Govindan Nair, C.J.
1. A common question arises in these references in relation to the assessment to agricultural income-tax for the years 1966-67, 1967-68, 1968-69 and 1969-70 of one Sri T.V. Mathew. The Agricultural Income-tax Appellate Tribunal, Trivandrum, has formulated the question in the following terms :
'Whether, on the facts and in the circumstances of the case, the Agricultural Income-tax Officer is justified in refusing to grant registration under Section 27 of the Agricultural Income-tax Act, 1950, to the firm, T. V. Mathew & Sons, on the ground that the partnership deed is not genuine?'
2. The partnership deed referred to in the question is dated December 7, 1964, and is at page 17 of the paper book. This partnership deed, it is said, is an agreement entered into between T.V. Mathew and his sons, T.M. Rajan and T.M. Mathew, to carry on the business of the firm. The business of the firm, it is stated in paragraph 2 of the partnership deed, 'shall be agriculture or of any other nature as may hereinafter be agreed upon by the partners.' The said T.V. Mathew owned about 15 acres of land and the capital contribution of the said T.V. Mathew, the first partner, consisted, according to the partnership deed, of all the lands owned by him. The second partner's contribution is said to be Rs. 1,000 and the third partner's, a like amount. The profits of the firm ' were to (sic) equally between the partners and the losses were also to be borne (sic) An application was made as envisaged by Section 27(1) of the Agricultural Income-tax Act, 1950, for short, the Act, for registration of the firm for the purpose of the assessment for the year 1966-67. This application was not allowed, registration was refused and the assessment for that year as well as the two following years have been made on the said T.V. Mathew as if-there was no partnership in existence taking the entire income from the properties as the income of the said T.V. Mathew.
3. The view taken by the Agricultural Income-tax Officer has been upheld by the Appellate Assistant Commissioner in appeal by the assessee and re-affirmed by the Tribunal by its order which is at page 11 of the paper book. It was contended before the Tribunal by the assessee that there is no justification for refusing registration of the firm. This contention was not accepted by the Tribunal for three reasons. The Tribunal noticed that the partnership deed is dated December 7, 1964, but the stamp paper on which the deed was drawn up was purchased only on Decembers, 1964 (vide paragraph 4 of the order). The Tribunal also observed in the same paragraph that the age of the 3rd partner, T.M. Mathew, had not been specified in the deed and 'it is not known whether he was a major at the time of execution of the deed'. Regarding the contribution of the share capital, the Tribunal observed thus in paragraph 6 of the order :
'6. As stated above the capital of the partnership consists of the entire land from which the agricultural income is derived and Rs. 1,000 each provided as contribution by the two sons. As stated earlier, there is no evidence of the cash contribution by the sons. Even supposing that they have contributed Rs. 1,000 each, their contribution is extremely negligible when compared with the value of the land, but all the three partners are eligible for equal shares which is illogical.
Of course there can be partners in a firm who have not made any contribution towards the capital and the sharing of the profits need not necessarily be in the proportion of the contribution towards capital, provided there exist justifying circumstances for the same. Here at least one of the two sons is a non-resident, taking no active part in the cultivation. Yet he is also to get an equal share with the appellant, who owns the entire lands yielding the income and is conducting the cultivation, just for an amount of Rs. 1,000 contributed by him (if he has actually contributed it). This does not appeal to reason and common prudence. Evidently, the sharing of profits, if it is done, arises from the relationship of father and sons and not the relationship of partners of the firm.'
4. For these reasons the Tribunal came to the conclusion that the decision of the Supreme Court in M.P. Davis v. Commissioner of Agricultural Income-tax : [1959]35ITR803(SC) must apply to the facts of the case before the Tribunal. After referring to the above decision, it was observed by the Tribunal:
'It was held that the provisions of the deed taken along with the conduct of the parties clearly indicated that it was not the intention of the parties to bring about the relationship of partners but they only intended to continue under the cloak of a partnership. The pre-existing and real relationship of master and servant and the sharing of profits or the provision for payment of remuneration contingent upon the making of profits or varying with the profits did not itself create a partnership. In the case before us also the estate which formed almost the entire capital belonged to the assessee and though no specific mention has been made in the deed the sons have no right to encumber or otherwise deal with the estate and the estate will revert back to the assessee on dissolution of the firm. The execution of the deed has not also brought about any change in the preexisting mode of earning the income.'
5. The Tribunal, therefore, rejected the partnership deed as not genuine and refused registration of the firm.
6. We must at this stage clarify the exact question that has been referred to us. It appears to us that the question arising from the Tribunal's order is clear from the order itself though the wording adopted in framing the question may indicate that the question is much narrower. Counsel on behalf of the revenue contended that we must go by the actual wording of the question and that if we did not, it will amount to re-framing of the question to give rise to an entirely different question from that which has been referred to us. On the facts of this case we do not think that the contention is justified. At no stage in the proceedings was there any doubt about the genuineness of the deed. It was not suggested by any one that the deed itself had not been executed or that the partners had not signed it or that they never intended that the partnership should be formed. The Agricultural Income-tax Officer came to the conclusion at the end of paragraph 1 of the assessment order dated February 25, 1970, in relation to the assessment year 1966-67 that; 'It is, therefore, evident that the partnership firm was not in existence.' The question that the Tribunal posed for its consideration is the same, namely. whether the partnership is genuine or not. This is clear from paragraph 4 of the order of the Tribunal where the Tribunal has stated: ' The next point arising for consideration is whether the finding of the Agricultural Income-tax Officer that the partnership is not genuine is correct.' We can, therefore, understand the observation in paragraph 9 that the partnership deed was rejected by the Income-tax Officer as not genuine only to mean that there was no partnership. The wording in paragraph 9 has been copied into the question referred to us. But, as we have stated, the only question and the real question arising from the order is whether the partnership was in existence. As a matter of fact, the enquiry in such cases where it is admitted or not questioned that a deed had been executed is whether in reality by taking into account all the circumstances a partnership had come into existence or not. In other words, whether the execution of the deed was merely a cloak for covering the real position of there being no partnership. This position is clear from Section 6 of the Indian Partnership Act, 1932, as well. After having defined 'partnership' in Section 4 as the relation between the parties to share the profits of a business carried on by all or any of them, in Section 6 it is provided that 'in determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together'. We shall not refer to the Explanations to that section as they are unnecessary for our purpose.
