Law: Income Tax Act, 1922

Section: 26A

Law: Income Tax Act, 1961

Section: 184

Section 184 of the Income-tax Act, 1961 [Corresponding to section 26A of the Indian Income-tax Act, 1922] - Firm - Position prior to 1-4-1993 - Assessment year 1949-50 - Whether though a partnership has been brought into existence by an oral agreement amongst partners, if subsequently, terms and conditions of partnership have been reduced to form of a document (i.e., deed of partnership), it can be said that partnership has been constituted under that instrument - Held, yes - Whether, however, unless partnership business is carried on in accordance with terms of an instrument of partnership which was operative during accounting year, it can not be registered in respect of following assessment year - Held, yes FACTS The assessee-firm was constituted in April 1948 and the deed of partnership was drawn up on 27-9-1949, which was registered on 12-10-1949. An application for registration of firm had been made to the ITO for the assessment year 1949-50. The application was rejected by the Income-tax authorities. The firm preferred an appeal to the Tribunal, which was also dismissed by the Tribunal. The ground of the order of the Tribunal was that as the firm admittedly was formed by a verbal agreement in April, 1948, and not by or under an instrument in writing dated 27-9-1949, and as the assessment was for the year 1949-50, for which registration of the firm was sought, the registration could not be ordered. On reference, the High Court upheld the order passed by Tribunal refusing registration to assessee-firm. On appeal to the Supreme Court : HELD Any attempt to re-construct the provisions of the relevant section and the Rules, on the assumption that the intention of the Legislature was to limit the registration of firms to only those which have been created by an instrument of partnership, is, with all respect, erroneous. The proper way to construe the provisions of the statute is to give full effect to all the words of the relevant provisions, to try to read them harmoniously, and then to give them a sensible meaning. A partnership may be created or set up by a contract in writing, setting out all the terms and conditions of the partnership, but there may be many…

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