1964 PLP 629 (PTD)

(On appeal from the judgment and order of the High Court of East Pakistan, Dacca, dated the 6th July 1962, in Reference Case No. 17 of 1960.) Income‑tax Act (XI of 1922)

S. 26‑A‑Registration of firm Words and phrases‑"Constituted by"‑Expression means, firm must have been "set up" or "established" "by" deed‑Such "setting up" must be in the relevant accounting year‑Registration effective from date of deed‑Registration to be refused for period antecedent to date of deed in the accounting year‑No question of liberal interpretation of S. 26‑A (by Fazle‑Akbar and Hamoodur Rahman, JJ., Cornelius, C. J., being of the view that registration should be extended to such antecedent period if firm was genuinely in existence during such period, determining date of commencement of firm being a binding duty of Income‑tax Officer)‑Circular of Central Board of Revenue, departing from provisions of statute‑"Course pursued by Board seems to be correct" (Fazle‑Akbar and Hamoodur Rahman, JJ., Cornelius, C. J., contra)‑Income‑tax Act (XI of 1922), Ss. 23 (5) (b) & 28‑Income‑tax Rules, 1922, rr. 2 to 6‑B. The questions for determination in this appeal were (i) should the partnership be constituted by an instrument during the relevant accounting year; and (ii) if so, should it be constituted at or before the commencement of the relevant accounting year: Held (per Fazle‑Akbar, J., Hamoodur Rahman, J., agreeing), that according to section 26 (1), Income‑tax Act, 1922, a firm applying for registration must be constituted by an instrument. The word `constituted' must be read in its ordinary and popular acceptation to mean `set up' or `established' and therefore only such firm as is established or set up by an instru ment of partnership during the relevant accounting year will be entitled to the grant of registration. In the Oxford English Dictionary, Volume II, at pages 875 and 876 the word `constitute' is said to mean inter alia `to set up' `establish', `found' (an institution etc. and also `to give legal or official form or shape to (an assembly etc.). Thus the word includes both the idea of creating and establishing and also the idea of giving a legal form to a partnership. The question then is which of these meanings should be adopted in this case. To decide which meaning of the word `constituted' should be adopted it is necessary not only to consider the language of the section, but also the subject‑matter of the enactment and the object which the Legislature had in view. For this reason it becomes necessary to consider how subsection (1) of section 26‑A stood before the amendment and also the object which the Legislature had in view in making the said amendment. The expression in subsection (1) before amendment was `constituted under an instrument of partnership'. This view (words "constituted by" as interpreted above) also finds support from the Act and the rules made thereunder. (Sections 3, 23 (5) (a), 26 and various subsections of section 26‑A, as well as rules 2 to 6 referred to.) The provisions of sections 26, 26‑A and the rules clearly indicate that the firm to be registered must be in existence during the accounting year. Further the expression `constituted as shown in the instrument of partnership' in the section as well as in the rules contemplates an instrument by which parties there to are agreeing in the present as to a course of business to be followed by them in future. It will therefore, be difficult to hold that expression `constituted as shown in the instrument of partnership' contem plates instrument which does not bring into existence a partner ship, but which merely records the fact of its formation in the past by verbal agreement. The expressions "as shown in the instrument of partnership" and "governing such distribution" [section 28 (2)] are indicative of the intention of the Legislature that the deed of partnership must be brought into existence in the accounting year. If there was any doubt that was removed by substitution of the word `by' for the word `under' in subsection (1) of section 26‑A. For the above reasons the deed which creates the partnership must be executed during the relevant accounting year. The rule (of strict construction of fiscal statute) has really no application here. Section 26‑A confers a privilege on the assessee‑firm. It provides that the firm seeking benefit under section 23 (5) (a) of the Act must conform to the provisions of section 26‑A of the Act. Therefore, no question of liberal interpretation of section 26‑A which merely provides procedure for registration of an assessee‑firm arises. Dwarkadas Khetan & Co. v. Commissioner of Income‑tax, Bombay (1956) 29 I T R 903; Padam Parshad Rattan Chand of Delhi v. Commissioner of Income‑tax, Delhi (1954) 25 I T R 335; R. C. Mitter & Sons v. Commissioner of Income‑tax 1955‑28 I T R 698; Commissioner of Income‑tax, East Bengal v. Messrs Rashid Motors, Chittagong P L D 1957 Dacca 45g and Commissioner of Income‑tax, South Zone v. Radio Hotel, Karachi P L h 1959 Kar. 539 considered. Abdul Rahim and others v. Syed Abu Muhammad Barkat Ali Shah and others A I R 1928 P C 16; Messrs Mitter & Sons v. Commissioner of Income‑tax A 1 R 1949 S C 868 and Lt. Col. Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty and others P L D 1961 S C 119 ref. As regards the question whether the document should be in existence at or before the commencement of the accounting year, section 26‑A and the rules however, do not say that the deed of partnership must be in existence at the inception of the accounting year. The Act and the rules do not impose any bar on the registration of a firm with effect from the date on which the deed of partnership is executed. Section 26‑A confers the privileges on the firm to have it registered with a view to get the benefit of paying tax at a lower scale. I fail to see why it should be deprived of tile benefit of registration from the date of execution of the deed of partnership. Considering the question with reference to the character of the legislation, scheme of the Act and the nature of the right conferred by section 26‑A, there was no reason to hold that regis tration could not be granted for part of the accounting year. Regarding the Circular dated 26‑4‑1957 of the Central Board of Revenue recommending retrospective effect to be given to a partnership deed for more than six months, it was observed that the course pursued by the Board seems to be correct. Per Cornelius, C. J.‑

