Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs Vinayaka Agencies on 8 August, 1989
Equivalent citations: [1989]31ITD192(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. This is a revenue's appeal and it relates to assessment year 1982-83. Grant of registration to the assessee-firm is contested in this appeal. A firm was formed as per the recitals found in the partnership deed dated 19-3-1980. Books of the firm were closed for the first time by 31-3-82. Form No. 11 was filed on 28-10-81 seeking initial registration of the firm. Under clause 8 of partnership deed the firm was purported to have been formed by 5 partners who stipulated to share profits and losses in the following manner : -
(1) Smt. Leelavathi Subbaiah 24.75% share (2) Smt. Ct. Nachammai 24.75% share (3) Sri Pulla Muralidhar 24.75% share (4) Sri C. Vasudevan 24.75% share (5) Lord Venkateshwara, Tirupathi 1.00% share
Form No. 11 however was signed by 4 partners and nobody signed on behalf of the fifth partner, the Deity. The partner, Lord Venkateswara has been allotted 1% both in profits and losses. Nobody represents the Lord in the partnership deed and only 4 partners signed the partnership deed. Nobody on behalf of the Deity signed the partnership deed. The Income-tax Officer held that the provisions of Section 184(3) of the Income-tax Act were contravened. The assessee by its letter dt. 13-2-85 sought to explain that the partnership was only among the 4 partners that it was decided by all the partners of the firm that 1% of the profits shall be allocated in the name of Lord Venkateswara which amount can be presented to the Tirupathi Devasthanam that under the provisions of Partnership Act, the deed was a valid one and therefore registration can be granted. However, the Income-tax Officer felt that since nobody signed on behalf of the Deity who figured as 5th partner and since no valid explanation was offered on behalf of the assessee to make up this deficiency, the Income-tax Officer felt that the assessee contravened the provisions of Section 184(3) and not entitled for grant of registration and he sought to obtain support for his refusal to grant of registration from two case laws Manohar Das Kedar Nath v. CIT[1950] 18 ITR 914 (All.), CIT v. Tapang Light Foundry & Co. [1983] 147 ITR 581/13 Taxman 127 (Cal.). The Income-tax Officer refused registration to the firm by his orders dated 4-2-1985.
2. Against those orders an appeal was filed before the Appellate Asst. Commissioner. The Appellate Asst. Commissioner reversed the decision of the Income-tax Officer and ordered grant of registration to the assessee-firm on the basis of the Karnataka High Court decision in the case of Bhagwanchand S. Jain & Co. v. Addl. CIT[1981] 127 ITR 770 (Kar.). The Appellate Asst. Commissioner held that the intention of the partners by making Lord Venkateswara, a partner of the firm is to create one per cent of the profits of the Devasthanam at Tirupati. In case of loss the same will be apportioned among the partners themselves and no amount will be allocated to the Devasthanam. Considering the facts of the case, the Appellate Asst. Commissioner held that he was constrained to hold that there was no defect in either the deed of partnership or in the application for registration in the absence of signature of 5th partner, Lord Venkateswara in either or both of them. The above omission, the Appellate Asst. Commissioner holds, does not entitle the Income-tax Officer to refuse registration of the firm.
3. As against the Appellate Asst. Commissioner's impugned order the revenue came up in second appeal before this Tribunal. According to the revenue, granting registration to the assessee-firm is clearly erroneous and invalid and Appellate Asst. Commissioner's order is liable to be set aside. The learned Departmental Representative took us through the partnership deed dated 19-3-80. He particularly referred to clause 8 of the partnership deed which deals with distribution of profits and losses of each of the 5 partners was already extracted in the above paras. It is clear that the 5th partner is stated as Lord Venkateswara, Tirupathi and His share both in profits and losses is stated to be 1%. The learned Departmental Representative contended that Sri Lord Venkateswara as a juristic person cannot act by Himself but can act only by a valid representative acting on His behalf. The valid representative of Sri Lord Venkateswara is Tirumala Tirupathi Devasthanam. However, T.T. Devasthanam did not represent the Deity while executing the impugned partnership deed dated 19-3-1980. Though there are 5 partners mentioned in the partnership deed only 4 partners signed in the partnership deed and the 5th partner Lord Venkateswara, Tirupathi did not sign the partnership deed. Form No. 11 which is the form to be signed by all the partners while applying for registration of the firm, was also signed only by 4 partners and nobody signed representing Sri Lord Venkateswara, the 5th partner. The Income-tax Officer in those circumstances is quite correct in holding that the provisions of Section 184(3) are contravened and hence the registration should be refused to the assessee-firm. The learned Departmental Representative further contended that if I am to accept that Sri Lord Venkateswara should be considered as partner of the assessee-firm then the repercussion would be too serious - Lord Venkateswara would be made liable for all the debts and liabilities of the firm and the assets of the Lord would be open to be proceeded against for the debts and liabilities of the firm. Under the provisions of the Partnership Act the liability of the partners is joint and several in view of the categorical provisions of Section 25 of the Partnership Act which is as follows : -
Liability of a partner for acts of the firm - Every partner is liable, jointly with all other partners and also severally for all acts of the firm done while he is a partner.
