Law: Income Tax Act, 1922

Section: 26A,a2(11)(c)(ii)

Law: Supreme Court Rules, 1980

Section: O.XII,R.2

(a) Income--tax Act (XI of 1922)--Ss. 26-A a 2(11)(c)(ii) [as amended by S.6, Finance Act (V of 1965)]--Substitution of words "constituted by" for the words "constituted under"--Expression "constituted by an instrument of partnership" means that a firm which already existed was given a legal or official shape--Even after the substitution of the word "by" for the word "under" a firm would be entitled to grant of registration which had prior existence by oral agreement, the terms and conditions of which were subsequently incorporated in a document--A firm may be validly registered on basis of an instrument executed even at the fag, end of previous year and have a retrospective effect. The words "constituted by" introduced in subsection (1) of section 26-A of the Income-tax Act by the legislature cannot be without purpose for the legislature does not act in vain. These words have to be given their ordinary and popular meaning. Side by side with the words "constituted by" the words "before the end of the previous year for the year for which the assessment is to be made" provide a time limit for the execution of the document, and if it is to be executed on the last day of the previous year then it follows that the concept of the part of the accounting year has been completely excluded by the provision of time limit. Therefore, the partnership deed has to be construed with retrospective effect, and, for that matter, there could be an oral agreement followed by the execution of the partnership deed before the end of the relevant accounting year. Since the subsection makes the meaning of the words "previous year" abundantly clear in respect of a partnership which is constituted or set up for the first time, clause (ii) of section 2(11)(c) will not be applicable as in respect of a partners share of the profits in the firm, the previous year must necessarily be taken to be the previous year as determined for the assessment of the firm in a case where firm has been assessed as such. This not being so, it will be covered by clause (c). Commissioner of Income-tax v. Muhammad Qudratullah P L D 1966 Dacca 454; Commissioner of Income-tax, East Pakistan, Dacca v. Noor Hussain P…

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