothers and one Jhabbarmal Saraf, who was taken in as a new partner; the share of each being 4 as.

On October 27, 1941, the Singhania brothers executed a trust deed, called Kamla Town Trust, mainly for the welfare of the employees of Juggilal Kamlapat Cotton Spinning and Weaving Mills, Ltd., Cawnpur, the three Singhania brothers became trustees.

On December 1, 1942, a partnership deed was executed between Jhabbarmal Saraf and the three trustees of the Kamla Town Trust evidencing a new partnership to take effect from March 27, 1942. In the partnership deed, the partners were said to be the Kamla Town Trust and Jhabbarmal Saraf, having 12 as. and 4 as. share, respectively. The terms of the partnership were set out in the deed of partnership which was, however, unregistered.

The deed of partnership inter alia provided that the business shall continue to be carried on under the name and style of Juggilal Kamlapat, Calcutta.

On December 2, 1942, a deed of relinquishment was executed by the three Singhania brothers, Jhabbarmal Saraf, and the three trustees of Kamla Town Trust confirming the relinquishment of their rights and claims to all the properties and assets of the old firm in favour of the new partners Kamla Town Trust and Jhabbarmal Saraf in the shares of 12 as and 4 as., respectively.

The balance-sheet of the new firm has shown the lands and buildings and other assets of the hosiery factory at Belur as assets of the new firm and has further debited its accounts with the expenses of maintaining and making additions to the said buildings.

On May 17, 1946, the new partnership was registered by the registrar of firms.

On June 16, 1947, the new partnership firm made an application for registration u/s 26A of the income tax Act.

The application was rejected on March 12, 1948, by the income tax officer and his decision was maintained on appeal by the appellate assistant commissioner by his order, dated December 7, 1949 and by the income tax appellate tribunal by an order, dated August 2, 1951, though on different grounds.

On an application for reference u/s 66(2) of the income tax Act, the appellate tribunal by an order, dated March 13, 1952, made the present reference to this Court.

The question referred to this Court runs as follows:

Whether in the above facts and in the circumstances of this case, the partnership as evidenced by the deed of December 1, 1942, legally came into existence and as such should be registered.

The "above facts" referred to in the question are those stated in para. (6) of the statement of the case. This will appear from a perusal of the statement of the case.

The facts are as follows:

(1) That the relinquishment deed, dated December 2, 1942, being an unregistered document, could not legally transfer rights and title to the immoveable owned by the firm in favour of the Kamla Town Trust.

(2) That the transfer of the immoveable properties, being thus legally ineffective and they not being separable from the other business assets, the entire business was not legally transferred in favour of Kamla Town Trust.

(3) That the constitution of the new firm was not notified to any of the banks with which the old firm was dealing.

(4) That the new partnership was not got registered with the registrar of firms till May, 1946.

The first and second items are questions of law. The third and fourth items are questions of fact which may lead to an inference as to the unreality of the alleged partnership.

Mr. Gupta, learned Counsel appearing in support of the reference, has submitted that the questions referred to in items (1) and (2), treating them as pure questions of law, should be answered in the affirmative.

He has further submitted that as the name of the firm Juggilal Kamlapat remained unchanged, an omission to notify the banks of the constitution of the new partnership was not a legal bar to the constitution of a new firm.

He has also submitted that non-registration of a partnership firm with the registrar of firms merely precludes the firm from suing in the cases specified in Section 69 of the Indian Partnership Act.

He has accordingly pressed us to answer the question referred to this Court in the affirmative.

Mr. Meyer, learned Counsel for the income tax department, did not seriously dispute the correctness of the proposition of law submitted by Mr. Gupta but pressed us to hold that the appellate tribunal came to a finding of fact that the partnership was not genuine, viz., that it was a mere pretence. He has accordingly submitted that no question of law arises and the reference was unnecessary. He has referred us to the para. (7) of the statement of the case, which says that:

On the facts the tribunal came to the conclusion that a genuine partnership as evidenced by the Deed of 1st of December, 1942, did not come into existence.

The word "genuine" does not necessarily imply "unreal in "point of fact." It may also connote "not legally valid". See in this connection the case of Sardar Bahadur Sir AIR 1942 57 (Privy Council) . 119, 122, 125.

Moreover, the question whether or not the appellate tribunal found as a fact that the partnership was unreal or not, has to be answered by a perusal of the judgment of the appellate tribunal and not of the statement of the case made by the appellate tribunal.

The judgment of the appellate tribunal is not happily expressed. It has to be read in the light of the judgments of the income tax officer and of the appellate assistant commissioner.

