V.S Desai, J.:— The question which has been raised in this reference under section 66(1) of the Income-tax Act, at the instance of the assessees, is whether, on the facts and circumstances of the case, the assessee firm was entitled to registration under section 26A of the Act. The assessees are Balubhai Gulabdas Navlakhi, whose father, Gulabdas Dharamdas Navlakhi, had started business in partnership in the firm name of J.V Navlakhi & Co. since 1920 and the firm of Messrs. J.V Navlakhi & Co. The first deed of partnership was on 7th January, 1920, and embodied a partnership amongst five partners, including Gulabdas Dharamdas Navlakhi. In 1922, one of the original partners retired and another person was taken up as a temporary partner and the partnership continued till the end of the year 1922. From 1st January, 1923, the assessee, Balubhai Gulabdas Navlakhi, became a partner in the firm, and the partnership deed, which was drawn up on the 22nd January, 1923, showed six persons as partners including the assessee's father and the assessee. A fresh partnership deed again was executed on 17th February, 1928, between six persons including the assessee's father and the assessee. Under the terms of this partnership deed, the shares of these two partners were as under:

(1) the assessee's father, Gulabdas Dharamdas Navlakhi, was to have a share of eight annas in the 20 annas of a rupee.

(2) the assessee's share was fixed at four annas in the 20 annas of a rupee.

2. The remaining share of profits was divided amongst the other four persons in proportions which it is not necessary to state in detail.

3. The deed also stated that one of the six persons, namely, Balubhai Girja-shankar Joshi, had retired as a partner from the said firm from 7th January, 1920, subject to certain conditions, and the business since 1st January, 1923, had been continued by the remaining five partners. It was agreed between the partners that in consideration of the long connection of the retired partner in the firm, and in consideration of his having relinquished his right, claim and interest in the goodwill of the business of the firm, he would be paid during his lifetime or till such time as the business was carried on in the name of J.V Navlakhi & Co., whichever event happened first, two annas share in the 20 annas of a rupee in the net profits of the firm. It was also agreed that the goodwill of the business of the firm and also the stock-in-trade, furniture, goods, articles and things of the firm were to be the absolute property of the assessee's father, Gulabdas Dharamdas Navlakhi, and none of the rest of the partners had any right, title, claim and interest in the goodwill of the business as also in the stock-in-trade, furniture, etc., of the firm, and that Gulabdas Dharamdas Navlakhi had absolute power to deal with and dispose of the same by will or otherwise as he may deem fit and proper. Apart from these recitals, which were contained in the preamble, clause (3) of the partnership deed specifically provided that the goodwill of the business and all stock-in-trade, furniture, etc., of the said firm would be the absolute property of Gulabdas Dharamdas Navlakhi over which none of the other partners would have any right, claim or interest and Gulabdas Dharamdas Navlakhi would have the absolute power of disposal over the same. It was also provided that the eight annas share in the 20 annas of a rupee of Gulabdas Dharamdas Navlakhi was to go on his death to such person whom he would nominate or as may be otherwise dealt with by him, and, in the case of non-appointment or non-disposal, the same would go to Balubhai Gulabdas Navlakhi, i.e, the assessee. The assessee's father, Gulabdas Dharamdas Navlakhi, died on or about 5th January, 1933, and, on his death, the assessee became entitled to the goodwill, etc., of the firm under the will of his father. On the 2nd May, 1933, a fresh deed of partnership was executed between four persons as partners, namely, the assessee, Gatulal Dharamdas Navlakhi, Nanalal Motilal Joshi and Chandulal Motilal Joshi. These were the four surviving partners from amongst the parties to the prior partnership deed of 7th February, 1928, the other two, namely, the assessee's father and Balubhai Girjashankar Joshi, having died thereafter in the beginning of the year 1933. This partnership, deed provided that the goodwill of the business of the firm and the stock-in-trade of the firm, etc., were to be the property of the assessee. The other material provisions in the deed also were similar to the provisions of the deed of 1928, which we have already stated, giving the same position and control to the assessee as was given to his father in the earlier partnership deed. This partnership deed was followed by another partnership deed on 18th February, 1939, between five persons, four of whom were the same as in the deed of 1933 and the fifth partner, Jayantilal Gulabdas Navlakhi, was a new partner. The material clauses of this partnership deed were similar to those in the earlier partnership deeds of 1933 and 1928. In September, 1945, one of the partners, Nanalal Motilal Joshi, died and a fresh partnership deed was executed, taking Arvindlal Bhaidas Ruvala as a partner in the firm. The material clauses in this partnership deed also were similar to those in the earlier deeds. In 1947, Jayantilal Gulabdas Navlakhi retired and a new partnership deed came into existence. Then in 1951, another partner, Gatulal Dharamdas Navlakhi, having died a fresh deed of partnership was executed between three persons, who remained as partners, namely, the assessee, Chandulal Motilal Joshi, and Arvindlal Bhaidas Ruvala. On the 1st January, 1953, these three partners reconstituted the firm by taking three more persons. The material clauses of the partnership agreement of this partnership were also similar to the earlier partnership deeds. It will thus be seen that, since 1933, although there were changes in the constitution of the firm from time to time, the terms and conditions of the partnership have remained substantially the same. The firm has been allowed registration by the income-tax department from the assessment year 1928–29 up to and inclusive of the year 1954–55. In the assessment year 1955–56 also the Income-tax Officer granted registration under section 26A of the Act but the Commissioner of Income-tax, exercising his powers under section 33B(1), cancelled the registration allowed by the Income-tax Officer, and also the assessment made by him, and directed the Income-tax Officer to include the income of the business in the assessment of the assessee, Balubhai Gulabdas Navlakhi, after allowance of reasonable remuneration to the other alleged partners. In cancelling the registration, the Commissioner took the view that, in view of the powers enjoyed by the assessee under the partnership deed, the relation between him and the other partners was not that of partners under the Partnership Act, but as between an employer and an employee. The assessee went in appeal to the Tribunal, but his appeal was dismissed, the Tribunal having agreed with the view taken by the Commissioner on the construction of the deed of partnership. On applications made to the Tribunal by the assessee as also by the assessee firm, the Tribunal, drew up a statement of the case under section 66(1) and referred to this court the question which we have set out at the beginning of this judgment.

