- Bookmark
- Share
- CaseIQ
Messrs Sri Ram Mills v. The Commissioner Of Income Tax, Bihar, Patna Opp. Party.
Factual and Procedural Background
This is a reference to the High Court by the Income Tax Appellate Tribunal, Patna Bench, under Section 256(1) of the Income Tax Act, 1961. The assessee is a partnership firm of five partners engaged in chanti and dal milling at Fatwah (Patna). The firm applied under Section 26A of the Income Tax Act, 1922 for registration for the assessment year 1961-1962; the Income Tax Officer refused registration on two stated grounds:
- The partnership deed recited an execution date of 31 October 1959, but the stamp for the deed was purchased on 17 November 1959.
- Statements by two partners (Prayag Lal and Ganesh Lal) suggested they were not real partners but dummies for the other three.
The assessee appealed to the Appellate Assistant Commissioner, who by order dated 27 January 1967 allowed the appeal and upset both findings of the Income Tax Officer. A similar application for registration for assessment year 1962-1963 was refused by the Income Tax Officer by an order dated 17 January 1967 for the same reasons; this too was allowed on appeal by the Appellate Assistant Commissioner.
The Department appealed both matters to the Appellate Tribunal, which allowed the appeals and held that the partnership deed — purporting to be executed on 31 October 1959 — could not be accepted as valid where stamps were purchased on 17 November 1959. The assessee sought a reference from the Tribunal in relation to assessment year 1962-1963. The Tribunal referred the question (stated below) to the High Court.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in refusing registration of the firm? (The question as originally referred by the Tribunal.)
- Whether the Tribunal was right in law in holding that the deed of partnership in question was an invalid instrument and, therefore, registration was rightly refused? (The re-framed legal question adopted by the Chief Justice for determination.)
Arguments of the Parties
Revenue (Department)
- The Income Tax Officer refused registration on two primary factual bases: (a) the stamp for the partnership deed was purchased on 17.11.1959 whereas the deed recited its execution as 31.10.1959; and (b) statements by two partners indicated they were dummies for the other partners.
- Learned Standing Counsel for the Revenue submitted that the Tribunal's order, in substance, indicated the partnership was not genuine and urged that a further statement of the case be called for if the Tribunal's finding on genuineness was not clear and certain.
Assessee
- The Appellate Assistant Commissioner had upset the Income Tax Officer's findings and held the partnership to be genuine.
- Assessee's counsel (Mr. K. N. Jain) relied upon a Madras High Court decision (Imperial Automobiles v. Commissioner of Income Tax) which held that registration could not be refused merely because the recited date of execution differed from the date of actual execution; any discrepancy could, however, give rise to suspicion of genuineness if other findings justified it.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Malankara Timbers v. Commissioner Of Income-Tax, Kerala (Bench decision) | The Court there dealt with a partnership deed whose recital date preceded the date on which stamps were purchased; when the actual signing date was not known, the Court inferred the execution was after stamps were bought and that the deed did not cover the whole accounting year, justifying refusal of registration. | The Tribunal relied on this decision. The High Court here observed that if the Malankara Timbers ratio were applied strictly it might have affected registration for assessment year 1961-1962 but not for 1962-1963 in the present facts. |
| Imperial Automobiles v. Commissioner of Income Tax, Madras (87 ITR 695) | The Madras High Court held that registration could not be refused solely because of a difference between the recited date of execution and the actual execution date; however, such a discrepancy could justify suspicion about genuineness of the partnership and, where genuineness was disputed, a further statement of the case might be necessary. | The assessee relied on this authority. The High Court distinguished it on the basis that in Imperial Automobiles the Income Tax Officer (and the Appellate Assistant Commissioner) had found the partnership not genuine; here the Appellate Assistant Commissioner had found the partnership genuine and the Tribunal had not recorded any finding adverse to genuineness, so a further statement of the case was not required. |
Court's Reasoning and Analysis
The Chief Justice re-framed the referred question to focus on whether the Tribunal was correct in law in holding the partnership deed invalid and thus justifying refusal of registration.