The learned Departmental Representative also submitted that Lord Venkateswara is not validly represented in the partnership deed ; the stipulatiops in the partnership deed themselves do not bind the 5th partner, Lord Venkateswata, Tirupathi. Ultimately it was argued by the learned Departmental Representative that the partnership is not valid, in view of the Calcutta High Court in Tapang Light Foundry & Co, 's case (supra).
4. Sri D.V. Anjaneyulu, learned counsel for the assessee argued that Section 184(3) is not at all applicable if we take pragmatic view of the whole affair. He also argued that the Calcutta High Court decision in Tapang Light Foundry & Co. 's case.(supra) is distinguishable. He contends that in the said decision the only question considered was whether a Hindu Deity is a juristic person or not. He also contends that Sri Lord Venkateswara is not a juristic person. The question of securing the signature of the deity in the partnership deed does not arise since the 5th partner cannot be considered to be a 'person' within the meaning of the Income-tax Act. He heavily relied upon the decision of the Karnataka High Court in Bhagwanchand S. Jain & Co. 's case (supra) and submitted that the facts of the said case are quite similar to the facts on hand and therefore, the impugned order of the Appellate Asst. Commissioner is not liable to be disturbed in my hands.
5. In reply, the learned Departmental Representative states that the Karnataka decision relied upon on behalf of the assessee viz. Bhagwanchand S. Jain & Co. 's case (supra) is distinguishable from the facts on hand for the following reasons: -
(i) in that case continuation of registration is not the question involved, whereas in this case grant of initial registration is the question;
(ii) 'charity' was one of the partners in the partnership deed which was considered by the Karnataka High Court in Bhagwanchand S. Jain & Co. 's case (supra) and not any particular Deity. 'Charity' is quite different from a Deity who has got a juristic personality and is liable to sue and be sued by a valid representative. In this case Sri Lord Venkateswara who is a juristic person is stated to be one of the partners of the firm;
(iii) in the Karnataka case 'Charity' being one of the partners need not necessarily be represented by valid representative as 'charity' is not juristic personality. Whereas in the facts of the present case Lord Venkateswara who is a juristic person and who can be represented validly only by the T.T. Devasthanam, which is a statutory body was not represented by anybody in the impugned partnership deed, and hence. He was not validly represented by anybody;
(iv) since nobody represented Lord Venkateswara, the impugned partnership agreement is much more illegal than the agreement considered by the Karnataka High Court: and
(v) Lord Venkateswara cannot be made liable to losses to any extent much more so when he was not validly represented.
6. I have considered these arguments and also gone through the relevant files of the case and orders of the lower authorities. I am of the view that the impugned orders passed by the Appellate Asst. Commissioner are liable to be set aside. I am also of the view that Bhagwanchand S. Jain & Co. 's case (supra) which is the sheet anchor of the assessee's argument, is distinguishable and the points of distinction made out by the learned Departmental Representative which were listed above, in my orders, are all to be accepted. I have gone through minutely into the Karnataka decision. In that case initial registration was granted for assessment year 1966-67 and continuation of registration was prayed for assessment years 1972-73 and 1973-74 and in the first instance the Income-tax Officer granted such continuation of registration. However, the Commissioner sought to revise the orders of the Income-tax Officer Under Section 263 of the Income-tax Act and decision of the Commissioner which was confirmed by the Tribunal, came up for decision of the Karnataka High Court. However, in the facts of the case before us the initial grant of registration itself came for decision. The second distinguishing feature is that in the Karnataka case 5 paise share was given both in profits and losses and that 5 paise share was allotted to 'charity'. 'Charity' is not a person much less a juristic person. However, Lord Venkateswara cannot be said to be not a juristic person, especially when T.T. Devasthanam was constituted as the valid agent of the Lord and it can sue and be sued by any third party. No person can represent 'charity'. However, the same cannot hold good in the case of Lord Venkateswara.