The expression "constituted by" is more specific and has a more direct connotation than the expression "constituted under." Section 26‑A requires the existence of an instrument by which the alleged partnership was constituted, and giving the words in subsection (1) their full value, it may indeed appear that a mere record of the earlier formation of a partnership will not meet the requirement. In my view, if there is a departure from the law involved in the provision for relaxation contained in the Circular, then that Circular is to the extent of the deviation, invalid and ineffective, and power thereunder is illegally exercised. The impression of such a departure is conveyed by the following passage in the Circular, viz: "On a strict interpretation of the law, a firm can be registered only from the date on which the partnership decd has been executor. Since this would create hardship, the Board is disposed to agree to the benefit of registration being allowed for the full previous year, provided of course the other conditions laid down for tile registration of the firms under section 26‑A are fulfilled." The Board's views as to the interpretation of law do not have the force of law, and the expectation would be, particularly where a fiscal statute is involved which should be implemented with strict impartiality, that references to inclination towards relaxation or otherwise would have been avoided. The question of law is clear, namely, whether section 26‑A (1) contemplates the recognition of the existence of a firm, for tax purposes, from a date earlier than that of the instrument by which it is constituted. For the purposes of the tax, the question of substance is the period of the existence of the firm, and I feel no doubt that the requirement of an instrument is in the nature of an evidentiary requisite, to exclude or minimise the possibility of sharp practice. Where the partnership is to be construed out of two or more instruments, possibly of different date, the Income‑tax Officer is under a duty to determine the date of commencement not only by reference to these documents themselves, but also by examination of such other evidence as he may be able to secure. For the commencing date .may, in fact, be different from the date of any one of the instruments out of which the partnership is to be construed. Conceivably, it may be a date anterior to that of any of these instruments. At any rate, it becomes clear that the section does not have the effect of making the date of any instrument of the relevant kind, binding upon the' Income‑tax Officer, as the date of commencement of the partnership, and his duty remains fundamentally that of finding when in fact, the partnership came effectively into existence. I am unable to draw support for this conclusion from anything contained in section 23 (5) (b) of the Act, which I construe as a provision to enable an Income‑tax Officer to assess tax, as on a registered firm, even though the firm to be assessed be unregistered, if the consequence would be to bring a larger return of tax to the exchequer. The discretion allowed to the Income‑tax Officer is controlled by this condition, and does not relate to the grant or otherwise of registration, for the procedure as for a registered firm may be applied even though, for good and sufficient reasons, registration may have been refused. But the determination of the date of commencement of a partnership, to which registration has been accorded, is not, in my opinion, a matter of discretion with the Income‑tax Officer. In the view I take, the necessary conditions having been established, as in this case, the Income‑tax Officer was obliged, under the law to grant registration, that being a mode of relief provided to the subject. As to what the date of commencement of the partnership was, the Income‑tax Officer was not bound to accept the date of the instrument for the purpose, but his duty would be to determine such date by reference also to evidence aliunde, viz., the date of commencement of joint working, the date on which a joint account was opened, the date or dates on which the separate accounts of the members were opened, and other such relevant circumstances. JUDGMENT CORNELIUS, C. J.‑

