P L D 1957 Dacca 459 (PLP)

AKBAR, J.‑

This is a reference made by the Income‑tax Appellate Tribunal under section 66 (I) of the Income‑tax Act at the instance of the Commissioner of Income‑tax. The facts of the case are simple and may be given in the words of the Tribunal. They have stated as follows: ‑ "The assessee firm came into existence by an oral agree ment on 1st April 1949. An instrument of partnership was drawn up on the 1st August 1950, the relevant year of account being the financial year 1949‑

50. An application for registration was made on the 23rd January 1952, on the basis of the instrument of partnership referred to above in respect of the assessment year 1950‑51 based on the "previous year" ending the 31st March 1950. The application for registra tion was refused originally both by the Income‑tax Officer and the Appellate Assistant Commissioner but, on second appeal, the Tribunal set aside the order and gave an opportunity to the assessee to rectify the technical defect by reason of which registration had been refused. These defects were subsequently removed but nevertheless the Income‑tax authorities refused registration on the basis of the decision reported as Kalsi Mechanical Works v. Commissioner of Income‑tax, Simla ((1953) 24 1 T R 353) Thereupon a second appeal to the Tribunal was preferred by the assessee. The genuineness of the firm has not been doubted in that the assessment for the relevant year has been made in the status of an unregistered firm. The department, however, main tained that since the instrument was drawn up as late as the 1st August 1950 after the relevant year of account had run out, the firm could not be said to have been constituted under an instrument during the relevant year. The assessee claimed that as their firm had come into existence in the very beginning of the account year and the terms had been embodied in an instrument at a later date, there should not be any bar to registration being allowed as the firm should be deemed to have been con stituted under an instrument. The tribunal agreed with assessee's contention and came to the conclusion that sec tion 26‑A, read with the relevant Income‑tax Rules, does not suggest that the instrument of partnership which was operative for the relevant year must also be drawn up in that year." In that view of the matter, the Tribunal directed the Income‑tax Officer to accord necessary registration for the relevant year. In due course the Income‑tax Commissioner asked for a reference to be made to this Court, and the following question was referred:‑ "Whether, in the facts and circumstances of the case, the assessee firm which came into existence by a verbal agreement on the 1st April 1949, is entitled to be registered under section 26‑A of the Income‑tax Act, in respect of the assessment year 1950‑51 relevant to the previous years ending the 31st March 1950, when the instrument of partnership was drawn up on the 1st August 1950, that is to say after the expiry of their relevant `previous year?" The question involved in this reference is covered by the decision of East Punjab High Court in Kalsi Mechanical Works, Nadpur v. Commissioner of Income‑tax, Simla by the decision of Patna High Court in Khimji Walji and Co. v. Commissioner, Income‑tax, Bihar and Orissa ((1954) 25 1 T R 462), by the decision of Calcutta High Court in R. C. Mitter and Sons v. Commissioner of Income‑tax, West Bengal ((1954) 25 1 T ), and by the decision of Bombay High Court in Dwarkadas Khatau and Co., Bombay v. Commissioner of Income‑tax, Bombay City (A 1 R 1956 Born. 321). The East Punjab Patna and Calcutta High Courts have held that in such circumstances as the present one, the firm was not entitled to be registered under section 26‑A, whereas the Bombay High Court took a contrary view. Section 26‑A reads as follows:‑ PROCEDURE IN REGISTRATION OF FIRMS: Application may be made to the Income‑tax Officer on behalf of any firm, constituted under 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 income‑tax or super‑tax. The answer of the question in issue depends upon the language of above section 26‑A itself and particularly upon the meaning of the words "any firm constituted under the instrument of partnership". In the East Punjab case referred to above, it was held that for the purpose of registration of a firm under section 26‑A of the Income‑tax Act, it was necessary that a firm should be constituted by an instrument of partnership, and that such firm constituted under the instrument of part nership should have been in existence during the accounting period and should not come into existence during the assess ment year; and if it was not in existence during the accounting period, it could not be registered so as to affect the liabilities of the partners for Income‑tax accruing during the accounting period. In short, it was held that such‑instrument of partnership cannot have retrospective effect as regards the income‑tax assessment of the firm. The same High Court in Padam Parshad Rattan Chand v. Commissioner of Income‑tax, Delhi ((1954) 25 1 T R 335) carried the matter a little further and held that such an instrument of partnership which recorded the formation of the firm at an earlier date by an oral agreement would not bar the registration of the firm with effect from the date on which the instrument was executed. In this case, the Court, how ever, quoted with approval their decision in the case Kalsi Mechanical Works. In the Patna case, Khimji & Co., v. Commissioner of Income‑tax, Bihar and