# CALCUITA v. JUGGILAL KAMALAPAT Ocrober 7, 1966

- **Citation:** [1967] 1 S.C.R. 784
- **Court:** Supreme Court of India
- **Decided:** 1967
- **Case number:** Civil Appeal No. 127 of 1966
- **Bench:** J.C. Shah, V. Ramaswami, V. Bhargava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/calcuita-v-juggilal-kamalapat-ocrober-7-1966-3915
- **Pages:** 8

## Headnote

Income-tax Act (II of 1922), ss. 26A and 66-Registration of firmLegal validity of existence of firm--Que.rtion of law referable to
lligh
Court.
B
Three brothers and J entered into a partoership busine•. Tho
firm
C
owned both movable and immovable propenies.
Later, the three brothers
created a Trust, with themselves as the first three trustees. They also exe>-
cuted an unregistered deed of relinquishment by which they relinquished
their rights in and claims to all the properties and BSSets of •he firm, m
favour of J. and of themselves in the capacity of truslees.
A new partnership firm was constituted between J. and the Trust by means of a partnership deed which specified the shares of the two partners in the erofiis
D
and losses.
The Trust introduced a sum. of Rs. 50,000 as its capilal tn ILe
new firm.
For the assessment year
1943-44 the new firm
applied fur
1egistration under s, 26A of the Indian Income-tax Act, 1922 but
the
Income-tax Officer, Appellate Assistant Commissioner and the Appellate
Tribunal rejected the application. The Tribunal relied
mainly on
the
ground that the deed of relinquishment being unregistered could not legally
transfer the rights and the title to the immovable properlies owned by the
original firm, to the Trust and that as the immovable properties were not
E
separable from the 01her buisiness assets rhere was no legal transfer of any
portion of the business assets of the original firm in favour of the Trust.
On a reference to the High Court,
as to whether the new partnenblp
legally came into existence and, as such, should be registered, 1t was conM
tended on behalf of the Commissioner that the Tribunal bad recorded a
ftnding of fact that the firm seeking registration was not a genuine ane
and had never come into existence.
The High Court, after canine for
further otatements, held that the Tribunal had not recorded any such findF
ing of fact, that the firm did in fact come into existence, and that there
was no impediment to its registration.
In appeal to this Court,
HELD : (i) The existence of a firm could be challenged· on two al'cr·
native grounds; (a) that a firm had not come into existence at all, and
(b) that though it came into existence in fact, its existence was not valid
in law. In the present ease it was only the second question that was r ...
ferred to the High Court. The fir.it could not at all be referred to the
Hi~h Court as it would be a pure question of fact; and if the Appellalc
Tribunal bad in fact recorded a finding of fact that the firm had not come
into existence, the question of law referred to the High Court, would not
arise at all.
Therefore, the new firm
did in fact come
into existence.
(788 E-H)
(ii) Tho ·new partner.ihip between the
Trust and J. was comtitutcd
under a deed which was properly executed, wa.< valid in law. and so the
firm should be registered.
[791 C-DJ
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A
B
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C.I.T. v. JUGGILAL KAMALAPAT (Bhargava, J.)
785
The deed of R!linquishment was in respect of the individual interests of
the three brothers in the assets of the original firm, in favour of the Trust,
and consec;1uently, did not require R!gistration, even though the assets 9f
that firm mcluded immovable property. The deed
was
therefore valid
without registration. (790 Fl
Addanki Narayanappa v. Bhakara
Krishnappa,
(1966) 3
S.C.R.,
400 followed:
Even if the deed of R!Iinquishment required R!gistration, it could only
be invalid insofar as it affected immovable properties, but to the extent
that it purported to transfer movable assets of the original firm, it would
be valid. A deed of relinquishment is in the nature of a deed of gift where
the various properties dealt with are separable. In the present case, therefore, the deed of relinquishment was valid at least in R!spect of movable
properties, and the partnership seeking registration thus became owner of
all the movable assets of the first partnership in addiiion to the Rs. 50.000
contributed as a capital investment by the Trust. (790 G; 791 A, CJ

## Text

COMMISSIONER 01'' INCOME-TAX, WEST BENGAL,
A
CALCUITA
v
JUGGILAL KAMALAPAT
Ocrober 7, 1966
(J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.j
Income-tax Act (II of 1922), ss. 26A and 66-Registration of firmLegal validity of existence of firm--Que.rtion of law referable to
lligh
Court.
