A. Sagayanathan and Others Vs. Divisional Personal Officer, S.B.C. Division, Southern Railway, Bangalore - Court Judgment

Excerpt:
- [ a.k. sarkar,; j.r. mudholkar and; r.s. bachawat, jj.] the assessee-firm, consisting of 14 partners, applied for registration under s. 26a of the income-tax act, 1922. one g, who was a partner of the assessee-firm, was also partner of another firm, the ferozepore firm. the ferozepore firm consisted of 8 partners who had agreed that if any work was carried on by any one of them with others the profits and losses arising out of that work would be divided amongst all the partners in proportion to their shares in that firm. in the course of the proceedings for the registration of the assessee-firm all its partners had stated before the income- tax officer that g was a partner in the as firm, not in his individual capacity but on behalf of the ferozepore firm. it was found by the income-tax officer that the capital of the assesseefirm was supplied by g who had taken the amount from the ferozepore firm, and, that the assessee-firm was to carry on the same kind of business as the ferozepore firm. the incom-tax officer rejected the application for the reason that 'in reality it was not g but the ferozepore firm that was the partner of the assessee-firm and consequently, the assessee-firm was illegally constituted because : (i) ferozepore firm could not legally be a partner in the assessee-firm; (ii) the total number of partners of the assessee-firm would then be 21; and (iii) the individual shares of the partners of the ferozepore firm were not specified in the partnership deed of the assessee-firm. the appellate assistant commissioner, on appeal, reversed that order, holding that g was a partner of the assaw-firm in his individual capacity and not as a representative of the ferozepom am and that the effect of his agreement to share his profits and losses in the assessee-firm with the other partners of the ferozepore firm was only to constitute a sub-partnership between g and the other partners in the ferozepore firm, in respect of the share of g in the assessee-firm. the appellate tribunal upheld the order of the appellate assistant commissioner on the short ground that there was no merit in the appeal in view of certain decisions cited by it, and also dismissed the application under s. 66(1) to refer to the high court four questions of law. the commissioner preferred a petition before the high court under s. 66(2) for directing the tribunal to refer the questions; (1) whether g was a partner of the assessee-firm in his individual capacity or representing the partners of the ferozepore, firm, and (ii) whether the ferozepore firm was a sub-partnership; but the high court dismissed the application holding that the questions of law were well settled. in appeal to this court, it was contended that : (i) under the circumstances, g was a partner of the assessee-firm not in his individual capacity but on behalf of the ferozepore firm; (ii) the high court held that there was a sub- partnership on the erroneous assumption that the: ferozepore firm came into existence after the assessee-firm was constituted; and since a sub-partnership can be entered into only after a partnership was constituted, there could be no sub-partnership between the members of the ferozepore, firm; and (iii) as a question of law arose out of the order of tribunal, the high court was bound to call for a statement of case. held : (per sarkar and bachawat, jj.) on the materials on record, the appellate tribunal was entitled to come to the conclusion that g and not the ferozepore firm was the partner in this assessee-firm [181 d-e] commissioner of income-tax v. sivakasi match exporting. co. [1964] 8 s.c.r. 18, followed. (ii) the question whether there was a sub-partnership between the members of the ferozepore firm in respect of the share of g is not materail, because, assuming that there was no sub-partnership, the members of the ferozepore firm did not become partners in the assessee-firm by virtue of the clause which only regulated the relationship of the partners of the ferozepore firm inter se and created a partnership between them in respect of the share of g in the assessee- firm. [183 b-d] commissioner of income-tax v. bagyalakshmi & co. [1965] 2 s.c.r. 22, followed. (iii) though a question of law arose out of the order of the appellate tribunal, since it was not a substantial question of law and the answer to the question was self- evident, the high court was not bound to require the tribunal to refer the question. [184 d] per mudholkar, j. (dissenting) : the main question which arose in the present cast was whether in the circumstances of the case, the assesseefirm was registrable under s. 26a. ascertainment of the legal effect of &we circumstances would be a question of law. the appellate assistant commissioner and the tribunal had not considered the question whether the application for registration reflected the true position as regards the real partners in the assessee-firm. the reasoning of the appellate assistant commissioner was pertinent only to a case of sub-partnership, and the tribunal merely referred to certain decisions and dismissed the department's appeal. since the finding of the appellate assistant commissioner and also of the tribunal was arrived at by ignoring the relevant facts found by the income-tax officer, the finding was vitiated by an error of law. the high court has also committed an obvious error as to when the ferozepore firm was constituted and that error has led to the further error that the ferozepore firm was sub- partnership in relation to the assessee-firm. moreover the decisions in commissioner of income-tax v. sivakasi match exporting co. [1954] 1 s.c.r. 18 and commissioner of income- tax v. bagyalakshmi & co. [1965] 2 s.c.r. 22 do not apply to the facts of this case, because, the observations in those cases are based on the fact that the person admitted as a partner in the firm seeking registration was admitted as an individual, whereas in the present case one of the partners of the firm seeking registration was a partner in his re- presentative capacity. thus the question in the instant case was a substantial question of law which has not been settled. therefore, the high court should have directed the tribunal to refer the question. [188 h; 190 h. 189 h; 188 a- b; 192 b-d] - this was precisely the dispute which the tribunal ought to have considered, but unfortunately it did not do so by reason of the delay.1. special leave granted.2. the complaint of the appellants is that they are still not promoted to the higher post although their juniors had been promoted as early as may, 1983. promotion to the higher post is governed by the rule of seniority. the appellants had not been considered for promotion.3. the tribunal found that the appellants were too late in agitating their grievance. it was solely on the basis of delay that the tribunal did not enter on the merits of the appellants' complaint.4. it is not disputed that the juniors of the appellants had been promoted. however, respondent's counsel submits that the juniors were promoted for justifiable reasons. whatever may be the reason which prompted the respondent to promote the juniors in preference to the appellants, the fact is that the appellants had a genuine grievance in so far as they had been superseded by their juniors. this was precisely the dispute which the tribunal ought to have considered, but unfortunately it did not do so by reason of the delay.5. having heard counsel on both sides and perused the records, we are of the view that, despite the delay, this is a matter which requires investigation.6. accordingly, we direct the tribunal to rehear the parties after giving them an opportunity to implead the necessary parties, file fresh affidavits and adduce any other evidence which they may wish to adduce. the tribunal shall dispose of the matter on the merits as urgently as possible. the appeals are accordingly allowed. no costs.