I have had the advantage of reading the judgment proposed to be delivered by my learned brother, Fazle‑Akbar, J. I agree generally with his examination and analysis of the relevant law and the authorities. I am clear in my mind that the expression "constituted by" is more specific. and has a more direct connotation than the expression "constituted under." Section 26‑A requires the existence of a instrument by which the alleged partnership was constituted, and giving the words in subsection (1) their full value, it may indeed appear that a mere record of the earlier formation of partnership will not meet the requirement. Here, the instrument is of date the 10th May 1957, and clause (4) recites that the partnership "shall commence from the 1st April 1957." The business of the partnership was to operate a certain contract which had been secured on the 27th March 1957 by one of the partners, the appellant Noor Hussain, who had signed the agree ment of contract on the 30th March 1957. The term of the contract was from the 1st April 1957 to the 31st March 1958. The question at issue is whether registration of the firm, which had been claimed for the previous year 1957‑58 was rightly refused for the tax year 1958‑

59. This was referred to the High Court, and was answered by three learned Judges in the following manners :‑ Chowdhury, C. J. "the firm in question is a firm constituted by an instrument within the meaning of section 26‑A (1) of the Act, and registration should have been granted under the law, and under the Circular if not otherwise." By "the Circular" is meant Central Board of Revenue Circular No. 8 of 1957 which has been reproduced in the judgment of my learned brother. Reference to its terms was made by the learned Chief Justice, for aid in interpreting the provisions of section 26‑A (1), and the following conclusion was reached, viz :‑ "The position now comes to this‑whether `constituted by an instrument' means only. the firm brought into existence by the document itself or the firm, in existence from before, the constitution of which has been subsequently embodied in the document, if other conditions are fulfilled, the firm is to get registration under the Circular as "the Board is disposed to agree to the benefit of registration being allowed for the full previous year in which the instrument of partnership is executed, etc." The question of benefit of registration for the full previous year, does not arise, if the existence of a firm front before the date of the document is not recognised. It will be in consonance with my reading of the section. If the section is read in the way I have interpreted, there will be no need of the Circular as the firms will be entitled to get registration independently of the circular. The circular has been issued because of hardship that will be created on strict interpretation of the section which means that the authority also is not in favour of strict, interpretation of the section against the assessee. The firm should have been registered under the circular if not otherwise." Siddiky, J. "In the present case, there would be no difficulty in my opinion for the Income‑tax Authority to assess this partnership firm with effect from 10th May 1957, after giving it registration from that date up to the end of the account period, that is, the 31st of March 1958 and to apportion the profit and loss to the partners according to their share and then to add up their other income with their income of partnership business, as the firm is not taxable but its partners are, in their individual status. The profits of the business from 1st April 1957 up to 9‑5‑57 will be that of Noor Hussain alone. The Appellate Tribunal did not or could not say that by the deed of partnership of the 10th May 1957, the partnership did not come into existence at least on that date. Therefore, to the absence of any provision that a partnership cannot come into existence in the middle of account period or that it cannot be taxed for a part of the account period, I am of the view that '' the partnership firm can be registered for the period from 10th May 1957, to 31st March 1958, as a partnership firm if it fulfils all other conditions as laid down by section 26‑A and the Rules framed thereunder." With reference to the Circular, Siddiky, J., observed as fol lows:‑ "Since the letter of reference and the question formulated by the Income‑tax Appellate Tribunal do not contain any reference to the above quoted Circular and also because the answer to the question does not depend on the Circular but on the interpretation of the Act, I refrain from commenting on the contents of the Circular. It is for the assessee to raise the issue of the Circular before the income‑tax Authorities and claim benefit thereunder." The learned Judge's view clearly was that the law permitted registration only with effect from the date of the instrument, but it was open to the Income‑tax Authorities to enlarge the benefit, so as to put back the commencing date. There being a slight difference between the views thus expressed, the case was referred to a third learned Judge, Murshed, J., (as he then was) who agreed with the Chief Justice. expressing himself in the following terms:‑ (i) "I will answer this question in the negative, that is, the registration has been wrongly refused," (ii) "The next question is: What should be the accounting year for which the firm can claim advantage of the benefit of registration under section 26‑A of the Act? I will answer this question by saying that, this will depend on a finding as to the factual existence of the firm on an appraisal of the evidence produced in the case. It is not the "technical" but the "genuine" existence of the firm which is the crucial question. In this connection, reference may also be made to the terms of section 23 (5)(b) and the Circular No. 8 of 1957, issued by the Central Board of Revenue." The plain intention is that the benefit is not restricted to the period commencing with the date of the instrument, but is to be granted from the date on which the firm in fact came into existence, and reliance was placed on the terms of the aforesaid Circular, as well as on section 23 (5)(b). In the view of my learned brother Fazle‑Akbar, the