Messrs Pratapmal Luxmichand vs Commissioner Of Income Tax

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 199 of 1955

Decision Date: 8 February 1956

Coram: Natwarlal H. Bhagwati

In the matter titled Messrs Pratapmal Luxmichand versus Commissioner of Income-Tax, the Supreme Court of India delivered its judgment on the eighth day of February, 1956. The opinion was authored by Justice Natwarlal H. Bhagwati, who also sat on the bench together with Justices Das, Sudhi Ranjan Aiyyar and T. L. Venkatarama. The case is reported in the 1956 volume of the All India Reporter at page 364 and in the Supreme Court Reports at page 91. The dispute concerned the registration of a partnership firm under section 26-A of the Indian Income-Tax Act of 1922 and involved the application of Indian Income-Tax Rules of 1922, specifically rule 2. The headnote records that the appellant firm comprised seven partners; a deed of partnership was signed by all except one partner who was incarcerated as a security prisoner under the Defence of India Rules. The firm applied to the Income-Tax Officer for registration, but the officer refused on the ground that the deed and the registration application lacked the signature of the absent partner. On appeal, the Appellate Assistant Commissioner set aside the officer’s refusal and directed registration after the missing partner’s signature was obtained on both the deed and the application. The Court held that, according to rule 2(c) of the 1922 Rules, the Appellate Assistant Commissioner could direct registration only when an application signed by every partner was presented before any assessment was confirmed, reduced, enhanced or annulled, and therefore the Commissioner was not legally empowered to order registration after later obtaining the absent partner’s signature.

The appeal proceeded in civil appellate jurisdiction as Civil Appeal No. 199 of 1955, granted special leave from the judgment and order dated the seventeenth of April, 1953, of the Nagpur High Court in Miscellaneous Civil Case No. 53 of 1950. Counsel for the appellant were Nur-ud-din Ahmad and Naunit Lal, while the respondent was represented by the Solicitor-General of India, C. K. Daphtary, together with G. N. Joshi and B. H. Dhebar. Justice Bhagwati delivered the judgment, noting that the appellant firm, Messrs Pratapmal Laxmichand of Betul, consisted of the partners Misrilal Goti, Meghraj Goti, Panraj Goti, Phulchand, Basantibai, Ratanbai and Gokulchand Goti. A deed of partnership had been executed on the twelfth of February, 1944, signed by six of the partners; the seventh partner, Gokulchand Goti, was then detained in Seoni Jail as a security prisoner. Despite efforts, his signature could not be obtained at that time. The firm filed an application for registration for the assessment year 1943-44 on the twenty-fourth of March, 1944, which was signed by the six available partners and accompanied by the same six-signed deed. The Special Income-Tax Officer in Nagpur rejected the application because the deed lacked Gokulchand’s signature. An appeal against this rejection was lodged with the Appellate Assistant Commissioner on the twenty-fourth of April, 1944. While the appeal was pending, Gokulchand appended his signature to the deed on the ninth of January, 1945, while still in custody, leading the Appellate Assistant Commissioner to set aside the officer’s refusal and order registration, a decision later examined and clarified by this Court.

Gokulchand Goti was detained in Seoni Jail as a security prisoner under the Defence of India Rules and therefore could not sign the partnership deed despite repeated efforts to obtain his signature while he was incarcerated. On 24 March 1944 the remaining six partners of Messrs Pratapmal Laxmichand executed an application for registration of the firm under section 26-A of the Act for the assessment year 1943-44; the application was signed by those six partners and was accompanied by the partnership deed, which also bore the signatures of the same six partners. The Special Income-Tax Officer in Nagpur rejected the application on the ground that the deed was not valid because it lacked Gokulchand’s signature, and that the application itself was also unsigned by him. Consequently the appellant filed an appeal against the Special Officer’s decision on 24 April 1944 before the Appellate Assistant Commissioner. While still in Seoni Jail, Gokulchand added his signature to the partnership deed on 9 January 1945. The appeal was heard on 20 March 1947 and the Appellate Assistant Commissioner issued an order on 17 February 1948 cancelling the Special Officer’s earlier order and directing the Officer to register the firm after obtaining Gokulchand’s signature both on the registration application and on the deed. The Commissioner of Income-Tax for C. P. and Berar then filed an appeal against this order before the Income-Tax Appellate Tribunal. The Tribunal allowed the appeal by an order dated 11 October 1948, observing that the Special Officer was justified in refusing registration because the application did not bear Gokulchand’s signature, that Rule 2(c) of the Indian Income-Tax Rules, which the Appellate Assistant Commissioner appeared to rely upon, did not apply, and that the Commissioner was not authorised to direct registration after obtaining Gokulchand’s signature. The appellant consequently sought a reference to the High Court under section 66(1) of the Act, and the Tribunal framed the following question for the Court’s opinion: whether, on the facts and circumstances of the case, the Appellate Assistant Commissioner had the legal competence to direct the Income-Tax Officer to register the firm after obtaining Gokulchand’s signature both on the registration application and on the partnership deed. While the Tribunal was preparing the statement of the case, counsel for the appellant suggested deleting the words in paragraph 6 of the statement that read “No application was submitted to the Appellate Assistant Commissioner seeking his permission under Rule 2(c) of the Indian Income-Tax Rules.” He also proposed deleting the concluding words of the question referred to the High Court, namely “after obtaining the signature of Seth Gokulchand both in the application for registration and in the deed of partnership.” The Tribunal replied that it could not delete the concluding words because they formed part of the Appellate Assistant Commissioner’s order dated 17 February 1948 and were essential to the question before the High Court. Regarding the first suggestion, counsel argued that the appellant had submitted three applications to the Appellate Assistant Commissioner, all dated 20 March 1947, and that it would be inaccurate to state that no application had been submitted. After investigating the allegation, the Tribunal concluded that the appellant did not appear to have filed the application dated 20 March 1947 as claimed. Consequently, the Tribunal held that no change

