1981 P (PLP)

For the purposes of grant of registration under section 26‑A of the Act, the essential requirements are execution of instrument of partnership in writing before the end of the previous year specifying individual shares of the partner; making of application by the partners in the prescribed forms within the specified time, existence of a genuine firm and registration of the partnership under section 58 of the Partnership Act. In the instant case, both the Officers below found all the requirements except that of genuineness of the firm to have been duly complied with. To examine the objection regarding genuineness of the firm due to grant of stamp vending licence in the name of five individual partners, two issues are involved; firstly, it is to be ascertained whether such partnership is valid ire the eye of lair, and if so, whether there was any bar for the five individual licensees under the Punjab Stamp Rules, 1971, to constitute a firm for conducting that business. Under section 4 of the Partnership Act, partnership has been defined as to be relation between persons who have agreed to share the profits 'acting a business carried on by all or any of them acting for all. The words acting for all' mean that he partners when carrying on business as a firm are Agents as well as Principals. Partnership business can be carried on by all or any of them acting for all. Most essential element in a partnership is the Agency. The ingredients for formation of a partnership are agreement entered into amongst all the partners; agreement must be to share profits and the business must be carried on by all or any of the persons concerned acting for all. For genuineness of a firm, the requisite requirements as laid down in the case of Hafiz Abdul Ghafoor v. C. I. T. are that real partners must be having specified shares with profits truly to be of the individual partners. For the purposes of genuineness, the partnership must actually exist in conformity with the terms and conditions as prescribed in the instrument of partnership. In Ismail v. Shorat Baho (P L D 1960 Kar. 842), it was held that essentials of a partnership are that there should be a relationship by agreement between two or more persons; they should run a business with the intention of sharing profits and the business should be run by all or by any one of them acting for all. In another case of Abdullah Khan and others v. Ahmad Din (P L D 1964 S C 106), it was laid down that the firm is only a collective name of its members and is not a legal person or entity distinct and separate from the partners. Same was the view in the case of Duli Chand v. C.I.T., Nagpur (P L D 1956 S C (Ind.) 273). It was held that a firm is not an entity or person in law but is merely association of individuals who constitute the name. In other words a firm's name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on the business in partnership. In Civil Reference No. 65 of 1967, decided on 14‑5‑1973 while dealing with registration matter under section 26‑A(1) of the Act the Lahore High Court held that the firm is not a legal entity under the law but an assessable unit and chargeable as a distinct entity under the Income‑tax Act. When looked in the light of judicial pronouncements, the findings of the Officers below regarding genuineness of the appellant firm seem to be fallacious. The objections regarding formation of a partnership for earning profits and not for distribution of profits; disproportionate individual earnings of commission by some of the persons and the firm having not conducted the business are erroneous. All these objections are contrary to the provisions of section 4 of the Partnership Act. There was no legal impediment in the way of all the existing five licensees for constituting a partnership firm except any prohibition to that effect in the terms and conditions concerning grant of licence. Even one partner could act on behalf of other partners. The partnership business conducted by all or any of the partners acting for all shall be deemed to that of the firm. In section 4 of the Partnership Act, most essential element is the existence of Agency. It is not required that each and every partner must take active part or be actually concerned in the conduct of business. If all the partners are essentially required to work actively the element of Agency will totally dis appear. The wording of section 4 of the Partnership Act does not maintain any ambiguity. It clearly lays down that Business can be conducted by all or any of the partners on behalf of the others. Individual Labour or earnings of any of the partners of a firm is totally irrelevant consideration as the partners shall be deemed to have acted for and on behalf of all other partners. Section 12 of the Partnership Act does not bind any partner to take active part in conducting the business but he has only a right to do so. In partnership there can be sleeping partners as well. Similarly, the objection that the firm had not undertaken any business is nothing short of an erroneous view. The firm being an association of individuals, its name is only an expression. The business conducted by the Individuals shall be deemed to be business of the firm. In this view of the matter, constitution of the partnership by the appellant firm was in accordance with law.