benefit in law cannot commence from any earlier date than that of the instrument by which the firm is constituted. He has at the same time observed that "the course pursued by the Board" as appearing from Circular No. 8, "seems to be correct". In my view, if there is a departure from the law involved in the provision for relaxation contained in the Circular, then that Circular is to the extent of the deviation, invalid and ineffective, and power thereunder is illegally exercised. The impression of such a departure conveyed by the following passage in the Circular, viz :‑ "On a strict interpretation of the law, a firm can be registered only from the date on which the partnership deed has been executed. Since this would create hardship, the Board is A disposed to agree to the benefit of registration being allowed for the full previous year, provided of course, the other conditions laid down for the, registration of the firms under section 26‑A are fulfilled." The Board's views as to the interpretation of law 7do not have the force of law, and the expectation would be, particularly where z fiscal statute is involved which should be implemented with strict impartiality, that references to inclination towards relaxation of otherwise would have been avoided. There having been a change made in the law, so that the creation of a firm was required to be by written instrument of known date, and it was no longer possible to refer such creation to some parent instrument, under which firms might claim to have been constituted on dates which might well become the subject of controversy, the question whether the law did not have room to accommodate instruments creating a firm or recording the creation of a firm, from a date anterior to that of the instrument itself, was one on which two views might well be held. To retain, in this respect, the less strict interpretation available from the earlier use of the words "constituted under", until corrected by some authoritative pronouncement by a Court, would therefore have been un exceptionable. On the other hand, to refer expressly to inclination or disposition as the guiding factor, while admitting the compulsive effect, ex facie, of the words newly used, is calculated to give an unfortunate impression, as to the extent of the Board's conception of its own power to evade the obligations of the law. There is, of course, no such power. The question of law is clear, namely, whether section 26‑A (1) contemplates the recognition of the existence of a firm, for tax purposes, from a date earlier than that of the instrument by which it is constituted. For the purposes of the tax, the question of substance is the period of the existence of the firm, and I feel no doubt that the requirement of an instrument is in the nature of an evidentiary requisite, to exclude or minimise the possibility or sharp practice. There is, in section 26‑A itself, a provision which envisages a determination by the Income‑tax Officer of the date of commencement of a firm, where this is not at once apparent. I refer to subsection (3), reading as follows:‑ "Where the Income‑tax Officer is satisfied that the appli cation 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 years, he may register the firm for the purposes of this Act, or where the firm has already been registered for the immediately preceding year, renew the registration." Where the partnership is to be construed out of two or more instruments, possibly of different date, the Income‑tax Officer is under a duty to determine the date of commencement not only by reference to these documents themselves, but also by examination of such other evidence as he may be able to secure. For the commencing date may, in fact, be different from the date of any one of the instruments out of which the partnership is to be construed. Conceivably, it may be a date anterior to that of any of these instruments. At any rate, it becomes clear that the section does not have the effect of making the date of any instrument of the relevant kind, binding upon the Income‑tax# Officer, as the date of commencement of the partnership, and his duty remains fundamentally that of finding when in fact, the partnership came effectively into existence. This is the view which has been expressed on the reference by Murshed, J., and I would express my agreement with it, while observing at the same time, with respect, that I am unable to draw support for this conclusion from anything contained in section 23 (5) (b) of the Act, which I construe as a provision to enable an Income‑tax Officer to assess tax, as on a registered firm, even though the firm to be assessed be unregistered, if the consequence would be to bring a larger return of tax to the exchequer. The discretion allowed to the Income‑tax Officer is controlled by this condition, and does not relate to the grant or otherwise of registration, for the procedure as for a registered firm may be applied even though, for good and sufficient reasons, registration may have been refused. But the determination of the date of commencement of a partnership, to which registration has been accorded, is not, in my opinion, a matter of discretion with the Income‑tax Officer. In the view I take, the necessary conditions having been established, as in this case, the Income‑tax Officer was obliged, under the law to grant registration, that being a mode of relief provided to the subject. As to what the date of commencement of the partnership was, the Income‑tax Officer was not bound to accept the date of the instrument for the purpose, but his duty would be to determine such date by reference also to evidence aliunde, viz., the date of commencement of joint working, the date on which a joint account was opened, the date or dates on which the separate accounts of the members were opened, and other such relevant circumstances. With this clarification, I would dismiss the appeal, but I agree with my learned brother, Fazle‑Akbar that the parties should be left to bear their own costs. FAZLE‑AKBAR, J.