Orissa, there were two instruments, and it was held that neither of them could be registered inasmuch as the first instrument did not specify the shares. and the second one came into force after the accounting year. In short, this High Court also followed the decision in Kalsi Mechanical Works. In the West Bengal case, R. C. Mitter and Sons v. Commissioner of Income‑tax, West Bengal, Chakravarti, C. J., while referring to the above decisions, made the following observations:‑ "I do not think that much assistance can be derived from any of the decisions cited at the Bar. They seem to have proceeded on broad considerations and no assistance can be found in them with regard to the difficulties which I have already noticed." The difficulty which the Chief Justice noted was that section 26‑A speaks of a firm constituted `under' an instru ment of partnership and not a firm constituted `by' an instru ment of partnership. His lordship, in construing the section therefore, laid great stress on the expression "instrument of partnership." While dealing with this question, the Chief Justice observed:‑ "The difficulty created by the word "under," however, remains. But, in my view, any embarrassment caused by that very unfortunate proposition is removed by the use of the expression "instrument of partnership," which carries, in itself the meaning that the deed contemplated is one by which the parties thereto are agreeing in the present as to a course of business to be followed by them in the future. Whatever the ambiguity about the word 'con stituted or the word "under," there is none about the expression "instrument of partnership" and if such instru ment can only be an instrument, speaking in the present and into the further, section 26‑A cannot obviously contem plate or even comprise instruments which do not bring into existence a partnership, but merely record the fact of its formation by a verbal agreement in the past. What a deed of partnership is would appear clearly from the relevant sections of the Partnership Act of .1932, but as section 26‑A was introduced in the year 1930, it would not be right to refer to the present Partnership Act. But even if were one to refer to the corresponding provisions in the Indian Contract Act, one would find that they too were based, as they were bound to be, on the basic concept of a partnership agreement of a deed of partnership, which is that certain persons agree to engage in a joint venture or business, agree further to carry it on by all of themselves or any of them acting for all and, lastly, agree to share the profits. Such an agreement, in the very nature of things, can only be an agreement come to at the present time and an agreement intended to operate in the future." In this view of the matter, the learned Chief Justice pame to the conclusion that "where a partnership has originated in a verbal agreement and after it has existed for some time, a formal deed of partnership is executed, so far as the period prior to the date of the deed is concerned, there cannot possibly be any claim to registration." Accord ing to His Lordship the instrument cannot have retrospective effect as regard the income‑tax assessment of the firm. It may, therefore, be said that the Calcutta High Court also followed the decision in Kalsi Mechanical Works, but on different grounds. Mr. Mesbahuddin, appearing for the Income‑tax Commissioner, has mainly relied on the above decision and has adopted the reasoning given in those decisions as part of his arguments. Mr. Choudhury, the learned Counsel for the assessee, has, however, relied on the most recent decision of the Bombay High Court in Dwarkadas Khatau & Co., Bombay v. Commissioner of Income‑tax, Bombay City. An almost identical question was referred by the Tribunal for the opinion of the Court, and Chagla, C. J., came to the con clusion that a firm applying under section 26‑A that registra tion should fulfil two conditions: (1) that it must be constituted under an instrument of partnership; and (2) that the instrument of partnership must specify individual shares of the partners. The learned Chief Justice, while referring to the Calcutta High Court decision, made the following observations: "It will be noticed in that judgment that the learned Chief Justice realized that it was not possible to take the view which he took by reason of the fact that the Legis lature had used the expression "under" and not "by", and the learned Chief Justice in terms says that the expression "under" was an inappropriate expression. With regard, if the Legislature chose to use the expression "under" and not "by", the duty of the Court is to give effect to the use by the Legislature of that expression and to con strue the expression used by the Legislature. It would not be a correct canon of construction to substitute, for the expression "under an instrument", the expression "by an instrument" and then construe the section as if the latter expression had been used by the Legislature." While respectfully concuring with the above obser vations of Chagla, C. J., we would like to add that, in our opinion, the words "constituted under the instrument of part nership" should bear their plain and natural meaning and not forced and restricted interpretation should be placed upon A them so as to narrow the scope and defeat the advantage which section 26‑A purports to concede to the assessee, firm. In our opinion, the High Courts of East Punjab, Patna and Calcutta were not justified in putting a limited and narrow construction to the words "constituted under the instrument of partnership." The words of section 26‑A are clear and unambiguous, and, as Chagla, C. J., rightly points out, the Court in interpreting them should construe the words as used by the Legislature. 