B
Three brothers and J entered into a partoership busine•. Tho
firm
C
owned both movable and immovable propenies.
Later, the three brothers
created a Trust, with themselves as the first three trustees. They also exe>-
cuted an unregistered deed of relinquishment by which they relinquished
their rights in and claims to all the properties and BSSets of •he firm, m
favour of J. and of themselves in the capacity of truslees.
A new partnership firm was constituted between J. and the Trust by means of a partnership deed which specified the shares of the two partners in the erofiis
D
and losses.
The Trust introduced a sum. of Rs. 50,000 as its capilal tn ILe
new firm.
For the assessment year
1943-44 the new firm
applied fur
1egistration under s, 26A of the Indian Income-tax Act, 1922 but
the
Income-tax Officer, Appellate Assistant Commissioner and the Appellate
Tribunal rejected the application. The Tribunal relied
mainly on
the
ground that the deed of relinquishment being unregistered could not legally
transfer the rights and the title to the immovable properlies owned by the
original firm, to the Trust and that as the immovable properties were not
E
separable from the 01her buisiness assets rhere was no legal transfer of any
portion of the business assets of the original firm in favour of the Trust.
On a reference to the High Court,
as to whether the new partnenblp
legally came into existence and, as such, should be registered, 1t was conM
tended on behalf of the Commissioner that the Tribunal bad recorded a
ftnding of fact that the firm seeking registration was not a genuine ane
and had never come into existence.
The High Court, after canine for
further otatements, held that the Tribunal had not recorded any such findF
ing of fact, that the firm did in fact come into existence, and that there
was no impediment to its registration.
In appeal to this Court,
HELD : (i) The existence of a firm could be challenged· on two al'cr·
native grounds; (a) that a firm had not come into existence at all, and
(b) that though it came into existence in fact, its existence was not valid
in law. In the present ease it was only the second question that was r ...
ferred to the High Court. The fir.it could not at all be referred to the
Hi~h Court as it would be a pure question of fact; and if the Appellalc
Tribunal bad in fact recorded a finding of fact that the firm had not come
into existence, the question of law referred to the High Court, would not
arise at all.
Therefore, the new firm
did in fact come
into existence.
(788 E-H)
(ii) Tho ·new partner.ihip between the
Trust and J. was comtitutcd
under a deed which was properly executed, wa.< valid in law. and so the
firm should be registered.
[791 C-DJ
G
H
A
B
c
C.I.T. v. JUGGILAL KAMALAPAT (Bhargava, J.)
785
The deed of R!linquishment was in respect of the individual interests of
the three brothers in the assets of the original firm, in favour of the Trust,
and consec;1uently, did not require R!gistration, even though the assets 9f
that firm mcluded immovable property. The deed
was
therefore valid
without registration. (790 Fl
Addanki Narayanappa v. Bhakara
Krishnappa,
(1966) 3
S.C.R.,
400 followed:
Even if the deed of R!Iinquishment required R!gistration, it could only
be invalid insofar as it affected immovable properties, but to the extent
that it purported to transfer movable assets of the original firm, it would
be valid. A deed of relinquishment is in the nature of a deed of gift where
the various properties dealt with are separable. In the present case, therefore, the deed of relinquishment was valid at least in R!spect of movable
properties, and the partnership seeking registration thus became owner of
all the movable assets of the first partnership in addiiion to the Rs. 50.000
contributed as a capital investment by the Trust. (790 G; 791 A, CJ
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 127 of 1966
Appeal from the judgment and order dated December 11, 1962
of the Calcutta High Court in Income-tax Reference No. 47 of
D
1962.