The Court set out relevant facts: the accounting year for assessment year 1961-1962 commenced 31.10.1959 and ended 18.10.1960; stamps for the deed were purchased on 17.11.1959; the deed was actually signed before the Registering Officer on 18.3.1960. Despite these facts, the deed contained recitals stating it was made and the partnership commenced on 31.10.1959, creating a clear contradiction between recital and actual execution.
The Court applied a fundamental principle of document interpretation emphasized in the opinion: a document must be read as a whole and where there is conflict between parts, effect should be given to the part that is supported by other facts and circumstances. Using that principle the Court concluded:
- The recital stating the deed was made on 31.10.1959 was incorrect in the light of the undisputed facts (stamps purchased 17.11.1959; actual execution 18.3.1960).
- The correct conclusion is that the deed was executed on 18.3.1960 and that the partnership came into existence on that date for all legal intents and purposes.
- The Tribunal was not justified in holding the deed invalid solely because of an incorrect recital as to the date of execution.
Regarding the Revenue's submission that the Tribunal had effectively found the partnership not genuine and that a further statement of the case should be called for, the Court refused that prayer: the Tribunal had not recorded any finding that the partnership was not genuine. The Appellate Assistant Commissioner had found the partnership to be genuine, and the Tribunal's order did not displace that finding or cast doubt upon it.
The Court considered the precedents relied upon by both sides. It noted that Malankara Timbers involved uncertainty about the actual signing date and had consequences for a different accounting year, and that Imperial Automobiles allowed refusal of registration only where genuineness had independently been impugned and, therefore, required a further statement of the case. The Court distinguished each precedent on its facts and concluded that neither justified the Tribunal's invalidation of the deed on the basis of the incorrect recital alone in the present case.
Holding and Implications
Core Ruling: The re-framed question is answered in the negative in favour of the assessee and against the Revenue: the Tribunal was not right in law in holding that the deed of partnership was invalid and was therefore not right in refusing registration of the partnership firm for the assessment year 1962-1963.
Direct consequences and orders made by the Court:
- The Court held the partnership deed to be valid notwithstanding the erroneous recital of an earlier date; the deed was treated as having been executed on 18 March 1960.
- The refusal of registration for assessment year 1962-1963 was held to be wrong.
- The assessee was awarded the costs of the reference; the hearing fee was assessed at Rs. 100/-.
Broader implications: The opinion distinguishes prior authorities on their facts and applies the principle that recitals inconsistent with demonstrable facts do not automatically invalidate a document. The Court did not purport to lay down a sweeping new precedent beyond resolving these facts; its decision is framed and applied to the circumstances before it.
Judge delivering opinion: Untwalia, C.J.; concurrence by Nagendra Prasad Singh, J. Application allowed.
Untwalia, C.J:— This is a reference by the Income Tax Appellate Tribunal, Patna Bench, under Section 256(1) of the income Tax Act, 1961. The assessee is a partnership firm consisting of five partners. They carry on business in Chanti and Dal milling at Fatwah in the district of Patna. It filed an application under Section 26A of the Income Tax Act, 1922, for registration of the firm for the assessment year 1961-1962. The Income Tax Officer refused registration on the following two grounds:
“(i) the stamp for the partnership deed was purchased on 17.11.1959 whereas the recital in the deed of partnership showed that it was written on 31.10.1959; and
(ii) the statements of two of the partners, Sri Prayag Lal and Sri Ganesh Lal (Copies of which are annexed hereto as Annexures ‘AI’ and ‘A2’ form part of the statement of case) indicated that they were not the real partners but were merely the dummies of the other three partners.”
2. A copy of the partnership deed in question is Annexure B to the statement of the case. A copy of the order of the Income Tax Officer dated 30.3.1956 is Annexure E to the statement of the case. The assessee went up in appeal before the Appellate Assistant Commissioner from this order. The Appellate Assistant Commissioner by his order dated 27.1.1967 (Annexure F) allowed the appeal and upset both the findings recorded by the Income Tax Officer.