The Tribunal considered the appellant’s request to delete the concluding words “after obtaining the signature of Seth Gokulchand both in the application for registration and in the deed of partnership” from the question referred to the High Court. It held that those words formed part of the Appellate Assistant Commissioner’s order dated 17 February 1948, directed to the Income-tax Officer, and were therefore material to the question before the High Court; consequently, the Tribunal declined to delete them. The appellant also asked that a statement in paragraph 6 of the case statement, which said “No application was submitted to the Appellate Assistant Commissioner seeking his permission under Rule 2(c) of the Indian Income-tax Rules,” be removed. Counsel for the appellant argued that three applications dated 20 March 1947 had indeed been filed with the Appellate Assistant Commissioner, and that it would be incorrect to state that no application was filed. After investigating the allegation, the Tribunal found that the appellant had not actually filed the application dated 20 March 1947 as claimed. On that basis, the Tribunal found no reason to amend the statement of case as suggested by the appellant. Relying on that statement, the High Court was then asked to determine the referred question. On 27 November 1950 the appellant applied to the High Court for the three certified copies of the applications dated 20 March 1947, together with their originals, to be sent from the Income-tax Tribunal, and the High Court ordered that they be produced. The High Court held that the Appellate Assistant Commissioner could order registration of the firm only if a duly signed application from all partners was before him; since no such application existed, the Commissioner could not direct the Income-tax Officer to register the firm after obtaining Gokulchand’s signature on the application and on the partnership deed. Accordingly, the High Court answered the referred question in the negative. An application under section 66-A(2) of the Act for leave to appeal to this Court was dismissed by the High Court, but the appellant obtained special leave to appeal from this Court on 6 December 1954. The principal issue for determination in this appeal was the extent of the powers of the Appellate Assistant Commissioner when hearing an appeal against the Income-tax Officer’s refusal to register a firm under section 26-A of the Act and Rule 2 of the Indian Income-tax Rules, 1922, which authorises registration of a firm upon a properly signed application.

Section 26-A of the Income-tax Act provides that an application for registration of a firm may be made to the Income-tax Officer for the purpose of income-tax or super-tax. The statute further states that the application must be made by the appropriate persons at the prescribed times, contain the required particulars, be in the prescribed form, and be verified in the manner prescribed; thereafter the Income-tax Officer must deal with it in the manner that the statute prescribes. Rule 2 of the Indian Income-tax Rules, 1922, which governed the period relevant to this appeal, said that any firm constituted under an Instrument of Partnership specifying the individual shares of the partners could, under section 26-A of the Act, register with the Income-tax Officer the particulars contained in that instrument on an application made in that behalf. The rule required that such an application be signed personally by all the partners who were not minors and that the application be made either (a) before the firm’s income was assessed for any year under section 23 of the Act, (b) …, (c) with the permission of the Appellate Assistant Commissioner hearing an appeal under section 30 of the Act, before the assessment was confirmed, reduced, enhanced or annulled, or (d) … (e) …. The Income-tax Officer’s decision that the deed of partnership was invalid because it lacked the signature of Gokulchand was never contested by the appellant at any stage of the proceedings nor was it raised in the statement of case placed before the Court. Nevertheless, counsel for the appellant relied upon a passage from the third edition of “Law and Practice of Income-tax” by Kanga and Palkhivala, page 754, arguing that the partnership agreement need not be signed by every partner; if a partner had assented to the agreement and the other partners presented it for registration, the agreement should be admissible. The Court observed that the appellant could not raise a point that had not been included in the statement of case, and even if he were permitted to do so, the Court saw no need to express an opinion on the correctness of that proposition in view of its construction of Rule 2. The Rules, framed under section 26-A(2) of the Act, possessed statutory force. Accordingly, Rule 2 required that an application for registration be addressed to the Income-tax Officer and that the particulars from the Instrument of Partnership be registered on an application signed personally by all the partners who were not minors. In the present case, no such application signed by all the partners, including Gokulchand, was filed with the Special Income-tax Officer before he issued his order on 18 March 1944, and on the