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S. T. Desai, A. N. Kirpal and R; N. Sachthey, for the appellant.
A. K. Sen and B. P. Maheshwari, for the respondent.
The Judgment of the Court was delivered by
Bbargava, J. This appeal arises out of proceedings for registration of the firm, Juggilal Kamalapat, Calcutta, under section 26A
of the Income Tax Act (hereinafter referred to as "the Act")
for the assessment year 1943-44. Prior to this assessment year,
the three Singhania brothers, Sir Padampat Singhania, Kamlapat
Singhania and Lakshmipat Singhania, were carrying on a hosiery
business in the name of Messrs. Juggilal Kamalapat with Head
Office at Kanpur and a branch at Calcutta. On November 29,
1939, these three brothers executed a deed of partnership, by which
one Jhabbarmal Saraf was taken in a'S a partner, and under this deed,
all the four partners had equal shares. On October 27, 1941,
the three brothers executed a trust deed known as the Kamla
Town Trust, the principal object of which was the welfare of the
employees of Juggilal Kamalapat Cotton Spinning and Weaving
Mills Ltd. Under this deed, the three brothers became the first
trustees. On December 2, 1942, a Deed of Relinquishment was ·
executed by the three brothers, relinquishing their rights and
claims to all the properties and assets of the firm, Juggilal
Kamalapat, in favour of Jhabbarmal Saraf and of themselves in
the capacity of the three first trustees of the Kamla Town Trust.
This relinquishment deed purported to recognise an earlier oral
relinquishment which was stated as having been operative with
786
SUPRl!MB COURT REPORTS
[1967] 1 S.C.R.
effect from March 26, 1942. On December I, 1942, a Partnership
Deed was executed between Jhabbarmal Saraf and the three trustees,
by which they purported to constitute a partnership firm taking
effect from March 27, 1942, the two partners in the firm being
Jhabbarmal Saraf and the Kamla Town Trust represented by these
three trustees. The shares of the two partners in this partnership
were: Kamla Town Trust. ... A~. /12/-, and Jhabbarmal Saraf ....
As. /4/-. The firm, Juggilal Kamalapat, which had been carrying
on the business of hosiery, owned both movable and immovable
properties at Belur near Calcutta. The immovable properties
consisted of lands and buildings constructed for the use of the
factory for manufacturing hosiery, and they were shown in their
balance-sheet as properties belonging to the firm. The firm had
also been showing expenses incurred for maintaining or making
additions or alterations to these buildings in their accounts and
had been claiming depreciation in respect of them.
It was in these
circumstances that the new partnership, purporting to consist of
the Kamla Town Trust and Jhabbarmal Saraf, applied for registration under s. 26A of the Act for the assessment year 194344.
The Income-tax Officer rejected this claim and, in doing so,
also took notice of the fact that a sum of Rs. 50,000/· had been
introduced into this partnership firm by the Trust. The reason
given by the Income-tax Officer for not accepting the registration
need not be mentioned here, because that reason was not accepted
by the Tribunal and was not urged before the High Court or before
this Court on behalf of the Commissioner. On appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax
Officer for reasons given by him which were different from those
given by the Income-tax Officer. Those reasons are again intmaterial
because those reasons were not accepted by the Tribunal or the
High Court and have not been relied upon before us.
The Income-tax Appellate Tribunal upheld the order rejecting
the applicalion for registration under s. 26A on the main ground
that the Relinquishment Deed dated 2nd December 1942, being an
unregistered document, could not legally transfer rights and title to
the immovables owned by the firm in favour of the Kamla Town
Trust, and that the transfer of the intmovable properties being thus
legally ineffective and they being not separable from the other business assets, the entire business of the firm was not legally transferred
in favour of the Kamla Town Trust.
