COMMISSIONER OF INCOME-TAX, PUNJAB vs. M/S. CHANDER BHAN HARBHAJAN LAL

CIVIL APPEAL No. 605/1963Supreme Court[1966] 3 S.C.R. 17604 January 1966Bench: 3 JudgesAuthor: A.K. SARKAR, J.R. MUDHOLKAR, R.S. BACHAWAT OF INCOME17 pages
AI SummaryDismissed

What were the facts?

The assessee, a firm named Messrs. Chander Bhan Harbhajan Lal, applied for registration under Section 26A of the Income-tax Act, 1922. One of its 14 partners, Gosain Chander Bhan (G), was also a partner in another firm, the Ferozepore firm, which had 8 partners. The Ferozepore firm's deed stipulated that profits and losses from any business undertaken by one partner with others would be divided among all partners. The Income-tax Officer rejected the assessee-firm's registration, finding that G was acting on behalf of the Ferozepore firm, which supplied capital and intended to conduct similar business. The Appellate Assistant Commissioner reversed this, holding G was an individual partner and the Ferozepore partners' profit-sharing agreement constituted a sub-partnership. The Appellate Tribunal upheld this, and the High Court dismissed the Commissioner's petition to refer questions of law.

What did the Supreme Court hold?

The Supreme Court, in a majority decision (Sarkar and Bachawat, JJ.), held that based on the available materials, the Appellate Tribunal was entitled to conclude that G, and not the Ferozepore firm, was the partner in the assessee-firm. The Court followed its previous decisions in Commissioner of Income-tax v. Sivakasi Match Exporting Co. and Commissioner of Income-tax v. Bagyalakshmi & Co. Regarding the sub-partnership issue, the Court found it immaterial, as even if a sub-partnership existed, the clause in the Ferozepore firm's deed only regulated the relationship between its partners inter se concerning G's share in the assessee-firm and did not make the Ferozepore partners partners in the assessee-firm. The Court further held that although a question of law arose, it was not a substantial question of law, and its answer was self-evident, thus the High Court was not bound to require the Tribunal to refer it. Mudholkar, J. dissented, opining that the question of whether the application for registration reflected the true position of the real partners was a substantial question of law that had not been settled and that the High Court had erred in its reasoning, necessitating a direction to the Tribunal to refer the question.

What were the issues?

1. Whether Gosain Chander Bhan (G) was a partner of the assessee-firm in his individual capacity or representing the partners of the Ferozepore firm (a question of law turning on Section 26A of the Income-tax Act, 1922). 2. Whether the Ferozepore firm was a sub-partnership (a question of mixed law and fact turning on Section 26A of the Income-tax Act, 1922). Assessee's Contentions: - G was a partner of the assessee-firm not individually but on behalf of the Ferozepore firm. - The High Court erred in holding there was a sub-partnership, assuming the Ferozepore firm came into existence after the assessee-firm, whereas a sub-partnership can only be formed after a primary partnership exists. - A substantial question of law arose from the Tribunal's order, obligating the High Court to call for a statement of case. Revenue's Contentions: - The judgment records no specific contentions for the revenue beyond what is implied in the appeal and the High Court's dismissal of the reference application.

Which sections of the Income-tax Act were involved?

Section 26A,Section 66(2),Section 11,Section 4

AI-generated summary — verify with the full judgment below

<:OMMISSIONER OF INCOME-TAX, PUNJAB v. M/S. CHANDER BHAN HARBHAJAN LAL January 4, 1966 fA. K. SARKAR, J. R. MUDHOLKAR. A:-;D R. S. BACHAWAT, JJ.)

Income.tax Acr ( 11 of 1922), s. 66(2)-Parlner of one firm also partnLr in assesSiee-funr-Wlzether all the partners. of first firni are pt1rtnerf of the assessee-firm-1/ a substantial question of la~v.

The nssessec.-firm, consisting of 14 partners, applied for registration under s. 26A of the Income-tax Act, 1922. One G, who nas a partner of the assessee-firm, was also partner of another firm, the Ferozepore firm.

The Ferozepore firm consisted of 8 partners who had ogrttd that if any work y;as carried on by any one of them \\'ith others the profits and losses ario;;ing out of that work \\·ould be divided amongst all the partners in proportion to their shares in that firm.

In the course of the proceedings for the registration of 1he assc$.SCO-fi.rm all irs partners had stated before 1he Income-lax Officer that G was a panncr in the assesace-- firm, not in his individual capacity but on behalf of the Ferozepore firm.

It was found by the lncome.-tax Officer that the capital of the ...........,_ firm was supplied by G w

The order continues below.

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