1n this connection, the following obser vations of Simon, L. C., in 1940 Appeal Cases 1014 at 1022, may be aptly quoted here:‑‑ "The golden rule is that the words of a statute must prima facie be given their ordinary meaning." Similarly in Matteson v. Hart ((1854) 25 L J C P 108), Lord Crawortb, L. C., observed:‑ "We ought to give the words their plain, literal and B natural meaning where we do not see from its scope than such meaning would be inconsistent or would lead to manifold injustice," In accordance with the principles laid: down by these authorities and taking the plain words of section 26‑A, we are of the opinion that the interpretation put by Chagla, C. J., on section 26‑A is not only literal but also reasonable. Chagla, C. J., has also rightly pointed out that it is not unusual to record the fact of already existing partnership and that there are innumerable cases where the partnership deed is subsequent to the actual commencement of the partnership firm. If the interpretation put by the Calcutta High Court is accepted, it would lead to an anoma lous position, because the firms, which were already in existence when section 26‑A was enacted and had no instru ment of partnership, would be altogether deprived of the privilege which section 26‑A intended to confer upon part nership firms in general. [From the words used in section 26‑A, it cannot be said that the Legislature had in mind only firms which will come into existence in future and not the firms which were already in existence and paying taxes to the Government. But, as stated above, the words of this section are very clear, and there is no room to give it a narrow construction which the Punjab, Patna and Calcutta High Courts sought to put on the words of this section. The very fact that Chakrabarti, C. J., in R. C. Mitter and Sons v. Commissioner of Income‑tax West Bengal, suggested amend ment of section 26‑A and the rules framed thereunder also lead us to think that His Lordship felt a little difficult to construe the words in the way he did. We may also point out that the view that we are taking is to a large extent confirmed by the rules framed by the Department under section 26‑A (2). There is nothing in the rules to indicate that the assessee‑firm must be registered within the accounting period in order to get the , benefit of section 26‑A. The assessee‑firm came into existence by an oral agreement in 1949. The genuineness of the firm has not been doubted by the Income‑tax authorities. The Income‑tax Officers refused the registration relying on the decision in Kalsi Mechanical Works v. Commissioner of Income‑tax, Simla. It is really gratifying to rote that the member as of the Tribunal have brought to bear upon their construction of the point a great deal of forensic learning. It will suffice to say that they have rightly held that the assessee is entitled to the benefit of section 26‑A. Lastly, the decision of the Tribunal shows that in the past the Department had been following this practice of ‑allowing registration in cases of the nature contemplated by the question under reference. We shall merely observe that there was sound and substantial reason for that practice. It will not be out of place to mention that on the 31st March 1955, the following subsection 3 was added to section 26‑A:‑ "Where the Income‑tax Officer is satisfied that the application is complete and that there is, or was, as the case may be, a genuine firm in existence constituted as shown in the instrument, or instruments of partnership executed in writing and in force in the relevant previous year, he may register the firm for the purpose of this Act, or where the firm has already been registered for the immediately pre ceding year, renew the registration." This amendment also supports the interpretation which we have placed on section 26‑A as it stood prior to March 1955. The result, therefore, is that we answer the question as following: The firm must be registered with effect from the date when it came into existence in point of fact, namely, 1st C April 1949. In other words, this firm is entitled to bel registered under section 26‑A of the Income‑tax Act in respect of the assessment year 1950‑51 relevant to the Previous year ending the 31st March 1950. There will be no order as to costs. We cannot leave this case without making observation of a nature which unfortunately this Court has had to make before but seldom with such insistence as in the present case. It is the Tribunal's duty to prepare the paper‑book. It is due to their default that the paper‑book filed in this case does not contain the orders of the Income tax Officer. It is unfortunate that the Tribunal will not undertake the very slight responsibility of examining the paper‑book before sending it to this Court; but if they will not, it ought to be the duty of some officer of this Court to see that the paper‑book includes all the necessary papers. Such officer should, before accepting the paper‑book, satisfy himself that it contains all necessary and relevant papers. We shall take serious notice of any dereliction of duty on the part of the officers of this Court in such matters. A copy of this judgment may be sent to the Registrar of this Court for his future guidance. RAHMAN, J.‑

I agree. Z. A. S. Reference answered.