Two other reasons were also
given that the constitution of the new firm was not notified to any of
the Banks with which the old firm was dealing, and the new partnership was not got registered with the Registrar of Firms till May,
1946. On thesc facts, at the request of the respondent firm, Juggilal
Kamalapat, the following question was referred by the Tribunal
or opinion to the Calcutta H igh Court:--
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c.I.T. v. JUGG!LAL KAMALAPAT· (Bhargava, J.)
787
"Whether on the above facts and in the circumstances
ofthis case, the partnership, as evidenced by the Deed of 1st
December 1942, legally came into existence and as such
should be registered?"
When this reference came up before the High Court on two
different occasions, the High Court sent back the ca~e for submission
of further statements of the case to the Tribunal, because the High
Court felt that facts, necessary to hold whether the respondent firm
claiming registration was a genuine firm or not, had not been properly found by the Tribunal in its appellate order. On the first
occasion, when submitting the supplementary statement of the case,
the Tribunal purported to submit two different questions in lieu of
the question which had been already submitted for opinion to the
High Court. The two questions thus newly suggested were:-
"(!) Whether in the facts and circumstances of this
case, can the non-registration of Relinquishment Deed
invalidate the transfer of the business assets to the new
partnership?, and
(2) Can the registration application be rejected merely
on the ground that the business assets were not legally
transferred to the new partnership?"
The High Court disposed of the reference by giving the following answer:-
"Regard being had to the admissions made on behalf of
the department, the facts and circumstances mentioned in
paragraph 6 of the statement of case dated 13th March,
1952 do not show that there was any legal flaw in the constitution of the partnership firm as evidenced by thedeed of !st
December, 1942. Upon such evidence, it must be concluded
that it did come into existence and there is no impediment to its registration under Section 26A of the Income-tax
Act. It is made clear that the question itself postulates the
facts and circumstances and therefore, the conclusion is
based upon them. In view of the facts in·this case, there
will be no order as to costs."
This appeal has been brought up by the Commissioner of Incometax against this answer returned by the High Court on certificate
under section 66A(2) of the Act.
It appears from the judgment delivered by the High Court
that when the reference came up before it, an argument was raised
on behalf of the Commissioner of Income-tax that the Tribunal had
recorded a finding of fact that the firm seeking registration, consisting of the Kamla Town Trust and Jhabbarmal Saraf, was not a
genuine firm and that this should be the answer returned by the
788
SUPREME COURT REPORTS
(I 96 7) 1 S.C.R.
High Court to the Tribunal.
It was in view of this point raised
before the High Court that the High Court considered it necessary
to remand the case twice to the Tribunal to ask for supplementary
statements of the case under s. 66(4) of the Act. At the final
hearing, however, the High Court held that it could not be accepted
that the Tribunal had, as a question of fact, recorded the finding
that this firm seeking registration was not genuine and had never
come into existence, and, thereupon, proceeded to deal with the
question referred as a question of law so as to determine whether
the firm had come into existence as a legally valid firm.
In this appeal before us, again, it was urged by Mr. S. T. Desai
on behalf of the Commissioner that the High Court was wrong in
holding that it was not bound to return the answer to the Tribunal
that the partnership seeking registration was not genuine in fact.
In our opinion, the question sought to be raised on behalf of the
Commissioner should not have been allowed to be raised by the
High Court even at the earliest stage, and that it was the error
committed by the High Court in entertaining this question that has
resulted in unnecessary proceedings and consequent delay. When
the case first came up before the High Court, the question that
was referred in the statement of the case was, as we have mentioned
above, whether the partnership legally came into existence and, as
such, should be registered. The existence of a firm could be challenged on two alternative grounds. One was that, in fact, on the
:vidence, it could not be held that such a firm had at all been constituted and had come into existence. The other was that even
though it purported to come into existence as a fact, it could not
claim to be a valid partnership because of some legal defect, or,
in other words, whether its existence was valid in Jaw.
