LexCOMMISSIONER OF INCOME-TAX, PUNJAB versus M/S. CHANDER BHAN HARBHAJAN LAL
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<:OMMISSIONER OF INCOME-TAX, PUNJAB v. M/S. CHANDER BHAN HARBHAJAN LAL January 4, 1966 fA. K. SARKAR, J. R. MUDHOLKAR. A:-;D R. S. BACHAWAT, JJ.) Income.tax Acr ( 11 of 1922), s. 66(2)-Parlner of one firm also partnLr in assesSiee-funr-Wlzether all the partners. of first firni are pt1rtnerf of the assessee-firm-1/ a substantial question of la~v. The nssessec.-firm, consisting of 14 partners, applied for registration under s. 26A of the Income-tax Act, 1922. One G, who nas a partner of the assessee-firm, was also partner of another firm, the Ferozepore firm. The Ferozepore firm consisted of 8 partners who had ogrttd that if any work y;as carried on by any one of them \\'ith others the profits and losses ario;;ing out of that work \\·ould be divided amongst all the partners in proportion to their shares in that firm. In the course of the proceedings for the registration of 1he assc$.SCO-fi.rm all irs partners had stated before 1he Income-lax Officer that G was a panncr in the assesace-- firm, not in his individual capacity but on behalf of the Ferozepore firm. It was found by the lncome.-tax Officer that the capital of the ...........,_ firm was supplied by G who had taken the amount from the Feroupore firm, and, that the assessee.firm was to carry on the l'iame kind of business as the Ferozepore firm. The Income.lax Officer rejected the application for the reason that in reality it was not G but the l'erozepore firm that was the partner of the assessee-firm and consequently, tho assesse<Hlrm wos illegally constituted because : (i) Ferozepore firm could not leplly he a partner in the asscssee--firm; (ii) the total number of partners of the assessee-firm would then be 21; and (iii) the individual shares of the part- ners of the Fero;repore firm were not specified in the partner<hip deed of the assessee-firm. The Appellate Assistant Commissioner, on appeal. reversed that order, holding that G was a partner of the asscs~rm in his individual capacity and not as a representative of the Feroupore firm and that the effect of his agreement to share his profits and looses in the assessee-firm with the other partners of the Ferozepore firm was only to constitute a sub-partnersbif bet\~cen G and the other partners in the Ferozepore firm, in respect o the share of G in the assessee-ftrm. The Appellate Tribunal upheld the order of the Appellate Assistant Com· missioner on the short ground that there was no merit in the appeal in view of certain decisions cited by it, and also dil'imissed the application under s. 66( 1) 10 refer lo the High Court four questions of law. The Commissioner preferred a petition befure the High Court under s. 66(2 l for directing the Tribunal to refer the questions; (I) whether G was a partner of the asscssce-firm tn his individual capacity or representing the partners of the Ferozepore. firm, and (ii) whether the Ferozeporo ftrm was a sub-partnership; but the High Court dismi.,ed the application hold- ing that the questions of iaw were well souled. In appeal to this Court, it was contended that : (i) under the circwn- ·slance., G was a partner of the as"'8see-firm not in his individual capacity but on behalf of the Fero:repore firm; (ii) the Hi~h Court held that there was a sub-partne.rship on the erroneous assumpuon that the Ferozepore firm came into existence afler the ~-firm was constituted; and sia.oe a aub-partnership can be entered into only after a partnership was eonsti· toted, there could be no sub-partnenhip between the members ol the A B c D E F G H • 1 r • • • / > • A II c D E F G II C. !. T. v. M/S. C. B. H. LAL 177 Feroupore firm; and (iii) as a question of law arose out of the order of Tribunal, the High Court was bound to call for a statement of case. HELD : (per Sarkar and Bachawat, JJ.) on the materials on record. the Appellate Tribunal was entitled to come to the concluSion that G and not the Ferozepore firm was the partner in this assessee-firm [181 D-E] Conunissioner of Income-tax v. Sivr .. kasi Match Exporting Co. [1964] 8 S.C.R. 18, followed. (ii) The question whether there, \\'a:J a sub-partnership between th~ members of the Ferozepore firm in respect of the share of G is not mate- rail because, assumini; that there was no sub-partnership, the members of tile' Ferozepore firm dtd not become partners in the assessee-firm by virtue of the clause which only regulated the relationship of t
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