‑--This is an appeal from the judgment of the High Court of East Pakistan pronounced on a reference made to it by the Income‑tax Appellate Tribunal under section 66(1) of the Income‑tax Act (hereinafter referred to as `the Act'). The relevant facts are these: On 30th March 1957, one Noor Hussain obtained a contract for supply of food and medicines to the Medical College Hospital and Mitford Hospital, Dacca. In order to execute this contract he took three partners namely, Abdul Malek, Abdul Hakim and Shahazada Mia. Though the said partnership firm known as Messrs Noor Hussain is said to have come into existence by verbal agreement on 10th April 1957, the deed of partnership was executed by the aforesaid four partners on 10th May 1957. On 30th October 1957 an application to register the firm under section 26‑A of the Income‑tax Act for the assessment year 1958‑59 was made to the Income‑tax Officer, but he rejected the application. Against his order an appeal was taken to the Appellate Assistant Commissioner of Income‑tax who reversed the order of the Income‑tax Officer and ordered for registration of the firm. The Commissioner of Income‑tax then preferred an appeal to the Income‑tax Appellate Tribunal which reversed the decision of the Appellate Assistant Commissioner and rejected the petition of the assessee‑firm. Thereupon the firm moved the Tribunal under section 66(1) of the Act, for reference of a question of law to the High Court said to arise out of the refusal to register the partnership firm. The Tribunal allowed the application and .referred the following question to the High Court: "Whether on the basis of the deed of partnership executed on the 10th May 1957, registration claimed for the previous year from 1st April 1957 to 31st of March 1958 was rightly refused for the tax year 1958‑59?" This reference came up before a Division Bench consisting of the Chief Justice and Mr. Justice Siddiqui. The Chief Justice being of the opinion that registration of the firm was wrongly refused, answered the question in the negative. Siddiqui, J., was however, of the opinion that the registration was rightly refused for the account period from 1st April 1957 to 9th May 1957, but it could not be so refused for the period from 10th May 1957 to 31st May 1958. Upon such difference the matter was referred to a third Judge namely, Murshed, J., who agreed with the Chief Justice and also answered the question in the negative. The answer to the above question really depends upon interpretation of section 26‑A of the Act and the rules framed thereunder. Section 26‑A is as follows:‑ "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 purpose of this Act and of any other enactment for the time being in force relating to income‑tax or super tax. (2) The application shall be made by such persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescrib ed; and it shall be dealt with by the Income‑tax Officer in such manner as may be prescribed. (3) Where the Income‑tax Officer is satisfied that the appli cation 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 in writing and in force in the relevant previous year, he may register the firm for the purposes of this Act, or where the firm has already been registered for the immediately preceding year, renew the registration. (4) If, after an order has been passed under subsection (3), the Income‑tax Officer is satisfied that such order was passed without there being 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 cancel the registration: Provided that the registration of a firm shall not be cancelled until fourteen days have elapsed from the issue of a notice by the Income‑tax Officer to the firm intimating his intention to cancel its registration. It may be mentioned here that by the Finance Act of 1957 the word `by' occurring after word `constituted' in subsection (1) was substituted for the word `under'. There has however, been no such amendment in the Income‑tax Act of India. There is a conflict of judicial opinions in different High Courts in India on the question whether expression "constituted under" in subsection (1) may be read as "constituted by". In view of the above amendment it is not necessary to consider the decisions of the Indian High Courts. This much however, is clear from this subsection that a firm applying for registration, must be constituted by an instrument. Now the question or determination in this appeal are (i) should the partnership be constituted by an instrument during the relevant accounting year; and (ii) if so, should it be constituted at or before the commencement of the relevant accounting year. There is also divergence of judicial opinion on these points. In Dwarkadas Khetan & Co. v. Commissioner of Income‑tax, Bombay ((1956) 29 I T R 903) the High Court of Bombay held that registration should be granted in a case where partnership originated in a verbal agreement and really existed in the relevant accounting year but the instrument of partnership recording earlier verbal agreement was executed after close of the relevant accounting year. The East Punjab High Court in Padam Parshad Rattan Chand of Delhi v. Commissioner of Income‑tax, Delhi ((1954) 25 I T R 335) and the Calcutta High Court in R. C. Mitter & Sons v. Commissioner