7. Now, turning to the question for determination we would like to make some general observations regarding the circumstances under which a firm can be registered. There must be an application in accordance with Section 27 of the Act. The formalities required by the section as well as the rules prescribed must be complied with. There must be an agreement to carry on a business by all or any of the partners acting for all. The agreement must provide for the sharing of profits. Even in cases where no specific provision is made in the partnership deed regarding the manner in which losses should be shared, Section 13(b) of the Indian Partnership Act, 1932, has provided that in the absence of a contract the partners are obliged to contribute equally to the losses. When these conditions are satisfied registration must be granted unless for reasons the taxing authorities are able to come to the conclusion that the partnership deed does not indicate the real state of affairs. It will be a difficult process to establish in such cases that in reality there is no partnership in existence and the formalities have been gone through merely as a cloak. But it is not so difficult as it may appear at first blush. The decision of the Supreme Court relied on by the Tribunal is a case in hand where the court had been able to come to the conclusion that in reality there was no partnership in existence notwithstanding the compliance of the formalities of the execution of a partnership deed, with the necessary statements and clauses, and compliance with the provisions of the Income-tax Act and the Rules. The reasons why the Supreme Court came to the conclusion that in reality there was no partnership has been stated in the judgment itself. The court came to the conclusion that there was no change in the management in spite of the agreement. It was a case where the owner of a coffee estate purported to enter into a partnership with his brother who was before the deed an agent of the owner of the estate and was managing the estate for and on behalf of the owner on remuneration or commission. The partnership deed practically provided for the same terms. But it was also stated in the partnership deed that the owner and his brother were partners of the firm. There was a peculiar provision in regard to the sharing of profits. It was said that if there was no profit made, the brother, who was looking after the estate, will be entitled to no share of profits. Even after the execution of the partnership deed there has been no implementation of the partnership deed. Things continued as before. In those circumstances the Supreme Court observed--See : [1959]35ITR803(SC) :
'That is why the question which the tax authorities considered was whether the execution of the document really brought any change in the relationship between the two brothers. They held that despite the document the relations between the two brothers continued the same as before and the High Court has agreed with this view. This view receives some support from two other facts which have been found by the tax authorities. Even after change of status was pleaded for the assessment year 1952-53, the appellant claimed loss of the previous year and full expenses of the accounting year against what he actually received during the accounting year 1951-52', and so far as the books of account were concerned ' they did not show change in the management of the estate in spite of the agreement.'
8. The court also came to the conclusion that:
'This would indicate that it was not intended that the appellant's brother would have any interest in the estate, and the use of the word 'capital' is not, in our opinion, enough on the facts of this case to create an interest in the estate in the appellant's brother.'
9. The court further observed :
'If it was intended to create a real partnership, one would have thought that some provision would have been made for the sharing of the loss, especially as the share of the profits going to the appellant is immensely large compared with the share going to his brother. In our view, taking all the circumstances of the case, especially the conduct of the parties, together with the important terms of the document, it cannot be said that it was intended to bring about the relation of partnership.'
10. We would like to repeat that what has been stated by the Supreme Court is that, in fact, there had been no creation of a relationship of partners between the brothers. The reasons that weighed with the Supreme Court, we have indicated above. The Tribunal in its order states that the facts of this case are similar to that which were considered by the Supreme Court. We find it impossible to agree with this statement. There was no material whatever before the Tribunal or any other taxing authorities as to the practice after the execution of the partnership deed. The only concrete matter that was before the Tribunal was the fact that the partnership deed was dated December 7, 1964, whereas the stamp paper was bought on December 8, 1964. This aspect was not noticed by the Agricultural Income-tax Officer or by the Appellate Assistant Commissioner and it is clear from the dissenting order of the Accountant Member that at the time of hearing this discrepancy was not discussed. The Accountant Member has ventured to suggest a reason for this discrepancy. It is not for us to consider this aspect but we are in agreement with the view of the Accountant Member that the matter not having been urged before the Tribunal, at the time of the hearing and no opportunity having been given to the assessee to explain the discrepancy, should not have been considered or dealt with in the order. As we said, this was the only concrete material mentioned in the order of the Tribunal and in the circumstances that no point was made by the revenue on the basis of the discrepancy and the assessee not having been given an opportunity to explain, the Tribunal should not have adverted to it or relied on it in its order. The doubt about the age of the 3rd partner is only in the realm of speculation. And the speculation by the Tribunal of the probability or otherwise of persons entering into a partnership on terms which appeared to the Tribunal to be strange is also not justified and could not be the basis of any conclusion. There was thus no material before the Tribunal in support of the conclusion that it reached, that in reality there was no partnership in existence. Reliance on the decision of the Supreme Court in M.P. Davis v. Commissioner of Agricultural Income-tax : [1959]35ITR803(SC) we think, was misplaced.
11. In the light of the above, we answer the question referred to us in the negative, that is, in favour of the assessee and against the department. We direct the parties to bear their costs.
12. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Agricultural Income-tax Appellate Tribunal, Trivandrum.