4. Mr. Kolah, learned counsel appearing for the assessee, has urged that on the construction of the deed there cannot be any doubt whatsoever that the relationship of the assessee and the other parties to the deed was that of partners. He has pointed out that the agreement on the terms and conditions as contained in the present partnership deed, which is of the 1st January, 1953, has existed all along since 1933, and for all these years even the income-tax department has treated the said agreement as embodying an agreement of partnership and has granted registration to the firm. He does not dispute that the mere circumstance that the registration has been granted in the past does not disentitle the income-tax authorities from declining to grant registration on future occasions. But the circumstance that the agreement had been accepted as an agreement of partnership and the income-tax authorities were satisfied about the same in the years past, coupled with the further circumstance that there has been no change in the conduct of the parties, will show that there was hardly any reason for the Commissioner of Income-tax to come to a contrary conclusion and to refuse registration during the present assessment year. Now, “partnership” as defined in section 4 of the Partnership Act is the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all. The two essential conditions which are necessary to form the relation of partnership is that there should be an agreement to share the profits as well as the losses of the business, and that each of the partners should be acting as the agent of all. Whether these two conditions exist in the case of the given agreement and whether, therefore, the parties to the agreement are partners constituting the firm, will have to be determined from all the relevant facts taken together. Mr. Kolah's argument is that there are several terms of the present partnership deed which clearly show that there was an agreement to share the profits and losses, and that there was also the principle of mutual agency between the partners. When these two conditions are satisfied, the other terms of the agreement, which give one of the partners a larger share in the management of the business or a greater control over the business, will not have the effect of making the agreement other than a partnership agreement. The terms of the deed which provide that all the stock-in-trade, goodwill, etc., of the business would belong to one of the partners, or that he would have power of disposal over the same as he wishes or the further power given in the deed which would entitle one of the partners to vary from time to time the share in the profits of the other partners or would give him a right to introduce, more partners in the partnership or to remove from the partnership any of the existing partners, are matters of agreement between the parties relating to the working out of the partnership, and although the power or control given to one of the partners may be very wide and may resemble the power and control possessed by a master or owner of a proprietary concern, will not have the effect of making the agreement an agreement not among partners but an agreement between an employer and an employee. Mr. Kolah's grievance is that the Commissioner and the Tribunal have ignored the real nature of the relationship by giving undue emphasis to some other terms of the agreement which deal with the powers of one of the partners.