of Income tax ((1955) 28 I T R 698) took a contrary view. The views of the High Court of East Pakistan in Commissioner of Income‑tax, East Bengal v. Messrs Rashid Motors, Chittagong (P L D 1957 Dacca 459) and that of the High Court of West Pakistan in Commissioner of Income‑tax, South Zone v. Radio Hotel, Karachi (P L D 1959 Kar. 539) are in accord with that of the Bombay High Court. The above decisions were however, given before the amendment of subsection (1) of section 26‑A of the Act. In the instant case the High Court of East Pakistan has gone a little further and held that even after the substitution of the word `by' for the word `under' in subsection (1) a firm would be entitled to the grant of registration of such a partnership which had a prior existence by oral agreement but the terms and conditions of which were subsequently incorporated in a document. In coming to this conclusion the learned Judge construed the expression `constituted by an instrument of partnership' to mean `that a partnership which already existed was given a legal or official shape.' Chowdhury, C. J., justified such an interpretation on the ground that fiscal statute `must be construed strictly, and strictly in favour of the assessee, and if there is any doubt, the benefit of doubt must go to the assessee; and in case of language or words used are susceptible to two plain and natural meaning, as understood commonly, the meaning favourable to assessee is to be given to them'. In my opinion the above rule has really no application here. Section 26‑A confers a privilege on the assessee‑firm. It provides that the firm seeking benefit under section 23 (5) (a) of the Act must conform to the provisions of section 26‑A of the Act. As pointed out by this Court in Lt. Col. Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty and others (P L D 1961 S C 119) at page 144: "There is a distinction between provisions which impose taxes and those which provide for the machinery by which tax is assessed and realised. The provisions relating to imposition of tax are to be strictly construed in favour of the subject so that if there be any substantial doubt it has to be resolved in his favour. But the machinery sections are to be liberally construed. If the incidence of tax be clear the machinery sections should be so construed as to make the realization of the proper tax possible. They should not be so construed as to defeat the intention of the Legislature and to prevent the realization of the tax that is in fact due." Therefore, no question of liberal interpretation of section 26‑A which merely provides procedure for registration of an assessee firm arises. In the Oxford English Dictionary, Volume II, at K pages 875 and 876 the word `constitute' is said to mean inter alia `to set up' `establish', `found' (an institution etc.) and also `to give legal or official form or shape to (an assembly etc.). Thus the word includes both the idea of creating and establishing and c also the idea of giving a legal form to a partnership. The question then is which of these meanings should be adopted in this case. In this connection reference may be made to the observations of the Judicial Committee in Abdul Rahim and others v. Syed Abu Muhammad Barkat Ali Shah and others (AIR1928PC16) at page 18: "It is a sound rule of interpretation to take the words of a statute as they stand and to interpret them ordinarily without any reference to the previous state of the law on the subject or the English Law upon which it may be founded; but when it is contended that the Legislature intended by any particular amendment to make substantial changes in the pre‑existing law; it is impossible to arrive at a conclusion without considering what the law was previously to the particular enactment and to see whether the words used in the statute can betaken to affect the change that is suggested as intended." To decide which meaning of the word `constituted' should be adopted it is therefore necessary not only to consider the language of the section, but also the subject matter of the enactment and the object which the Legislature had in view. For this reason it becomes necessary to consider how subsection (1) of section 26‑A D stood before the amendment and also the object which the Legislature had in view in making the said amendment. The expression in subsection (1) before amendment was `constituted under an instrument of partnership.' In the case of R. C. Mitter & Sons Chakraverty, C. J., of the Calcutta High Court in coming to the conclusion that for the period prior to the deed the firm was not entitled to registration read the expression `constituted under' as `constituted by'. In Dwarkadas Khetan's case, Chagla, C. J., while referring to the above case made the following observations: "It will be noticed in that judgment that the learned Chief Justice realised that it was not possible to take the view which he took by reason of the fact that the Legislature had used the expression `under' and not `by' and the learned Chief Justice in turn says that the expression "under" was an inappropriate expression. With respect 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 construe 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." The learned Chief Justice while coming to the conclusion that registration should be granted even though the partnership had been constituted after the accounting year observed: "The section does not say that the firm must be constituted by the instrument of partnership. It does not require that the firm must come into existence by reason of the instrument of partnership or that the firm should be the