3. The assessee had filed a similar application for registration in the assessment year 1962-1963. This application was refused by the Income Tax Officer by his order dated 17.1.1967 for the reasons mentioned in his order in respect of the year 1961-1962. The assessee went up in appeal from this order also. The Appellate Assistant Commissioner allowed the appeal for the reasons mentioned by him in his appellate order relating to the assessment year 1961-1962. The Department took up the matter further before the Appellate Tribunal by filing two appeals in respect of the two assessment years. The Tribunal allowed both the appeal and seems to have held that the deed of partnership which purported to have been executed on 31.10.1959 could not be accepted as a valid instrument when the stamps were purchased on 17.11.1959 The assesses asked for a reference to be made in relation to the assessment year. 1962-1963 only. The Tribunal has referred the following question of law to this Court in this case:—
“Whether on the facts and in the circumstances of the case, the Tribunal was justified in refusing registration of the firm?”
4. In my opinion, the question of law referred to this Court is not properly framed. To bring out the real issues between the parties, it has to be re-framed. In my opinion, the question of law which does arise from the Tribunal's order in appeal is the following:
“Whether the Tribunal was right in law in holding that the deed of partnership in question was an invalid instrument and, therefore, registration was rightly refused?”
5. A few more facts may be stated for determination of the re-framed question. The accounting year in relation to the assessment year 1961-1962 commenced on 31.10.1959 and ended on 18.10.1960 The account ting year, being the Dewali year if relation to the assessment year 1962-1963, commenced on 19.10.1960 and ended on 6.11.1961 There is no dispute, rather the findings recorded by the Tribunal, are to that effect, that stamps for execution of the deed in question were purchased on 17.11.1959 The deed was actually signed by the partners, in other words, it was actually executed by the partners on 18.3.1960 before the registering officer. What happened, however, to create the difficulty in the way of the assessee is that at the top of the deed (Annexure B) it was mentioned—“This Deed of Partnership made this 31st day of October, 1959.—Paragraph 1 of the deed also recited:
“The partnership starts from today, the 31st October, 1959 and shall be carried on thereafter until determined by the partners.”
6. It is, therefore, obvious that there was a contradiction between the recital of the date of execution in the deed and its actual execution. The question for consideration was whether the deed could be held to be invalid only on that account, as has been held to be so by the Tribunal. It has missed a fundamental principle of interpretation of a document that the document has to be read as a whole, and if there is any conflict between one part of the document and the other, then effect has to be given to that part of the document which finds support from other facts and circumstances of the case. Hence, it is plain that the recital about the date of execution of the document on the 31st day of October, 1959 was incorrect. Stamps were purchased much later, and on those stamps the deed could not be executed on 31.10.1959 The actual execution of the deed came in when the partners signed the document on 18.3.1960 That being so, to all intents and purposes, the document was executed on 18.3.1960, and one could take the view that the partnership did not come into existence on 31.10.1959 on the basis of the obviously wrong recitals in the earlier portion of the deed. But surely, it did come into existence when the document was executed on 18.3.1960 The Tribunal, in the eye of law, was not right and justified in holding the deed of partnership to be invalid only because of the mistake of recital of the date of execution in it. If I can hazard a surmise for the cause of this mistake, although it is not necessary to do so, it seems to me that the partners purported to execute a partnership agreement on 31.10.1959, and after the stamps were purchased, the recital, which might have been there in a plain paper, was copied out in the deed in question, without making the correction in the recitals. Be that as it may, on the plain facts of this case, it does without saying that the deed was executed on 18.3.1960, stamps had been purchased before its actual execution, and the mere recital of the deed of partnership having been made on the 31st day of October, 1959 could not detract from its value of being a valid partnership document.
