1. This appeal by the assessee is directed against the order of the Commissioner (Appeals) dated 6-3-1981 by which he directed the ITO to treat the status of the assessee as that of an AOP rejecting its claim that it was a genuine firm.
One Shri Purna Chandra Barick, by his own effort had built up a cinema house at 2/IB, Raja Raj Kissen Street, Calcutta in the name of Purnasree Cinema. On 20-9-1961 this business was converted into a partnership, Shri Purna Chandra Barick having 10 shares and his grandson, Shri Netai Chandra Barick the remaining 6 shares. Under Clause 17 of the deed of partnership, if a partner desires to retire he should give at least six calendar months' notice in writing to the other partner. Clause 18, which is more relevant, stipulated that if any of the partners died during the continuance of the partnership, the partnership should not be dissolved but the heirs and legal representatives of the deceased partner at their option were entitled to be taken in as partners in place and stand of such deceased partner. Shri Purna Chandra Barick made a will on 22-5-1970. He appointed Smt. Sarala Bala Barick, widow of his son, Manmatha Nath Barick (deceased) and Netai Chandra Barick, son of the said Manmatha Nath Barick, to be executrix and executor. Various directions were given in the will in respect of several properties and liabilities of Shri Purna Chandra Barick. In particular, Shri P. C. Barick directed in respect of his 10 shares in Purnasree Cinema as below : I give device and bequeath the 3/4th part or share of my remaining 10/16th share of and in the said messuages land hereditaments and premises of the said 'Purnasree Cinema' being the said premises No. 2/1B, Raja Raj Kissen Street in the town of Calcutta as also my 10/16th share in the name of the said Cinema business at the said premises to the said Nader Chand Barick, Madhusudan Barick and Jadunath Barick all sons of my grandson the said Netai Chandra Barick to be held and enjoyed by them absolutely in equal shares and the remaining l/4th part or share therein to my said grand-daughter Kumari Jaya Bati Barick to be held and enjoyed by her during the term of her natural life and after her demise to the said Nader Chand Barick, Madhusudan Barick and Jadunath Barick absolutely in equal shares and forever.
The above-mentioned bequest of my 10/16th part or share of the income of the said Cinema business known as 'Purnasree Cinema' however shall be subject to the payments to be made thereout to the following persons so long as they shall peacefully live at premises No. 150A, Acharya Prafulla Chandra Road, Calcutta : (a) Rs. 200 (Rupees two hundred only) shall be paid to Shrimati Sarala Bala Barick each and every month during the term of her natural life.
(b) Rs. 150 (Rupees one hundred and fifty only) shall be paid to the said Srimati Durga Bala Barick each and every month during the term of her natural life.
(c) Rs. 150 (Rupees one hundred and fifty only) shall be paid to the said Srimati Muktakeshi Barick each and every month during the term of her natural life.
(d) Rs. 100 (Rupees one hundred only) shall be paid to Srimati Abala Bala Barick each and every month during the term of her natural life and also subject to the provisions that my said grand-daughter Jaya Bati Barick shall have a right to issue from time to time House Account Pass and/or Tax Pass regarding Cinema shows at the said Cinema Hall known as 'Purnasree Cinema'.
I also direct that the management of the said 'Purnasree Cinema' shall remain with my said grandson Netai Chandra Barick and that he shall at the end of every financial year and within a month from the close of the year pay to the said Nader Chand Barick, Madhusudan Barick and Jadunath Barick and Kumari Jaya Bati Barick their respective shares in the net income of the said business of the said 'Purnasree Cinema' hereby bequeathed to them together with a statement of account showing the receipts and disbursements and in ascertaining the net income the decision of the chartered accountant for the time being of the said 'Purnasree Cinema' shall be final, conclusive and binding on the parties provided further I desire and direct that the said Netai Chandra Barick shall pay to the said Nader Chand Barick, Madhusudan Barick, Jadunath Barick and Kumari Jaya Bati Bariek monthly and every month such amount as he may deem proper towards the anticipated share of the annual profits and provided also that in the event of any of the said sons of Netai Chandra Barick being minor at the time of my death his share of the income shall be paid to his natural guardian provided also that my executrix and executor shall not be entitled in any event to interfere with the management of the said business of 'Purnasree Cinema'. After the death of the said Netai Chandra Barick the right of management shall be exercised by the said Nader Chand Barick, Madhusudan Barick, Jadunath Barick and Kumari Jaya Bati Barick so long as the said Jaya Bati Barick is alive.