creature of the instrument of partnership, or that the firm must not exist prior to the instrument of partnership being executed. In the case of Rashid Motors, the High Court of East Pakistan while expressing its concurrence with the above view observed: "The very fact that Chakraverty, C. J., in R. C. Mitter and Sons v. Commissioner of Income‑tax West Bengal suggested amendment of section 26‑A and the rules framed thereunder lead us to think that his Lordship felt a little difficulty to construe the words in the way he did." This judgment was delivered in August 1956 and thereafter the Legislature substituted the word `by' for the word `under' in sub section (1) of section 26‑A by Finance Act, 1957. It seems that the Legislature was aware that the Courts have differed considerably on the question of interpretation of the word `under' in subsection (1) and therefore, substituted the word `by' for the word `under' in order to put an end to difference of judicial opinion so far as Pakistan was concerned. Hence it can be inferred fairly that the Legislature in amending the section intended fairly the words constituted by, to be under stood in their received meanings. I am therefore, unable to attach to `constituted by' the comprehensive meaning suggested in the majority decisions of the High Court. For the reasons stated above I am of the opinion that the word `constituted' must be read in their ordinary and popular acceptation to mean `set up' or `established' B and therefore only such firm as is established or set up by an instrument of partnership during the relevant accounting year will be entitled to the grant of registration. This view also finds support from the Act and the rules E made thereunder. The Act treats a firm as a unit for the purpose of taxation. Under section 3 the charge is imposed on the total income of the firm. Under section 23 the assessment will be on the firm on its total profits. Section 23 (5) (a) enacts an exception to this in the case of firms registered under the Act and provides that "the sum payable by the firm itself shall not be determined but the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined." Thus registration confers on the persons a benefit to which they would not have been entitled but for section 26‑A, and such a right therefore, can be claimed only in accordance with the Act which confers it. The nature of the right conferred by the Act therefore, must be considered with reference to the provisions of the Act and rules made thereunder. Section 26 shows that the object of registration is to assess individually the total income of the partners who in the account ing year were entitled to receive the same. Section 26‑A lays down two conditions for registration, namely, (i) that the firm should be constituted by an instrument of partnership; and (ii) that the instrument must specify the individual shares of the partners. Subsection (3) says that if the Income‑tax Officer is, satisfied 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 should register it under the Act. Subsection (4) empowers the Income‑tax Officer to cancel the order of registration passed under subsection (3). Further subsection (2) provides that the application for registration shall contain such particulars and shall be in such form as prescribed by the rules. Therefore, in order to appreciate the full requirements of registration the rules have to be read along with section 26‑A. Rules 2 to 6‑B framed under section 59 of the Act deal with registration of the firm. Rule 2 lays down that the application for registration must be signed by all partners personally and is to be made before the income of the firm is assessed for any year under section 23 of the Act. Rule 3 prescribes the Form of the application. The Form mentioned in this rule requires that the assessment year should be specified, and that the applicant should file a certificate to the effect that the profit or loss, as the case may be of the previous year was divided among the partners. The Schedules of the Form require more details such as particulars of the firm as constituted on the date of the application, and particulars of the apportionment of the income, profit or loss, among the partners of the business in the previous year. Rule 4 provides that if the Income‑tax Officer is satisfied that "there is or was a firm in existence constituted by an instrument of partnership executed in writing and in force in the relevant previous year, he has to enter at the foot of the instrument of partnership that the firm has been registered under section 26‑A Land it will have effect for the assessment year in question. Rule 5 says that the certificate of registration granted under rule 4 shall have effect only for the assessment to be made for the year mentioned therein. Rule 6 makes provisions for the renewal of the certificate of registration. The above provisions of section 26, 26‑A and the rules clearly indicate that the firm to be registered must be in existence during the accounting year. Further the expression `constituted as shown in the instrument of partnership' in the section as well as in the rules contemplates an instrument by which parties thereto are agreeing in the present as to a course of business to be followed by them in future. In view of the above provisions of the rules and the sections it will therefore, be difficult to hold that expression `constituted as shown in the instrument of partnership' contemplates instrument which does not bring into existence a partnership, but which merely records the fact of its formation in the past by verbal agreement. Section 28(2) which speaks of