The income tax officer clearly found that the Kamla Town Trust was "merely a camouflage and the real owners of 12 as. "share in this business are the three Singhania brothers" and in this view refused registration of the firm.

The appellate assistant commissioner commented upon the reasons given by the income tax officer in support of his conclusion but without coming to a finding on the factual existence of the partnership, affirmed the order of the income tax officer on a different ground which may be stated in his own words:

I do not think that a trust, which is nothing but an association of persons, can enter into partnership on the very face of it, the individual members of the association, i.e., the Kamla Town Trust have their shares indeterminate or unspecified. So it cannot be said that the shares of the alleged partners are specified and so apart from the defects mentioned in his order, he (i.e., the income tax officer) was entitled to reach the decision that the partnership was not a real partnership and to refuse registration.

The judgment of the income tax appellate tribunal has now to be considered.

The tribunal was composed of Mr. S.M. Gupta (judicial member) and Mr. B.M. Chatrath (accountant member).

Mr. Gupta, after setting out the facts, observed in para. (6) of his judgment that "the defect pointed out by the appellate "assistant commissioner certainly does not appeal to me" and then went on to add.

The defects found out by the income tax officer are, in my opinion, more or less inferences drawn by him and none of the defects taken separately or jointly would clinch the issue.

Mr. Gupta then proceeded to deal with the question of law, viz., whether the immoveable properties of the old firm became vested in the new partnership constituted by an unregistered document. Mr. Gupta was inclined to the view that in the absence of a registered document, the immoveable properties did not vest in the new firm.

Mr. Gupta then pointed out that the constitution of the new firm was not notified to the banks with which the Assessee was dealing.

Mr. Gupta concluded as follows:

After giving due weight to the arguments advanced before us and taking into consideration the law on the point, I am of the opinion that in the circumstances of this case, registration has rightly been refused.

In my opinion, it is difficult to hold that Mr. Gupta did find as a fact that the new firm was a mere pretence.

The judgment of Mr. Chatrath does not advance the matter further.

Mr. Chatrath first referred to the defect of non-registration of the deed of partnership pointed out by the department representative and held that the properties of the old firm did not vest in the new partnership and observed that-

Owing to the defect pointed out by the department representative, the alleged transfer remained ineffective.

Mr. Meyer has relied strongly on paras. (4) and (5) of the judgment.

In these paragraphs reference is made to four facts, viz.-

(1) The banks were not notified of the new partnership.

(2) The partnership deed and the relinquishment deed are unregistered documents.

(3) the registration of the new firm was not done till May, 1946.

(4) The relinquishment deed did not transfer the business assets to the new firm.

Mr. Chatrath concluded by observing that-

The income tax officer was therefore perfectly justified in rejecting the application for registration u/s 26A.

The income tax appellate tribunal is a final authority on questions of fact. Its conclusions on questions of fact must be clearly expressed. In my opinion, it is not correct to say that the income tax appellate tribunal came to a categorical finding of fact that the new partnership evidenced by the partnership deed dated December 1, 1942, was a mere pretence and was not genuine.

The question framed by the appellate tribunal proceeds on the assumption that the new partnership is genuine and that its legality is the question to be answered by this Court.

An affirmative answer would involve an implied finding as to the genuineness of the new partnership. I have already pointed out that there is no such finding by the appellate tribunal. This would prejudice the income tax department.

Similarly, a negative answer would involve a finding as to the unreality of the new partnership. This would similarly prejudice the Assessee.

In these circumstances, the question framed by the income tax tribunal has to be reframed.

Section 66(4) of the income tax Act empowers the High Court to refer the case back to the appellate tribunal if the High Court is not satisfied that the statements in a case referred are sufficient to enable it to determine the question raised thereby. Thus if the tribunal has not stated its conclusions and findings on the material facts of the case the High Court may remit the case to the tribunal to fill up the lacuna and complete the statement of the case. Sardar Bahadur Sir Sundar Singh Moijithea v. Commissioner of income tax (Supra).

I am, therefore, of opinion that this case must be remitted to the income tax appellate tribunal to fill up the lacuna in the findings reached by it and to dispose of the case according to law.

In the circumstances, there will be no order for costs in this reference.

Debabrata Mookerjee, J.

47I agree.

income tax reference No. 62 of 1952.

Das, J.

This reference depends on the answers to be given on the questions which arose in income tax reference no 47 of 1952.

This is conceded by learned Counsel on both sides.

Learned Counsel also agree that this reference should await the final order to be passed in reference case No. 47 of 1942.

We accordingly direct that this reference do stand adjourned sine die, with liberty to the parties to mention the matter.

Debabrata Mookerjee, J.

I agree.