GOPALAN NAMBIYAR C.J. - These two references by the Deputy Commissioner of Agricultural Income-tax and sales Tax, North zone, Kozhikode, are in respect of the same assessee for two different assessment years 1968-1969 and 1969-70. The question of law referred for our determination are :
'(1) Whether, on the facts and in the circumstances of the case, the Deputy Commissioner was correct in holding that the firm was not entitled for registration under section 27 of the Kerala Agricultural Income-tax Act, 1950 and
(2) Whether, on the facts and in the circumstances of the case, the Deputy Commissioner was competent to exercise his suo motu powers of revision to set aside the finding of the officer that the requirements of section 27 have been satisfied by the applicant ?'
The assessee applied for registration of a firm constituted by the deed of partnership dated September 15, 1966. The accounting period for the year during which the partnership was constituted was to run out on June 30, 1967. The registration was applied for under section 27 of the Agricultural Income-tax Act, 1950, which reads as follows :
'27. Procedure in registration of firms. - (1) Application may be made to the Agricultural Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to agricultural income-tax or super-tax.
(2) The application shall be made by such person or persons and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed, and it shall be dealt with by the Agricultural Income-tax Officer in such manner as may be prescribed.'
The rules providing for particulars of the application and the manner of dealing with it are rules 2, 3 and 4 of the Agricultural Income-tax Rules, 1951. Rule 2 of the rules, in so far as that is material, reads :
'2. Any firm constituted under an instrument of partnership specifying the individual shares of the partners may, under the provisions of section 27 of the Agricultural Income-tax Act, 1950 (hereinafter in these rules referred to as the Act), register with the Agricultural Income-tax Officer the particulars contained in the said instrument on application made in this behalf...' (rest omitted).
In the light of the above provisions, registration of the firm was allowed by the Agricultural Income-tax Officer. The Deputy Commissioner of Agricultural Income-tax, in exercise of his suo motu powers of revision, under section 34 of the Act, disallowed registration of the firm on two grounds : (1) that no accounts had been kept by the firm; and (2) that the share of the profits shown in the application for registration did not correspond to the state of affairs disclosed by the partnership deed.
The first of these grounds is manifestly untenable. Not only is there no warrant for importing the requirement of the keeping of accounts by the firm or by the partnership into the provisions of the section or the terms of the rules we have extracted above, but judicial decisions are also against such a requirement being posited. It is enough to refer to the ruling of a Division Bench of this court in Kurien and George v. Commissioner of Income-tax : [1967]63ITR675(Ker) rendered with reference to the analogous provisions of the Indian Income-tax Act, 1922.
In regard to the second ground given by the Deputy Commissioner, we have taken carefully and elaborately through the provisions of the Act and the Rules. We have also been taken through the provisions of the deed of partnership, a copy of which is appendix 3 of the statement of the case. Clause 4 and 6 of the deed are as follows :
'4. The capital of the partnership shall be Rs. 1,00,000 (rupees one lakh) of which the amounts as shown below shall be contributed by each of the parties hereto within two weeks of the execution of this deed.
1.
The first party, Ouseph
Rs. 25,000 (rupees twenty-five thousand)
2.
The second party, Dr. V.V. Antony
Rs. 20,000 (rupees twenty thousand)
3.
The third party, P. J. Mathew
Rs. 5,000 (rupees five thousand)
4.
The fourth party, Mrs. Tressiamma Ouseph
Rs. 5,000 (rupees five thousand)
5.
The fifth party, A. O. Joseph
Rs. 5,000 (rupees five thousand)
The balance shall be contributed by each of the parties as and when the business of the partnership wants the same which shall not be earlier than one year after the execution of this deed and such sums shall be contributed in the proportion to the initial contribution as aforesaid. If at the time of calling for the balance capital any of the parties or any of them may contribute such sums over and above his share for such contribution. No interest shall be payable on the amounts contributed towards the capital of the partnership....
6. The profits and losses of the partnership business shall be divided and borne between each of the partners in the proportion in which each of the partners have contributed towards the capital of the partnership, provided that future contributions other than the initial contribution towards the capital shall not be counted for division of profits or losses unless such contributions be made at least three months prior to the close of the accounting year of the partnership.'
In the application for registration, the division of profits as between the partners who had contributed initial capital as shown in clause (4) was shown thus : 41.67%, 33.34%, 8.33%, 8.33%, and 8.33%. The complaint of the Deputy Commissioner was that, worked out with reference to the ratio of the initial capital contributions, the percentage should have been 40%, 36%. 8%, 8%, and 8%. In this view, the Deputy Commissioner was of the opinion that the distribution of profits shown in the application for registration was not in accordance with the terms of the partnership deed.
We find it difficult to sustain this ground of refusal as valid. Section 27 of the Act only requires an application on behalf of the firm, constituted under an instrument of partnership, which specifies the individual shares of the profits of the partners. The requirement of disclosing the share of profits as disclosed by the deed of partnership is not provided by the section. Turning to the Rules, reliance was placed on rule 3 and the form prescribed for making of the application. In particular, clause (3) of the said form was stressed. The said clause requires a statement that the profits (or loss, if any) were/will be divided or credited as shown in section B of the Schedule. Column 6 of the Schedule refers to note (2) shares in the balance of profits or loss; and section B refers to particulars of (apportionment) of the agricultural income, profits, etc., in the previous year between the partners who, in that previous year, were entitled to share in such income. These provisions do not, in our opinion, admit of being stretched to yield the conclusion that non-specification in the application for registration of the ratio in which the profits are to be shared between the partners as stated in the deed of partnership, would entail a rejection of the application. The Deputy Commissioner was, therefore, not justified in rejecting the application on this ground.
On the facts disclosed there is again another difficulty. Even assuming that the ratio of the share of the profits had to be in accordance with what is shown in the deed of partnership, we find that the deed of partnership does not, in terms, specify the ratio in which the profits had to be shared between the partners. The provision in clause (6) of the deed is with regard to the sharing of the profits and loss in the ratio of the initial contribution of the parties. Initial contributions are, no doubt, shown and the working out of the ratio is left to a process of arithmetical calculation. In the circumstances, it is not strictly and technically correct for the officer to visit the party with a rejection of the application for non-specification of the ratio of the share of the profits in accordance with the deed of the partnership. For this reason again, it appears to us, the conclusion of the Deputy Commissioner cannot be supported.
In the result, we answer question No. 1, in the negative, i.e., in favour of the assessee and against the department. Question No. 2 - can admit of no doubt - we answer it in the affirmative, i.e., against the assessee and in favour of the department. There will be no order as to costs.
A copy of this judgment, under the signature of the Registrar and the seal of this court will be communicated to the Deputy Commissioner as provided by law.