imposition of penalty makes the matter clear. This section empowers the Income‑tax Authorities "to impose penalty if they are satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the partners as . shown in the instrument of partnership registered under this Act governing distribution . . . . . In my opinion the expressions "as shown in the instrument of partnership" and "governing such distribution" are indicative g of the intention of the Legislature that the deed of partnership must be brought into existence in the accounting year. The above view is also in accord with the following obser vations of the Supreme Court of India in M/s. Mitter & Sons v. Commissioner of Income‑tax (AIR 1949 S C 868). "In other words the terms of partnership should appear in the instrument of partnership in respect of the relevant accounting year. It is equally clear that the firm to be registered should have been in existence during the accounting year `constituted as shown in the instrument of partnership'. The rules thus contemplate a document operative during the accounting year." In conclusion I may say that if there was any doubt that was removed by substitution of the word `by' for the word `under' in subsection (1) of section 26‑A. For the above reasons I hold that the deed which creates the partnership must be executed during the relevant accounting year. Now I come to the last question, namely, whether the docu ment should be in existence at or before the commencement of the accounting year. Relying on the Form of certificate of registration as prescrib ed in rule 4 the Tribunal has held that the instrument of partner ship must be co‑extensive with the relevant accounting year. Section 26‑A and the rules however, do not say that the deed of partnership must be in existence at the inception of the accounting year. The certificate as prescribed in rule 4 is as follows: "The firm as constituted under this instrument of partnership has this day been registered by me, the Income‑tax Officer, for . . . . . in the Province of . . . . . under section 26‑A of the Income‑tax Act, 1922 and this certificate of registration shall have effect for the assessment year ending 31st day of March 19 . . . . ." The above certificate does not indicate that the registration must be co‑extensive with the accounting year. All that it says is that the registration "shall have effect for the assessment year." The Tribunal therefore, was not justified in thinking that the rule making authority intended that the deed of partnership must be co‑extensive with the relevant accounting year. I am therefore, of opinion that the Act and the rules do not impose any bar on the registration of a firm with effect from the date on which the deed of partnership is executed. As already stated section 26‑A confers the privileged on the firm to have it registered with a view to get the benefit of paying tax at a lower scale. I fail to see why it should be, deprived of the benefit of registration from the date of execution of the deed of partnership. Thus considering the question with reference to the character of the legislation, scheme of the Act and the nature of the right conferred by section 26‑A I see no reason to hold that registration could not be granted for part of the accounting year. The learned counsel for the Income‑tax Commissioner has brought to our notice the following circular which was issued by the Central Board of Revenue, Karachi on 26th April 1957: "Section 26‑A. Registration of firms: The amendment made in subsection (1) clarifies that the instrument of partnership shall be in writing. Subsection (4) has also been amended and brought in line with subsection (3) which envisages a written partnership deed which should have been in existence in the relevant previous year. On a strict interpretation of the law, a firm can be registered only from the date on which the partnership deed has been executed. Since this would create hardship, the Board is disposed to agree to the benefit of registration being allowed for the full previous year in which the instrument of partnership is executed, provided of course the other conditions laid down for the registration of the firms under section 26‑A are fulfilled. It should be noted that under rule 2 of the Income‑tax Rules, in the case of a new firm an application for registration, which is to be accompanied by the instrument of partnership in original or a certified copy thereof, has to be filled before the end of the previous year or, where the firm is not registered under the Partnership Act, 1932 or the deed of partnership is not registered under the Registration Act, 1908, within six months of the constitution of the firm, which ever is earlier. Thus, retrospective effect can be given to a deed for more than six months." I would merely observe that the course pursued by the Board seems to be correct. For the reasons stated above I am of the opinion that Siddiqui, J., in his dissenting judgment has given correct answer to the question under consideration, namely "that the registration of the partnership firm as evidenced by the partnership deed executed on the 10th of May 1957, for the account period from 1st April 1957, to 9th May 1957 was rightly refused by the Income tax Tribunal in terms of section 26‑A (1) of the Act, but it could not be so refused for the period from 10th May 1957, to 31st March 1958." I would accordingly allow this appeal to the extent indicated above. I would however, make no order as to costs. HAMOODUR RAHMAN, J.‑

I agree. In accordance with the view of the majority we allow this appeal, but make no order as to costs. A.H. Appeal allowed.