7. Learned Standing Counsel for the Revenue submitted that the finding of the Tribunal in substance and in effect seems to be that the partnership was not genuine. He asked us to call for a further statement of the case, if the finding of the Tribunal in that regard was not clear and certain. We refused this prayer for the simple reason that the Tribunal has not recorded any such finding. It is to be emphasised here again that the Appellate Assistant Commissioner had held the partnership to be genuine, upsetting the finding of the Income Tax Officer, and in the Tribunal's order there is no inkling as to there being any illegality, impropriety or incorrectness in that finding of the Appellate Assistant Commissioner. Rather, as I read the order of the Tribunal, even in the light of the separate note which the learned Judicial Member has added to the judgment of the learned Accountant Member, it has not at all differed from the view of the Appellate Assistant Commissioner that the partnership is genuine. As stated above, the Income Tax Officer had held the deed to be defective and invalid because of the difference in the recital of the date of execution, the date of purchase of stamps and its actual execution. The Appellate Assistant Commissioner had not found the view of the Income Tax Officer even in that regard to be correct. The Tribunal found it to be correct. In my opinion, therefore, the only question of law which falls for determination by us is whether the Tribunal was right in law in holding that the deed of partnership in question was invalid. If it was not right, then it is manifest that refusal of registration in this case was wrong.
8. The Tribunal, in support of its view has placed reliance upon a Bench decision of the Kerala High Court in (1) Malankara Timbers v. Commissioner Of Income-Tax, Kerala Reports 200). It would be seen from the facts of that case that according to the recital as to the date of execution of the partnership deed, the date was March 1, 1959. Stamps had been purchased on March 23, 1959. Application for registration had been made on April 29, 1959. It was not actually known when the deed of partnership was signed and executed by the partners. In such a situation the Kerala High Court thought that it was signed sometimes between March 23 and April 29, 1959. The accounting year in question had commenced on April 1, 1959. That being so, the deed could not be taken to have covered the entire accounting year 1959-1960. Refusal of registration was held to be justified on that ground. If the ratio of this case is taken to be correct, then it could have affected the assessee in regard to the question of registration for the assessment year 1961-1962 but not for the year 1962-1963.
9. Mr. K.N Jain, learned counsel for the assessee, placed reliance upon a recent decision of a Bench of the Madras High Court in (2) Imperial Automobiles v. Commissioner of Income Tax, Madras (87 Income Tax Reports 695). Facts were very much similar, and the Madras High Court took the view that the registration could not be refused merely because of the difference in the date of execution as recited and the date of actual execution. The learned Judges constituting the Bench, however, thought that this could lead to a suspicion about the genuineness of the partnership, and since the Tribunal had not recorded any finding in that regard a further statement of the case was called for. The difference between the facts of the case before the Madras High Court and the instant one, to my mind, is so obvious that taking recourse to the calling for a further statement of the case by us was neither necessary nor would have been justified. In the Madras Court the Income Tax Officer had found the partnership not to be genuine. The Appellate Assistant Commissioner had upheld his view in that regard too. The Tribunal did not go into this question at all. Even if its decision, therefore, on the first question of the alleged invalidity of the deed of partnership was erroneous, it was necessary to know that the view of the Tribunal as to the genuineness of the partnership, because the departmental authorities had concurrently expressed the view against the assessee in that regard. In the instant case, as I have said above, the finding as to the genuineness of the partnership is in favour of the assessee. The Tribunal neither expressly nor by any implication in its appellate order has thrown any doubt or suspicion in regard to that finding. That being so, it must be taken to be a finding of fact in favour of the assessee that the partnership is a genuine one.
10. For the reasons stated above, I answer the re-framed question in the negative in favour of the assessee and against the Revenue. I hold that the Tribunal was not right in law in holding that the deed of partnership in question was invalid and was, therefore, not right in refusing registration of the partnership firm for the assessment year 1962-1963. The assessee must have the costs of this reference. The hearing fee is assessed at Rs. 100/- only.
11. Nagendra Frasad Singh, J. I agree.
Application allowed.
Alert