1980 PLP 415 (PTD)

Muhammad Amid Butt with A. H. Najafi for Respondent. Date of hearing: 31st May, 1978. SHAFI‑UR‑REHMAN, J. ‑The Commissioner of Income‑tax has raised the questions of law under section 66 of the Income‑tax Act for adjudication by this Court: (1) Whether the firm constituted by the partnership deed dated 1‑4‑69 is not a new entity? (2) If the answer to question No, 1 is in the affirmative, then whether on the facts and in the circumstances of the case the Tribunal was justified in granting renewal of registration.

2. The background leading to this reference is that a partnership registered in the name and style of Haji Mukhtar and Company came into existence by a partnership deed dated 5‑6‑1966 and was got registered with the Registrar of Firms. One of the partners retired and three others were introduced to the partnership by a deed executed, on 1‑4‑1969. The firm's capital and the name remained the same. The firm applied to the Registrar for giving effect to the alteration and reconstitution of the firm which face was registered. Thereafter the partnership moved the Income‑tax Officer on 30‑3‑1970 for renewal of registration of the firm under section 26-A of the Income‑tax Act for the assessment year 1970‑

71. The Income‑tax Officer by his order dated 28‑4‑71 refused registration on the ground that firm created by the deed dated 1‑4‑1969 was a new entity which was not registered with the Registrar of Firms as required by subsection (5) of section 26‑A of the Income‑tax Act. An appeal was filed by the respondent with Income tax Appellate Tribunal which was accepted, The Tribunal held that there was only a change in the constitution of the firm and the same had been recorded by the Registrar of Firms. It further held that "even if it was a new firm, it was fully registered with the Registrar of Firms as is evidence by acknowledgment receipt dated 2‑3‑1970. Subsection (5) of section 26‑A simply lay the burden that firm should be registered with the Registrar of Firms under Partnership Act, 1932. Under Income‑tax Act the Income‑tax Officer or even the Tribunal has no jurisdiction to adjudicate the merits of the registration as granted by the Registrar of Firms." Finding that the requirement of subsection (5) of section 26‑A, was fully complied with, the appeal was allowed and the Income‑tax Officer was directed to grant the registration.

3. At the hearing of the reference after notice to the respondent the learned counsel for the petitioner, for the first time, attempted to place on record the copy of the partnership deed dated 1‑4‑1969, and the dissolution deed dated 31‑3‑1969. This was done without moving a formal application, without seeking our permission in the matter and without notice to the respondent. We drew his attention to para. 6 of his petition wherein he had stated that the necessary documents which were relevant to the case were already enclosed with the petition and these comprised the assessment order and the Tribunal's order. He did not at that stage consider it necessary to rely on these docu ments and we do not consider now why he should be permitted to place these documents on record on the date of hearing.

4. There are two findings of fact recorded by the Tribunal reversing the finding recorded by the Income‑tax Officer. These are that the firm which was brought into existence on 1‑4‑1969 and the one which was seeking registration under section 26‑A of the Income‑tax Act, was a reconstituted firm and not a new firm. The second was that the Registrar of Firms having been notified of the reconstitution of the firm and having acknowledged if the requirement of subsection (5) of section 26‑A was satisfied. From these two facts a legal view of the powers of the Income‑tax Officer and the Tribunal in that hierarchy was taken and it was that they could not sit in judgment over the legality of the proceedings conducted by the Registrar of Firms.

5. As regards the findings of fact, it is not permissible for the parties to agitate them in the Court under section 66 of the Income‑tax Act and if the first two findings of fact are kept intact the grievance of the petitioner if an with regard to legal inference drawn by the Tribunal about the powers of the) Income‑tax Officer would be entirely inconsequential.

6. The learned counsel for the petitioner has taken us through the Partnership Act with a view to indicate that it was partnership at will that the partners specifically talked of dissolution of partnership and induction of three new partners and the allocation of the shares inter se. All this accord ing to the learned counsel, implied a dissolution of the earlier firm, its efface ment and the birth of an entirely new firm which to date remained unregistered. In spite of the partnership being at will, in spite of one of the partners walking out of the partnership and in spite of induction of new shares and alteration of the share it cannot be said that in every case a new partnership comes into existence and not the same; partnership stands recons tituted. All depends on the intention of the parties concerned. If with al these characteristics they want that the partnership could be, continued then it would be a mere reconstitution of the partnership and not coming into, existence of a new partnership, In the case the fact that one of the partners was allowed to retire and the remaining partners undertook to continue the partnership with the same name and style and capital with certain other,' would show their intention to reconstitute and continue. It cannot, therefore, be said that in recording this finding of fact the Tribunal has committed an error of law for there was material before it and factors which could lead to such a conclusion.

7. Not only the firm as such but the Registrar of Firms as well formed the impression and gave effect to it, that it eras a case of reconstitution of firm and not to creation of a new firm and proceeded accordingly. It cannot, therefore, be held that this firm which in fact had been registered with the Registrar of Firms, was not registered for the purposes of subsection (5) of section 26‑A of the Income‑tax Act. That being the legal position the Income‑tax Officer could not go back and determine the legality of the proceedings before the Registrar of Firms.

8. We, therefore, hold that the questions as framed do not arise out of Tribunal's order and that there is no reason for us to hold even if such questions did arise that it was not a case of reconstitution of the firm but a new firm coming into existence. The petitioner to bear the costs. Questions answered accordingly.