3. Shri Purna Chandra Barick died on 27-5-1970 and a partnership deed between Netai Chandra Barick, son of Manmatha Nath Barick (deceased) in his individual capacity holding 6 shares and Smt. Sarala Bala Barick, wife of late Manmatha Nath Barick and the aforesaid Netai Chandra Barick as executor and executrix to the estate of P.C. Barick (deceased) jointly holding 10 shares was drawn on 15-6-1970. In the preamble to the said partnership deed it has been provided : AND WHEREAS it is inter alia mentioned in the said last will of said Purna Chandra Barick deceased that on the death of Purna Chandra Barick the business of said Purnasree Cinema wherein Purna Chandra Barick had 10 annas share will be managed by the surviving partner Shri Netai Chandra Barick for the better interest and management of the partnership business.
The newly constituted firm applied for registration for the assessment year 1972-73 and the ITO granted registration. During the year under consideration the assessee applied for continuation of registration by filing a declaration under Section 184(7) of the Income-tax Act, 1961 ('the Act') in Form No. 12 but the said Form No. 12 was not signed by Smt. Sarala Bala Barick. The ITO rejected the assessee's claim for continuation of registration on the ground that Form No. 12 was not signed by the other partner, Smt. Sarala Bala Barick.
4. The assessee appealed to the Commissioner (Appeals) and contended that the ITO was not justified in refusing to allow continuation of registration on the sole ground that Smt. Sarala Bala Barick had not signed Form No. 12. It was urged that the partnership was between Shri Netai Chandra Barick in his individual capacity and the estate of late P.C. Barick of which Shri Netai Chandra Barick was executor and Smt.
Sarla Bala Barick was executrix. It was submitted that the executor could represent the estate either jointly or severally in the absence of any specific provision in the will to the effect that they could act only jointly. It was, therefore, submitted that the mere fact that Form No. 12 was not signed by Smt. Sarala Bala Barick should not have been the reason for refusing to allow continuation of registration which was already granted in the earlier assessment year. It was further urged that this was not the year of initial registration and, therefore, when Form No. 12 filed by the assessee bore the signature on behalf of each of the two partners of the firm as registered in the earlier year, the continuance of the benefit of registration was automatic. The Commissioner (Appeals) rejected the assessee's contention and held that there was no lawful and valid partnership in existence by observing as under : I have carefully considered the above submissions and the material on record.
The direction of Purna Chandra Barick as regards his property represented by 10/16th share in Purnasree Cinema are quoted at the beginning of this order. It is to be noted that the testator had clearly stated that the management of Purnasree Cinema would remain with the grandson Shri Netai Chandra Barick and his executor and executrix would not be entitled in any event to interfere with the management of the said business of Purnasree Cinema. After the death of N.C. Barick the right of management would be exercised by other persons, namely, S/Shri Nader Chand Barick, Madhusudan Barick, Jadunath Barick and Kumari Jaya Bati Barick. It is, therefore, clear that Smt. Sarala Bala Barick had not been given any right in respect of this property of late P.C. Barick except to receive Rs. 2,000 per month for her life. The business unit under review is purported to have been created by a document dated 15-6-1970. It is claimed that the estate of late P. C. Barick is a partner. Inasmuch as Smt.
Sarala Bala Barick had signed this document creating this partnership as executrix of the will of late P.C. Barick, the genuineness of the firm itself may be open to serious question since late P.C. Barick in his will appointing Smt. Sarala Bala Barick also as one of the co-executrix had specifically denied her any management right over her interest in Purnasree Cinema. In Kaura Lal Vishwan Das v. CIT [1954] 26 ITR 642 (Lahore), a similar situation arose when what was stated to be a partnership was between some individuals and themselves as trustees, it was held that there could be no lawful partnership inasmuch as the trustees of the trust in their individual capacity.