7. The Calcutta High Court in Tapang Light Foundry & Co. 's case (supra) had the occasion to consider whether a Deity is a juristic person or not. In that decision the Calcutta High Court approvedly quoted a still older decision of the same High Court in the case of Sri Sri Sridhar Jiew v. ITO [1967] 63 ITR 192 where a Division Bench held that a Hindu Deity was a juristic person capable of having property and acting through shebait. The shebait can hold the property, realise the income and look after the estate of the Deity and do all acts in connection therewith. In that case a Hindu Deity was recognised as an 'individual' within the meaning of Section 3 of the Indian Income-tax Act, 1922. Their Lordships of the Calcutta High Court realised the distinction between the word 'individual' used in the Indian Income-tax Act, 1922 on one hand and the word 'person' used in the Income-tax Act, 1961 on the other. Keeping that distinction in view their Lordships held that it is only in an ideal sense that a property belongs to an idol. But the management of the property of an idol in its entirety is entrusted with the Manager or shebait with certain limitations and restrictions. Their Lordships also referred to the Supreme Court decision in Official Trustees of West Bengal v. CIT [1974] 93 ITR 348 where it was held that a Hindu Deity was a juristic person and would hold property and be in receipt of income and can also sue and be sued in a Court of Law. The Supreme Court ultimately held that the income derived from the property belonging to the Deity can be assessed to income-tax through its shebait or Manager. At p. 589 of the reported decision the Calcutta High Court held as follows: -
Under Section 26A of the Indian I.T. Act, 1922 and rules 3 and 4 of the Rules framed under the Act, an Income-tax Officer was only empowered to register the partnership which was specified in the instrument of partnership which had been put forward. Therefore, where a mutawaili of a wakf or infants were partners in the firm which was sought to be registered, the partnership could not be treated as one between the remaining partners and registered as such, under Section 26A, nor could be wakf or infant partners be treated as partners in a loose sense in such cases and the partnership be considered as one that could be registered under Section 26A. where an application was made for registration of a firm, the Income-tax Officer had power to determine whether the partnership which was alleged to exist really existed and to refuse registration, if it did not exist.
Referring to the disadvantages of a juristic personality like Lord, their Lordships of the Calcutta High Court held as follows at p. 589:
Unfortunately, in contemplating the Deity as a juristic person, the Hindu Law has been inhibited by certain amount of limitations and these limitations are that the Deity being a juristic person, in ideal sense, must operate through a manager or a shebait who was also inhibited with regard to the power of alienation. Therefore, what an ordinary person can do, such a juristic person like a Deity cannot do; in our legal imagination therefore, that what an ordinary man can do, God cannot do a self-evident absurdity. But so it has been held and so it must be.
In the facts of the Calcutta decision 2 Deities represented by their respective shebaits became partners to a partnership deed on the basis of which an application for registration was filed. The question was whether registration can be granted to that partnership. The contention of Sri D.V. Anjaneyulu that what all the Calcutta decision considered was whether a Deity was juristic person or not is not correct. The said decision also considered the validity of such a partnership deed and also the question whether such a partnership is entitled for registration. The Calcutta High Court held that the partnership deed was not entitled to registration. When such was the situation where the deities who were validly represented by their respective shebaits, can it be held that this partnership deed is valid even though Lord Venkateswara was not at all represented by anybody, much less, by His statutory agent, T.T. Devasthanams. In my opinion it cannot be held to be valid. When the partnership deed is purported to be executed by 5 partners and when 4 partners only signed partnership deed as well as Form No. 11 it should be held that the provisions of Section 184(3) which are mandatory in nature are contravened, since the application for registration was not signed by all the partners. Further in case I accept the contention that Lord Venkateswara is a partner of the assessee firm then the liability of a partner being joint and several, I will be permitting all third parties who have got claims against the assessee firm to proceed against the properties held by Lord Venkateswara even though the Deity was not validly represented by his statutory agent. I am not prepared to make the properties of the Lord liable for all the claims against the assessee firm. Suffice to say that the Karnataka decision on which heavy reliance was placed by the Appellate Asst. Commissioner, while granting registration, is quite distinguishable and cannot be applied to the facts of the case. I hold that the Calcutta decision, which is later in point of time, had considered all aspects of the matter and came to the conclusion that the Deity though a juristic person cannot become a partner even through its shebait, fully applies to the facts of the case., and therefore after following the ratio of the said decision, I must hold that the assessee who had contravened the provisions of Section 184(3) is not entitled for registration. The argument that Lord Venkateswara is not a person within the meaning of Section 2(31) of I.T. Act is only stated to be rejected.
8. In the result the appeal of the revenue is allowed and I hereby order cancellation of registration to the assessee-firm.