Commissioner Of Income-Tax, Bombay vs Patel and Co.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 22 April 1959

Coram: M. Hidayatullah, Bhagwati J.

In this case, the appeal concerned a judgment and order of the High Court of Saurashtra dated 18 October 1955 and involved the registration of two partnership firms that were both called Patel & Co. under the Saurashtra Income‑tax Ordinance of 1949, which corresponded to section 26A of the Indian Income‑tax Act. The first firm, which related to the assessment year 1949‑50, was the larger Patel & Co. created by a deed of partnership dated 6 February 1948. That deed named three partners: Patel and Co., referred to as the Smaller Patel and Co.; Sheth & Co.; and Maharshi Dayanand Maha Vidyalaya. Their respective shares in profit and loss were seven annas six paise, seven annas six paise, and one anna. The deed was signed by Arjun Kunverjee Patel, a partner of the Smaller Patel and Co., by Jamnadas Bhanji Patel, a partner of Sheth & Co., and by Nanji Kalidas Mehta, a trustee of Maharshi Dayanand Maha Vidyalaya. The application for registration presented to the Income‑tax Officer reflected the same parties and was signed in the same manner. The Income‑tax Officer granted registration by an order dated 6 June 1951, stating that the existing partners had applied, had given genuine reasons why others could not sign, and that the partnership appeared genuine; therefore registration should be accorded. The second firm, which related to the assessment year 1950‑51, came into existence under a deed of partnership dated 12 July 1949. This firm consisted of two partners, Nanji Kalidas Mehta and Arjun Kunverjee Patel, who held fifteen annas and one anna respectively in the profits and loss. Both partners signed the deed, and the registration application was also signed by them. The Income‑tax Officer again registered this firm by an order dated 6 June 1951, relying on the same grounds that had been applied to the earlier firm. Subsequently, the Commissioner of Income‑tax for Bombay North, Kutch and Saurashtra cancelled both registrations, holding that the deeds of partnership had not been signed by all the partners and therefore the firms could not be registered. The firms appealed this cancellation to the Tribunal, which, by a consolidated order dated 18 April 1953, affirmed the Commissioner’s cancellation concerning the 1949‑50 assessment year while reversing the cancellation for the 1950‑51 assessment year and granting registration for the period from 1 July 1949 to 31 December 1949, but refusing registration for the period from 1 January 1949 to 30 June 1949.

The Tribunal, acting on the appeal of the firm, modified the Commissioner’s earlier decision. Specifically, with respect to the assessment year 1949‑50 the Tribunal set aside the Commissioner’s cancellation of registration and, instead, granted registration for the portion of that year that ran from 1 July 1949 to 31 December 1949. The Tribunal expressly refused registration for the earlier six‑month period, that is, from 1 January 1949 to 30 June 1949. Following this order, the Tribunal framed several points of law for resolution by the High Court. The Tribunal invoked section 108(1) of the Saurashtra Income‑tax Ordinance and section 66(1) of the Indian Income‑tax Act and referred three specific questions. The first question asked whether, on a proper construction of the deed of partnership dated 6 February 1948, the partners of the firm were (i) Smaller Patel & Co.; (ii) Sheth & Co.; (iii) Maharshi Dayanand Maha Vidyalaya, or alternatively (i) Arjun Kunverjee Patel; (ii) Jamnadas Bhanji Patel; (iii) Nandji Kalidas Meht. The second question queried whether the firm Patel & Co. was legally entitled to be registered for the year 1949‑50 under the Saurashtra Income‑tax Ordinance and the rules made thereunder. The third question concerned the scope of the registration that the Tribunal had granted for the year 1950‑51, asking whether it should cover the entire accounting year of 1949 or only the period from 1 July 1949 to 31 December 1949.

The High Court heard the reference and delivered its judgment on 18 October 1955. In that judgment, the Court answered the first question affirmatively that the entities named Smaller Patel & Co., Sheth & Co. and Maharshi Dayanand Maha Vidyalaya were indeed partners of the firm created by the deed of partnership dated 6 February 1948. It also answered the second question in the affirmative, holding that Patel & Co. was entitled to registration for the year 1949‑50 under the applicable ordinance and rules. Regarding the third question, the Court held that the registration for the assessment year 1950‑51 should apply to the whole accounting year of 1949, not merely the later half of the year. After the High Court’s decision, the Commissioner applied for a certificate permitting an appeal to this Court. The High Court of Saurashtra, by its order dated 5 July 1956, issued the required certificate under section 66A(2) of the Indian Income‑tax Act. However, before the certificate could be acted upon, the Supreme Court’s decision in Dulichand Lakhminarayan v. Commissioner of Income‑tax had been pronounced, rendering the High Court’s earlier reasoning no longer good law. Consequently, the High Court recognized that its earlier decision could not be sustained and nonetheless granted the certificate of leave to appeal. The present Court now turned to the question of the firm’s registration for the assessment years 1949‑50 and 1950‑51. Concerning the year 1949‑50, counsel Shri Kolah raised a preliminary objection, contending that the Saurashtra Income‑tax Ordinance, 1949, contained no provision authorising the grant of a certificate of leave to appeal. Although the High Court’s judgment under appeal had been delivered on 18 October 1955, after the Constitution had come into force, the Court noted that this circumstance could not be used by the appellant to support its position.

In the matter of the appeal concerning the assessment year 1949‑50, the Court observed that the legal questions referred to the High Court had been raised within the scope of that Court’s advisory or consultative jurisdiction. Because the High Court had been exercising an advisory function, the constitutional provisions that govern the issuance of a certificate for leave to appeal to this Court were not applicable to those questions. Recognising the validity of this argument, the counsel representing the appellant acknowledged that the appeal could not be sustained on the basis of the assessment year 1949‑50. Consequently, the Court concluded that the portion of the appeal that pertained to the assessment year 1949‑50 lacked a lawful foundation and therefore must be dismissed. The dismissal was pronounced expressly with respect to the 1949‑50 assessment year, leaving the remainder of the proceedings to be considered separately.

Turning to the assessment year 1950‑51, the sole objection raised by the appellant concerned the High Court’s order directing the registration of the partnership firm for the entire financial year of 1949. The appellant’s assistant argued that the registration should have been limited to the period from 1 July 1949 to 31 December 1949. The respondent’s counsel, appearing on behalf of the respondent, stated that he did not contest the High Court’s order in principle and was prepared to accept registration confined to the six‑month interval of July to December 1949. The Court found this approach reasonable, noting that the partnership deed had been executed on 12 July 1949, which meant that the firm did not exist for the earlier months of the year. Accordingly, the Court allowed the appeal insofar as it related to the assessment year 1950‑51 and modified the High Court’s direction so that the firm’s registration would be effective only for the period between 1 July 1949 and 31 December 1949. The appeal was thus partially allowed, and the order of the High Court was varied to reflect this limitation. In view of the fact that each party had achieved a partial success, the Court ordered that each side should bear its own costs both in this Court and in the subordinate proceedings.