Moreover, I am of the view that the question raised here is to be held against the assessee in view of the decision reported in National Non-Ferrous Industries v. CIT [1980] 121 ITR 130 (Bom.).
The facts there are given at pages 136-137. It is seen that the facts of the present case are absolutely similar to the facts considered by Bombay High Court in National Non-Ferrous Industries' case (supra). There also two persons described as joint executors of the will of late partner Bulakhidas were described in the opening words of the recitals of so-called partnership deed as party of the fourth part. Again the clause dealing with division of profit showed 25 paise against the names of the two persons together as representing the estates of Bulakhidas B. Patel. In the deed of partnership, on behalf of the fourth party, both executors of the will of Bulakhidas had signed. At page 138 it was observed that one had to consider first whether two persons namely the executors separately and individually had been made partners in the deed of partnership. The Hon'ble Court said that the proper test was whether either of them acting individually can enter into transactions on behalf of the firm or otherwise bind the firm. They held that- Once the proper question is posed, it is quite clear that neither of these two persons acting by herself or himself can claim to be a partner of the firm as constituted by the partnership deed of 5th February, 1962. The status of a partner is given to the two jointly and it is only if they act jointly that they can purport to be a partner of the firm, represent the firm, be the agent of the firm, obtain rights and incur liabilities for the firm. The manner in which they have been described in the recitals and the manner in which they have signed, leave no room for any doubt that both of these persons collectively are partners and not separately.
...ordinarily two persons together or collectively cannot be considered to be one single partner of a firm....
The learned judges distinguished on facts the Supreme Court decision in the cases of Kylasa Sarabhaiah v. CIT [1965] 56 ITR 219 and CIT v. Sir Hukumchand Mannalal & Co. [1970] 78 ITR 18. They further held that- ...they would not warrant acceptance of the general proposition that it would be permissible* in law for an association of persons to be collectively a partner of another partnership, or each of them would thereby become a partner.
...The true position under the deed of partnership as it appears to us is that the two of them jointly or collectively have been constituted a single partner and it is only when they act jointly that they can purport to exercise the rights of a partner. In our opinion, such a partner is not contemplated in law and a partnership having such a partner cannot be considered to be legally valid. If there is an agreement constituting such a partnership, it will have to be regarded as being contrary to law and, therefore, on that count, in our opinion, the ITO was entitled to refuse registration.
The treatment of the deed under consideration here and the facts of the case being on all fours I am of the view that in the present case no lawful valid partnership has been constituted by a document dated 15-6-1970 is held in the case of CIT v. Tata Sons (P.) Ltd. [1974] 97 ITR 128, the considered opinion of Hon'ble Bombay High Court should be followed since there are no overriding reasons for taking any divergent view.
5. Against the said order of the Commissioner (Appeals) the assessee preferred a second appeal before the Tribunal. It was contended by the learned counsel for the assessee that the Commissioner (Appeals) was not justified in holding that there was no lawful and valid partnership in existence during the year under consideration. He took us through the will dated 22-5-1970 left by late P.C. Barick wherein the testator settled his several properties along with his share in the assessee-firm. He pointed out that in the said will the testator appointed Shri Netai Chandra Barick and Smt. Sarala Bala Barick jointly as executor and executrix of the will. He further pointed out that the partnership was constituted between Shri Netai Chandra Barick in his individual capacity and Smt. Sarala Bala Barick and Shri Netai Chandra Barick jointly in their representative capacity. The learned counsel for the assessee urged that in this partnership there were two distinct partners as stated above and, therefore, it could not be said that the partnership deed was not a valid one. He urged that under the Indian Contract Act, 1872, so also under the Indian Partnership Act, 1932, an AOP or a BOI is also a person and, therefore, a partnership agreement is between persons and not between individuals. Reference was made to the provisions of Section 311 of the Indian Succession Act, 1925 wherein the powers of several executors or administrators have been defined. He pointed out that in accordance with the provisions of Section 311 when there are several executors or administrators the powers of all may, in the absence of any direction to the contrary, be exercised by any one of them who has probed the will or taken out administration. He, therefore, submitted that even if Form No. 12 was not signed by the executrix, Smt. Sarala Bala Barick, that was valid and, therefore, the assessee's claim for continuation of registration should not have been denied. The learned departmental representative, on the other hand, highlighted the reasons given by the Commissioner (Appeals) for coming to the conclusion that there was no legally valid partnership and relied on the decision of the Bombay High Court in the case of National Non-Ferrous Industries v. CIT [1980] 121 ITR 130.