5. This brings us to the aspect of licences granted to five individual partners for sale of judicial and non judicial stamp papers. After perusal of relevant provisions of rules 25, 26 and 27 of the Punjab Stamp Rules, 1934, we find that no specific bar exists therein prohibiting the individual licensees to join any person as an active business associate or as a sleeping partner. In the absence of any specific bar such licensee is at liberty to associate any partner for the purposes of sale judicial and non judicial Stamp papers. By doing so, there will be neither any subletting nor transfer of the licence. Under rule 28 a licensed Stamp Vendor is specifically allowed to have any person as an Agent for collection of stamps. The relevant provision is as under: "Every licence granted under these rules shall be subjected to the following conditions: The vendor shall obtain all supplies of samples of stamps which he is authorised to sell from the treasury . . . If he cannot attend personally for the purpose, he may depute an Agent able to satisfy ex officio vendor as to identity. The receipt for the stamps issued shall be taken by the ex officio vendor from the Stamp Vendor's Agent . . . . ." In sub‑rule (b) of rule 28, there exists a provision of appointment of an Agent by the Licensed Vendor for sale. Relevant portion reads as under:‑ "During short period of absenee not exceeding one week at a time the Vendor may appoint an Agent for the sale of Stamps making a note to this effect in the Vendee Register before and after the entries of the sale by the Agent. If the Agent is required for more than a week but less than a month, he must obtain permission of the Tehsildar . . . . . The Vendor shall be responsible for all acts of his Agent . . . . " In the absence of any specific bar for association of any person by an existing license, it will be worthwhile to examine the functions of a licensed Stamper Vendor. The functions are to make advance deposits for taking delivery of Stamps, judicial and non‑judicial papers from the Treasury this purpose, the rules provide that the stamp vendor can act through an Agent. This in itself is enough to hold that the licensed stamp vendor can have a partner for this purpose alone. The other part of functions is to sell judicial and non‑judicial Stamp papers. In addition to that other stamps of smaller denominations as provided in rule 24 are is to sold. Invariably all the Stamp Vendors are also doing the work of petition writers as well. They are deemed to be Specialists for writing documents to be inscribed on non judicial stamp papers. For that purpose, persons having neat handwriting are usually employed by the licensees on Partnership basis. This part of Stamp Vendors' activity is purely private one having no having no relevancy or control under any rules. A Stamp Vendor is at liberty to take any person as a partner on that score as well. The other function of a Stamp Vendor is to sell judicial and non‑judicial stamps and papers. Judicial Stamp Paper having retail price of 20 paisas is to be sold without making any entry of the name and address of the purchaser either on the paper or in any Register. Similar is the position regarding sale of Adhesive Stamps and other stamps of smaller denomination as mentioned in rule

24. This part of the functions of a Stamp Vendor can be undertaken by an employee, Agent or a partner as nothing is required therein to be done by the licensee in his own hand. It is only in the case of sale non Judicial stamp papers as well as stamps wherein name and parentage of the purchaser is to be recorded. For sale of Stamps of Pakistan Court-fee no entry is to be made in any Register. However, for sale of non‑judicial stamp papers the stamp‑vendor is required to inscribe the name of the purchaser on the back' of the paper and a corresponding entry of the particulars of the purchaser is also to be made in the prescribed Register in the hands of the license or his Agent as provided in rule 28(b). There is no provision to the effect that name and address of the purchaser is necessarily to be recorded on the non -judicial stamp and non judicial stamp papers only in the hands of the licensee The names can be recorded by an employee, a helping hand, a business associate or a partner. What a Stamp Vendor is required to do under rules, is to put his signatures and make entry in his Register. The licenses can appoint an employee or join hands with a partner for sale of non- judicial papers and non judicial stamps. The business of a stamp vendor thus is not strictly of individual control. In District Courts, Stamp Vendors are also selling lawyers Envelopes and Paper for use of general public and undoubtedly sale of these items can be made by the Stamp Vendor/his employee, his Associate or a partner. The only other relevant question requiring determination is whether there could be any partnership amongst various persons when only one of them was holding a licence. There is a chain of authorities on this issue and there is no diversity of opinion in various judicial pronouncements on this point. In the case of Oudh Cocogem & Provision Stores v. Commissioner of Income‑tax (1971 P T D 274), three persons had formed a partnership for sale of wine but only one of them held licence issued by the Excise Authorities. It was held that the firm was genuinely constituted and entitled for registration under section 26‑A of the Act. In another case cited as Commissioner of Income‑tax v. Parkash Ram Gupta (1972 P T D 54), firm was granted registration under the Act, though only one of the partners held Excise licence and the other two contributed no capital but supervised the business. In the case of Warasat Hussain v. Commissioner of Income‑tax, Bihar (1977 P T D 380), partnership was held to be valid and registration was allowed, though two of the partners did not hold any individual licence in their names for business of excisable goods. In a similar case of Commissioner of Income‑tax v. K. C. S. Reddy (38 I T R 56), registra tion was granted to the firm which was not holding any licence; rather the licence was issued in the name of one of the Partners only. In another case of Commissioner of Income‑tax v. Khushi Ram ((1962) Taxation (Ind.) 114), Patna High Court held that partnership is not invalidated if the licence is not standing in the firm's name. In Civil Reference No. 186/187 of 1967 decided on 13‑1‑1971 the Supreme Court of India held that firm vending foreign liquor against wholesale licence in the name of a partner was genuinely constituted and entitled for registration. A perusal of case‑law on the issue establishes beyond any shadow of doubt that issuance of individual licence in the name of one partner is no bar for undertaking the business of the licensee by the firm. Both the Officers below erred in not properly appreciating the correct interpretation of law. The objections of the Department stand fully demolished and it is held that the assessee firm was genuinely constituted. After holding the assessee firm to have been genuinely constituted the only question that remains for determination is whether the firm as set out in the instrument of partnership exists or not. The existence of firm as per deed of partnership having been accepted by the I.‑T. O. as is evident from assigned status of U. R. F. per dictum of Supreme Court of Pakistan as laid down in Commissioner of Income‑tax v. Mauladad Muhammad Saeed (PLD1965SC316), the assessee‑firm is entitled for registration. We, would like to observe, that the Income‑tax Officer, made a factual mistake in mentioning M. I. son of M. F. E. as one of the partners or the assessee‑firm. This person was not partner of the assessee‑firm, rather held stamp vending licence for Kamoke. In the assessee‑firm M. I. son of P. D. is the actual partner of the firm.

6. As a result of the above discussion, orders of the Officers below being illegal are vacated. The assessee‑firm is granted registration for the year under consideration. The appeal succeeds accordingly. Appeal accepted.