1975 PLP 469 (SCMR)

"An application may be made to the Income‑tax Officer on behalf of any firm, constituted by 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 the income‑tax or super tax." By the amendment, the pre‑existing words "constituted under" were replaced by the words "constituted by". The amended section also came in for interpretation by this Court in Commissioner of Income‑tax v. Noor Hussain (P L D 1964 S C 657). It was held by majority that :‑-- (i) to qualify a partnership firm for registration under section 26‑A, it is essential that it should have been brought into existence, by means of partnership deed itself ; that is to say the establishment of the firm and the instrument of partnership must be contem poraneous, and the latter must provide for the conduct of the business of partnership in futuro and fortiori, a partnership agreement which is a mere record of previous oral agreement will not do; (ii) there is nothing in section 26‑A to require that the instrument of partnership must be "in existence at the inception of the accounting year" and that therefore, registration under that section could be granted with respect to a part of the accounting year. The controversy in these cases has however, arisen by reason of the subsequent amendment in section 26‑A by section 6 of Finance Act, 1965 (Act V of 1965). Subsection (1) of section 26‑A of the 1922 Act, as now amended reads:--‑ "Application may be made to the Income‑tax Officer on behalf of any firm, constituted by an instrument of partnership executed in writing before the end of the previous year for the year for which the assessment is so be made 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 and super tax." By this amendment, the underlined words were inserted in the section. A Division Bench of the Lahore High Court, hearing references made as aforesaid under section 66 (1) of the 1922 Act, opined that on its ana lysis the amended section prescribes the following three conditions for the registration of firm namely

(i) the instrument of partnership must be in writing ; (ii) the execution must take place at any time before the end of previous year; and (iii) the instrument must be for the year for which assessment is to be made. The learned Judges went on to observe that under the amended section "a firm may be validly registered on the basis of an instrument executed even at fag end of the previous year having a retrospective effect". This in the opinion of the learned Judges necessarily implied the "existence of a prior oral agreement followed by a deed of partnership", and consequently it was no longer necessary for the relevant purpose, that the partnership should have been created by an instrument in writing. In other words, in the opinion of the learned Judges, the amendment of 1965 has made the majority decision in, the case of Noor Hussain obsolete. The learned Judges of the Division Bench further opined that section 26‑A is germane to procedural matters and is curative or remedial in its affect and therefore, would be applicable even to pending cases albiet in respect of the assessment year prior to the coming into force of the amendment. Mr. M. A. Lone, learned counsel for the Department submitted in support of these petitions, that this Court's decision in the case of Noor Hussain still held the field. It was argued that the majority decision in that case proceeded on the interpretation of the crucial words "constituted by" which had replaced the earlier expression "constituted under" and which despite the amendment of 1965 still remained part of the statute. Learned counsel further submitted that the amendment of 1965 is merely declaratory and was inserted ex abundati cautela, and therefore, will, in the absence of the; express words, in the amending statute or by necessary implication, not have retrospective effect. The question raised in these petitions is of general importance and is also of first impression. Therefore, I would grant leave in all these cases. Note:‑

Abdul Kadir Sheikh, J. who also heard these petitions not being available has not signed the order. Nevertheless, this shall be read as order of the majority. MUHAMMAD YAQUB ALI, J.‑

I agree. Leave granted.