6. We have considered the rival submissions and gone through the orders of the lower authorities. The first ground on which the Commissioner (Appeals) held that the firm was not genuine is that Smt. Sarala Bala Barick, who was taken as a partner, had not been given any right in respect of the property left by late P. C. Barick except to receive Rs. 200 per month for her life. Admittedly, Smt. Sarala Bala Barick was appointed as an executrix in the will left by late P.C. Barick.
According to Section 211 of the Indian Succession Act, the executor or executrix derives title and interest from the will immediately upon the testator's death. After the death of the testator his property vests in the executor inasmuch as law knows no interval between the testator's death and the vesting of property. That section further provides that while the property vests in the executor, even though it may afterwards be found to have been wrongly so vested, as in the case of a forged will, all the acts of the executor in respect of such property must be regarded as valid. According to Section 211 of the Indian Succession Act, the executor or executrix under a will before obtaining probate of the will can exercise the same power as it would have been exercised by the deceased himself. Therefore, it cannot be said that the partnership became invalid because Smt. Sarala Bala Barick admittedly being an executrix of the will left by late P.C. Barick had been taken as a partner.
7. The next ground on which the Commissioner (Appeals) was of opinion that the firm was not genuine is that Shri Netai Chandra Barick, executor and Smt. Sarala Bala Barick, executrix of the will left by the deceased, were jointly made a partner. Partnership is a relation between persons who have agreed to share the profits of a business carried by all or any one of them acting for all. Partnership is not a matter of opinion but a matter of intention and agreement. To constitute a partnership in law there must be three elements : (3) the business must be carried on by all or any of those persons acting for all.
If all these three elements are present in the case of the assessee, its claim for continuation of registration cannot be rejected. Under the Act, joint executors may be assessed in the status of an AOP which itself is an assessable unit under the Act so also under the Wealth-tax Act, joint trustees can be assessed to wealth-tax under that Act in the status of an individual. See the decision of the Supreme Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47.
Therefore, in our opinion, the partnership will not be invalid merely because two persons, who are admittedly executor and executrix under a will of the deceased, P.C. Barick, were taken jointly as a partner.
This view of ours finds support from the Supreme Court decision in the case of CIT v. Sir Hukumchand Mannalal & Co. [1970] 78 ITR 18. It is also well settled that a contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. Therefore, respectfully following the decision of the Supreme Court in the case of Sir Hukumchand (supra) we are of opinion that the firm was genuine and entitled to registration even though the decision of the Bombay High Court in the case of National Non-Ferrous Industries (supra) as relied on by the Commissioner (Appeals) was to the contrary. It is, however, to be noted that the ITO refused to grant continuation of registration on the ground that Form No. 12 was not signed by the executrix, Smt. Sarala Bala Barick. it is true that under Rule 24 of the Income-tax Rules the declaration under Section 184(7) in Form No. 12 shall be signed by all the partners but a perusal of the partnership deed would show that Shri Netai Chandra Barick and Smt.
Sarala Bala Barick were jointly made one partner. In other words, Smt.
Sarala Bala Barick was not taken as a partner in her individual capacity. Section 311 provides that when there are several executors or administrators, the powers of all may, in the absence of any direction to the contrary, be exercised by any one of them. Moreover, the preamble to the partnership deed provides : AND WHEREAS it is inter alia mentioned in the said last will of said Purna Chandra Barick deceased that on the death of Purna Chandra Barick the business of said Purnasree Cinema wherein Purna Chandra Barick had 10 annas share will be managed by the surviving partner Shri Netai Chandra Barick for the better interest and management of the partnership business.
In that view of the matter we are of opinion that the defect pointed out by the ITO was not so serious as to refuse to allow the assessee's claim for continuation of registration. Viewed thus, we direct that the assessee's claim for continuation of registration be allowed.