5. In our opinion, the submission, which has been raised before us by. Mr. Kolah, has much substance in it. On reading the partnership deed of the 1st January, 1953, which is annexed to the statement as annexure “B”, we are of the opinion that the two essential conditions necessary to form a relation of partnership are both present in the agreement embodied in the said deed. Under clause 10 of the partnership deed, the bank account is to be operated upon by the partners for the purposes of the partnership business only. Clause 11 makes provision for the sharing of the profits in the business in proportion to the shares. Under clause 12, provision is made requiring the partners to deposit with the firm such amounts as may be determined by the assessee. Clause 14 provides for all the partners giving their entire attention to the business of the partnership; and clause 15 forbids any of them from engaging directly or indirectly in any business other than that of the partnership. In view of these provisions, it seems to us that there is no reason why the agreement in the present case should be held not to be one between partners but between an employer and an employee. Mr. Joshi, learned counsel appearing for the revenue, has invited our attention to certain parts of the partnership deed. He has pointed out that in the preamble it has been clearly mentioned that the entire goodwill as well as the stock-in-trade, furniture, goodwill, articles, things and all other assets of the firm are in the sole ownership of the assessee, and he has the absolute power to deal with and dispose of the same by will or otherwise as he may deem fit and proper. This, Mr. Joshi says, is perfectly consistent with the entire concern being a proprietary concern of the assessee. The provision as to the absolute ownership of the assessee over the goodwill, business, stock-in-trade, etc., is again contained in clause 3 of the agreement. In clause 4, Balubhai Gulabdas Navlakhi, i.e, the assessee, has been given a complete control as would be possessed by a proprietor of a concern inasmuch as under that clause he is at liberty to admit an additional partner or, partners upon such terms and conditions as he may like in his absolute discretion, and he has also been given power to increase or decrease the shares of the existing partners in any way he likes. This again is strongly indicative of the concern being a proprietary concern, the position of all other parties except the proprietor being that of employees of the proprietor. In clause 7 of the agreement, whereas a provision is made insisting upon every other party to the agreement devoting himself solely to the business, no such provision is made for the assessee, who is free to work or not to work as he likes. The assessee is given the power to dissolve the partnership with respect to such of the partners whom he may find not working regularly and diligently for the business. Such partner (on a dissolution with respect to him is not entitled to the profits of the year, but only to an allowance at two per cent, on the amount or amounts due to him at the end of the previous year up to the date of dissolution, and it is provided that on such dissolution with any of the partners, the share of the said partner in the net profits of the business, to which he would have been entitled, would accrue and belong absolutely to the assessee. This, according to Mr. Joshi, is again indicative of the true relationship between the parties being that between master and servant. Under clause 9, the assessee is given the right to determine the partnership as regards a partner or partners by giving him or them three months' notice; and under clause 16, the assessee is also entitled to nominate any person or persons as a partner or partners. According to Mr. Joshi, therefore, although some of the terms of the deed do appear to be the terms of a deed of partnership, on a consideration of all the terms and conditions of the deed, it is in substance a deed between an employer and employees, and the share of the profits which has been allowed to the other partners is only in the nature of remuneration fixed under an agreement of employment. In our opinion, the fact that some of the terms of the deed give enlarged powers of management and control to one of the partners, who has brought in all the finances and holds the entire capital of the firm, may resemble the powers of an employer. Still, however, they will not be sufficient to conclude that the real agreement between the parties is not that of partners, but that of master and servant, if the two essential conditions required to constitute a partnership have been satisfied. It is no doubt true that whether the said conditions are satisfied or not must, in any given case, be determined by looking to all the facts. The argument that some of the facts are also consistent with the relationship of master and servant will not, however, avail to negative the existence of partnership unless the said facts are inconsistent with the said relationship. In our opinion, the enlarged powers given to one of the partners are not inconsistent with the relationship of partners, since the partners to the agreement are entitled to fix such terms as they like between themselves. Both Mr. Kolah for the assessee, and Mr. Joshi for the revenue have invited our attention to some of the decided cases. It is not, however, necessary to discuss any of them because, whether the relationship of partnership exists in the case must be determined on the facts of each case.

6. In the view that we have taken, the assessee firm was entitled to the registration under section 26A of the Act in the assessment year and the order passed by the Commissioner cancelling the registration granted by the Income-tax Officer was erroneous and unjustified. The question, therefore, which has been framed in the present reference must be answered in the affirmative. The assessee will be entitled to his costs from the department.

7. Reference answered in the affirmative.