Considering the material that was on record at the time, the order issued by the Special Income-tax Officer was fully justified. No document bearing the signatures of all the partners, including Gokulchand, had been presented to the Appellate Assistant Commissioner when he heard the appeal on 20 March 1947. The appellant, however, asserted that on that very day he had filed three separate applications in the office of the Appellate Assistant Commissioner, one of which supposedly contained the signatures of every partner, Gokulchand included. He argued vigorously that the Appellate Assistant Commissioner, in his order dated 17 February 1948, had ignored this signed application. The appellant maintained that, had the Commissioner possessed the application dated 20 March 1947 signed by all partners, his duty would have been to direct the registration of the firm, since the partnership deed had already been signed by Gokulchand on 9 January 1945 and his signature also appeared on the 20 March 1947 application. Accordingly, the direction given by the Appellate Assistant Commissioner to the Income-tax Officer to register the firm was, in the appellant’s view, proper, and the phrasing “after obtaining the signature of Seth Gokulchand in the application for registration and in the deed of partnership” should be treated as redundant. The Court was not persuaded by this line of argument. Both the language of the order made by the Appellate Assistant Commissioner himself and the statement of case prepared by the Tribunal made it abundantly clear that the application bearing all partners’ signatures, including Gokulchand’s, was never before the Commissioner. The appellant had sought to amend the Tribunal’s statement of case by deleting the words in paragraph 6 that said “no application was submitted to the Appellate Assistant Commissioner seeking his permission under Rule 2(c) of the Indian Income-tax Rules,” but the Tribunal rejected this amendment after a proper investigation, concluding that the assessee had not submitted an application dated 20 March 1947 as alleged. The High Court referred to the Tribunal’s statement of case, and the appellant made no attempt before the High Court to obtain a further amendment of the statement or to have a new statement recorded that would reflect the facts he claimed. Consequently, the appeal had to be decided on the factual matrix set out in the Tribunal’s statement of case, namely that the application dated 20 March 1947 signed by all partners, including Gokulchand, was not before the Appellate Assistant Commissioner. If that was indeed the position, the conclusion follows accordingly.

In this case, the Court explained that under Rule 2(c) the sole authority of the Appellate Assistant Commissioner was limited to granting permission to the appellant to submit an application, in the correct form, to the Income-tax Officer. That application had to be signed personally by all the partners, including Gokulchand, and could be made only before the assessment was confirmed, reduced, enhanced or annulled. The Court further held that the Appellate Assistant Commissioner possessed no power, under that rule, to direct the Income-tax Officer to register the firm after obtaining Gokulchand’s signature both in the registration application and in the deed of partnership, as the Commissioner had done. Moreover, the appellant neither sought such permission from the Appellate Assistant Commissioner nor filed any revision petition under section 33-A of the Act against the order issued by that Commissioner. The appellant confined his argument to contending that the order of the Appellate Assistant Commissioner was justified, and the only real dispute, which formed the subject of the referred question, was whether the Commissioner was legally competent to direct the Income-tax Officer to register the firm after securing Gokulchand’s signature in both documents. The appellant attempted, unsuccessfully, to have the words “after obtaining the signature of Seth Gokulchand both in the application for registration and in the deed of partnership” removed from the referred question, but no step was taken before the High Court to amend or re-frame the question so as to emphasize his contention on the Commissioner’s powers. Consequently, on the question as it stood, the High Court could only answer that the Appellate Assistant Commissioner was not legally competent to give such a direction, because Rule 2(c) did not confer that authority, and the Court agreed that the High Court’s negative answer was correct. Counsel for the appellant then sought to bolster his position by citing provisions of earlier partnership deeds dated 1929 and 1941, which provided that the partnership would continue in the event of a partner’s retirement, death or relinquishment of his share, involving the remaining partners and the legal representatives of the deceased. The Court found no relevance of those clauses to the determination of the referred question. In the result, the appeal of the appellant was dismissed with costs.

In this case, the Court concluded that the appellant's challenge did not succeed. After reviewing the material and the arguments presented, the Court determined that the grounds raised by the appellant were insufficient to overturn the earlier decision. Consequently, the Court ordered that the appeal be dismissed in its entirety. The dismissal was to remain in effect, meaning the appellant could not obtain any relief from the Court on the matters raised in the appeal. In addition, the Court directed that the appellant bear the costs of the proceedings. The order required the appellant to pay the expenses incurred by the other party in defending the matter, as well as any costs that the Court deemed appropriate in relation to the conduct of the appeal. The judgment therefore left the decision of the lower tribunal untouched and imposed a financial burden on the appellant for having pursued an unsuccessful appeal. The final operative part of the judgment stated that the appeal of the appellant failed and must stand dismissed with costs. Thus, the order not only terminated the appellant's proceedings but also ensured that the respondent would not be left to bear the financial consequences of a futile contest. The Court's direction on costs was intended to discourage meritless appeals and to compensate the successful party for the unnecessary litigation. The costs awarded were to be paid promptly, and failure to do so would expose the appellant to further enforcement action. The judgment therefore completed the adjudication on all issues raised.