Income-tax--

---Firm---Registration---Change in constitution---New partner included---Partnership evident from deed of' partnership---Shares of partners specified-- Registration to be granted---Indian Income Tax Act, 1961, S.185.

For the assessment year 1982-83, there was a change in the Constitution of the firm as one new partner was admitted to the partnership. Though registration was granted in earlier years, the Income-tax Officer refused registration for the assessment year 1982-83, on the ground that some partners were employees of the first partner, which was a company. On appeal, the Appellate Assistant Commissioner concurred with the Income-tax Officer. The Tribunal, on the assessee's appeal, set aside the orders of the Appellate Assistant Commissioner and the Income-tax Officer on the ground that the assessee was granted registration in the earlier years and, subsequently, there was no change except one partner being included. On a reference at the instance of the Revenue:

Held, that the Income-tax Officer was to see that partnership was evident from the instrument and the shares of the partners were to be specified in the instrument. There was a proper partnership deed and all the shares of the partners had been detailed. The Tribunal's decision to grant registration was justified, though it had granted registration on a different ground.

A. Adhikari for the Commissioner.

Nemo for the Assessee.

JUDGMENT

This is an Income-tax reference under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer of this Court, which reads as under:

"Whether; on the facts and in the circumstances of the case, the agreement, dated November 6, 1981, between S.U. Pumps (Pvt.) Ltd. and its seven employees brought into existence a valid partnership entitled to registration under section 185 of the Income -tax Act, 1961?"

This reference in question is for the assessment year 1982-83. The assessee-firm carried on similar business as was done in the earlier years and registration was granted by the Income-tax Officer. For the year 1982-83, there was a change in the constitution of the firm as one new partner was admitted to the partnership. The assessee filed Form No.11-A. Though the registration was granted in the earlier years, the Income-tax Officer refused to grant registration in the subsequent year for the reasons that the partners at serial Nos. 2 to 7 were the employees of the first partner, S. U. Pumps (Pvt. Ltd., which has a major share in the profit and the employees live in Bhopal. the firm carries on the business in Raipur.

Aggrieved against the order of the Income-tax Officer, the assessee approached the Appellate Assistant Commissioner and the Appellate Assistant Commissioner confirmed the view taken by the Income-tax Officer in rejecting the registration to the assessee-firm.

Aggrieved against the order of the Appellate Assistant Commissioner, the assessee preferred second appeal before the Tribunal and the Tribunal before setting aside the order of both the authorities below on the ground that the assessee was granted registration in the earlier years and there was no change except one new partner has been included; therefore, the learned Tribunal set aside the orders of the Income-tax Officer as well as the Appellate Assistant Commissioner. Hence, an application was made by the Revenue before the Tribunal for referring the aforesaid question of law for answer of this Court, which was allowed. Hence, this reference.

We have gone through the records and perused the authorities below. The reason given by the Income-tax Officer for declining to grant registration is that all the employees of the firm are nothing but an agent. We fail to see any reasonable justification for declining to grant registration because under section 18 of the Partnership Act(sic), the Income-tax Officer has to see that partnership is evident from the instrument and share of the partners are to be specified in the instrument. In the present case, it appears that there is a proper partnership deed and all the shares of the partners have been detailed therefore, these two requirements have been fulfilled and we do not see any rationale in the reasoning given by the Income-tax Officer that all the employees of this firm who were included in the partnership are agents. There is nothing wrong that they are their employees because the law does prohibit it. Section 16 of the Partnership Act only says that if a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or in the firm name, he shall account for that profit and pay it to the firm. Section 1.8 of the Partnership Act says that subject to the provisions of this Act, a partner is the agent to the firm for the purposes of the business of the firm. Thus, there is no justification in the reasoning given by the Income-tax Officer or by the Appellate Assistant Commissioner. Though the Tribunal has not examined this aspect and the Tribunal has only set aside the order on the basis that the registration has been given for the year 1981-82 and as such there is no justification to deny the registration for the year 1982-83. But we have examined the matter from another angle also and find that the view taken by the Income-tax Officer and the Appellate Assistant Commissioner is not justified. Hence, we answer this reference in favour of the assessee and against the Revenue.

M.B.A./1227/FCReference answered.