K. D. KAMATH & CO. versus C.I.T., BANGALORE

Citation: [1972] 1 S.C.R. 1034 · Decided: 11-10-1971 · Supreme Court of India · Bench: C.A. VAIDYIALINGAM · Disposal: Appeal(s) allowed

Judgment (excerpt)

1034 
K. D. KAMATH & CO. 
C.J.T., BANGALORE 
October 11, 1971 
A 
[C. A. VAIDIALINGAM AND P. JAGANMOHAN REDDY, JJ.J 
B 
Indian Income-tax Act, !922, s. 26A-Indian Partnership Act, 1932, 
ss. 4, 14, IS-Working partners to work under direction and control of 
111am;·ging partner-Working Partners not authorised to pledge property 
of firm or raise loans on behalf of firm-Whether part11ership lacks essen· 
L,iat elentent of agency of partners-Firn1 lVhether to be registered under 
s. 26A of Income-tax Act. 
The appellant was a firm consisting of six partners and the partnership 
was constituted under a document dated March 20, 1959, the business 
of the partnership having already commenced from October I, 1958. The 
partnership was registdred under the Indian Partnership Act 1932 on or 
about August 11, 1959. For the assessment year 1959-60 corresponding 
to the previous year ending March 31, 1959 the appellant filed an appli-
cation for registration under s. 26A of the Indian Income-tax Act, 1922. 
The Income-tax Officer by his order dated September 28, 1960 declined 
to grant registration on the ground that there was 
no 
relationship of 
partners inter se created under the 
partnership deed, 
The Appellate 
A"istant Commissioner upheld the order of the Income-tax Officer. The 
Tribunal held that there was agreement to share profits between partners 
and each of the partners could act as agent of all and therefore the re· 
quirements of partnership were fully satisfied. 
In the reference th' High 
Court held that els. 8, 9 and 16 of the deed showed that the management 
as Wt!ll as the control of business was entirely left in the hands of the 
first partner and that the other partners were only 
to serve under 
his 
directions and further they had no authority to accept any business except 
with the consent of the first partruer, nor could they raise any loan or 
pledge the firm's interest. On this reasoning the High Court came to the 
conclusion that there was no relationship of partners created under the 
partnership deed and as the essential element of agency was lacking the 
oppellant was not eligible to be· granted registration under s. 26A. 
In appeal to this Court, 
c 
D 
E 
F 
HELD : (i) The· mere nomenclature given to a document is by itself 
not sufficient to hold that the. document in question is one of partnership. 
Two essential conditions to be satisfied are (1) that there should be an 
agi'eement to share profits as well as the losses of the business and (2) 
the business must be carried on by all or any of them acting for all within 
the meaning of the definition of partnership under s. 4 of the partnership 
G 
Act. 
The fact that the exclusive power to control by agreement of the 
paTties is vested in one partner or the further circumstance that only on.e 
partner can operate the bank account or borrow on behalf of the firm 
are not destructive of the theory of partnership prm;ded the two essential 
conditions mentioned earlier are satisfied. [1050 F-G] 
(ii) Under the partnership deed in question the relationship which 
had reen brought into existence between the six parties was a relationship 
H 
of partners who had ;igreed to share profits and losses of the business 
carried dn by all or any of them acting for all and it satisfied the defini• 
lion of partnership under s. 4 of the Partnership Act. There was sharing 
; 
A 
B 
c 
D 
E 
F 
G 
H 
K. D. KAMATH & co. v. C.I.T, (Vaidialingam, /.) 
1035 
of the profits or losses of the business by the partners in the ratio of the 
proportion mentioned in cl. 5. That clause read with other clauses clearly 
showed that the first condition namely of all persons agreeing to share 
profits or losses was satisfied. 
Even on the basis that the entire control 
or management of the business was vested in Party No. 1 and that parties 
2 to 6 were working partners who had to work under his directions, from 
all the other circumstances it was clear that the conduct of bus;ness by 
Party No. 1 was done by him acting for all the partners. There was no 
indication to the contrary in the partnership deed. 
Thelrefore even with-
out anything more it was clear that as the partnership business was car-
ried on by Party No. I acting for all, the second condition of agency was 
also sa:i·.fiod. 
This idea was further reinforced by cl. 16 of the deed 
which •rovidf:d that the firm's affairs were to be carried on for mutual 
benefits. [ 105 I C-F] 
(iii) fhe High Court was wrong i

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