KYLASA SARABHIAH, BOMBAY CLOTH SHOP, SECUNDERABAD versus COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH

Citation: [1965] 2 S.C.R. 310 · Decided: 01-12-1964 · Supreme Court of India · Bench: P.B. GAJENDRAGADKAR · Disposal: Appeal(s) allowed
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Judgment (excerpt)

KYLASA SARABmAH, BOMBAY CLOTH SHOP, 
A 
SECUNDERABAD 
v. 
COMMISSIONER OF INCOME-TAX, ANDBRA PRADF.gl 
December 1, 1964 
B 
[P. B. GAJENDRAGADKAR, C.J., M. HIDAYATULLAH, J. c. SHAH, 
S. M. SIKRI AND R. S. BACHAWAT, JJ.) 
Income Tax Act, 1922 (11 of 1922), s. 26-A, r. 1r-Regjstration of firm 
-Partnership consisting of firm and other persons-Income Tax Officer, 
powers--"Specify", meaning of. 
The appellant firm applied for registration under s. 26-A of the Indian 
C 
Income-tax Act. 
In the application the persons recited as partners were 
a Yam shop-another firm and four other persons and the collective share 
of the Yam shop and the shares of the other partners were set out. The 
IncomlHax Officer rejected the application and his order was confirmed in 
appeal by the Appellate Assistant Commissioner and by the Income-tax 
Appellate Tribunal. The Tribunal held that because in the deed of part-
nership benefits to which certain minors were admitted and particulars "about 
D 
the distribution of profits or losses in the manner in which the firm wanted 
the same to be distributed" were not specified, and because by the deed 
of partnership the yam shop was introduced as a partner in the firm, the 
privilege of registration under s. 26A must be denied to the firm. 
The 
question was referred to the High Court. which too answered similarly. In 
appeal by special lea\-e, 
HELD : The appeal must be allowed. 
(i) If the statutory conditions which qualify the firm for registration 
E 
are fulftlled, an arrangement between some of the partners, which binds 
them to distribute the profits under a stipulation which is not a part · 
of the partnership agreement does not effect the right to claim registration 
of the partnership agreement. (314 H] 
Dullchand Laxminarayan v. Commissioner of Income-tax, 
Nagpur, 
[1956] S.CR. 154, distinguished. 
· 
F 
·(ii) The word "specify" is used ins. 26A and Rule 2 as meaning men-
tioning, describing or defining in detail; it does not mean expressly setting 
out in fractional or other shares. (314 D-E] 
(iii) If the conditiom for registration of a firm are fulftlled, the 
Income-tax Officer has no power to reject the application. Undoubtedly, 
the application must strictly be in conformity with the Act and the Rules, 
but in so ascertaining, the deed of partnership must be reasonably cons-
G 
trued. 
(311 GI 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 83 of 
1964. 
Appeal by special leave from the judgment and order dated 
August 18, 1960 of the Andhra Pradesh High Court in R. C. 
Appeal No. 34 of 1957. 
H 
A. Ranganadham Chetty, K. Venkaramaiah, A. Vedavalli and 
A. V. Rangam, for the appellants. 
SARABHIAH v. C.I;T. (Shah, /.) 
1111 
A 
R. Ganapathy Iyer and R. N. Sachthey, for the respondent. 
The Judgment of the Court was delivered by 
Shah, J. The appellants who are a firm carrying on business in 
cloth at Secunderabad applied on June 30, 1955, for registration 
8 
under s. 26-A of the Indian Income-tax Act, 1922, for the assess-
ment year 1956-57. The following persons were, it was recited in 
the application, partners, having share in the profits and losses5 in 
proportions specified against their names :-
c 
D 
1. M/ s Kylasa Sarabhiah a firm consisting of 
the following partners : 
(a) Kylasa Veeresalingam. 
(b) Kylasa Nagendrarao 
( c) Kylasa Madhusudhanarao 
2. Mahendrakar Narayanarao 
3. Nune Vittayya 
4. Pottupalli Chandrayya 
5. Gande Ramayya 
Rs.As. Ps. 
0 6 9 
0 3 3 
0 2 
6 
0 2 6 
0 
1 0 
For facility of reference we will call No. 1 'the Yam Shop'. 
E 
The Income-tax Officer rejected the application, and his order 
was confirmed in appeal by the Appellate Assistant Commissioner 
and by the Income-tax Appellate Tribunal. 
The Tribunal held 
that because in the deed of partnership benefits to which certain 
minors were admitted, and particulars "about the distribution of 
profits or losses in the manner in which the firm wanted the same 
F 
to be distributed" were not specified, and because by the deed of 
partnership the Yarn Shop was introduced.as a partner in the firm, 
the privilege of registration under s. 26-A must be denied to the 
firm. The High Court of Andhra Pradesh recorded on the follow-
ing question referred under s. 66 ( 1) of the Income-tax Act : 
G 
H 
"Whether on the facts and circumstances of the case, 
the assessee is entitled to registration under s. 26-A of 
the Income-tax Act ?", 
a negative answer. 
Section 26-A of the Indian Income-tax Act, 1922, p
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