On the face
of it, the question tha.t was referred to the High Court for opinion
was the second question and not the first one. The first question,
in fact, could not have been referred to the High Court at all for
opinion, because that would be a pure question of fact on which the
decision of the Tribunal would be final and no reference to the
High Court would lie under s. 66. A reference to the High Court
lies only on a question of law. The High Court, when requested to
answer the question referred in the first statement of the case,
should, therefore, have confined itself to the legal aspect of the
existence of the partnership and should not have entered at all into
the question whether the partnership had come into existence in
fact or not. The Tribunal which bad passed the appellate order in
these proceedings consisted of two Members, and the first statement of the case was submitted by those very Members.
It is clear
that they themselves, when making the reference to the High Court,
were of the view that they had not anywhere recorded a findi.1g that
the firm had not come into existence in fact, because, if they had come
to such a finding, no question of law could possibly have been
A
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C.J.T. v. JUOOILAL XAMALAPAT (Bhargava, I.)
789
referred by them to the High Court. The existence in law 9f a
firm, which does not exist in fact, could not possibly be found by
the High Court on the question referred. Consequently, we must
reject the submission made on behalf of the Commissioner that,
in this case, the High Court should have gone into the question of
existence of the respondent firm as a question of fact; and in this
appeal also, we must proceed on the basis that the respondent firm
did 4i fact come into existence, and that all that the High Court was
called upon to decide was whether it also came into existence
in law.·
It appears to us that, in this case, the submissions thatweremade
on behalf of the Commissioner before the High Court and which
have been made before us have ignored the effect of the important
relevant documents and have unnecessarily placed too much reliance
on the Deed of Relinquishment. The Tribunal found that a Karola
Town Trust had been constituted of which the three Singhania
Brothers were the Trustees. The Tribunal also found that a deed
of partnership was executed so as to constitute the firm Juggilal
Kamalapat, consisting of two partners, the· Kamala Town Trust,
represented by the three trustees, and Jhabbarrnal Saraf. Their
shares in the profits and losses were also specified in the deed of
partnership. There was the further finding by the Income-Tax
Officer that the Karola Town Trust, which entered into the partnership, actually introduced a sum of Rs. 50,000/- as its capital in
this partnership firm. On these facts by themselves, it should have
been held that a valid p;irtnership had come into existence .
.So far as the deed of relinquishment is concerned, learned counsel appearing on behalf of the Commissioner has not been able to
show to us any provision of law, or any decision of a Court laying
down that a deed of relinquishment executed by partners of a
fitm in respect of their share and interest in a firm required registration, in ca5e the firm. owned immovable properties. In this
connection, learned counsel for the respondent firm brought to
our notice a recent decision of this Court in Addanki Narayanappa
and Another v. Bhaskara Krishnappa (dead) and thereafter his heirs,.
and Others,(') where the question that came up for consideration
was whether the interest of a ·partner in partnership assets
comprising of movable as well as immovable property should be
treated as movable or immovable property for the purposes of
s. 17(1) of the Registration Act, 190~. The Court upheld the view
of the· Full Bench of the Andhra Pradesh High Court in Addanki
Narayanappa & Anr. v. iJhaskara Krishtappa & Ors.() Mudholkar,.
J ., speaking for this Court held:
"It seems to us that looking to
the scheme of the· Indian Act, no other view can reasonably be
taken. The whole concept of partnership is to embark upon a
(I) [1966) 3 S.C.R. 400.
(2) J,L.R •. 1959 A.P.p. 387
790
SUPllEMB COUllT lll!PORTS
(1967] 1 S.C.R.
joint venture and for that purpose to bring in as capital money or
even property including immovable property. Once that is done,
whatever is brought in would cease to be the exclusive property of
the person who brought it in. It would be the trading asset of the
partnership in which all the partners would have interest In proportion to their share in the joint venture of the business of partnership.
The person who brought it in would, therefore, not be able to
claim or exercise any exclusive right over any property which he
has brought in, much less over any other partnership property.
He would not be able to exercise his right even to the extent of his
share in the business of the partnership. As already stated, his right
during the subsistence of the partnership is to get his share of profits
from time to time as may be agreed upon among the partners and
after the dissolution of the partnership or with his retirement from
partnership of the value of his share in the net partnership assets as
on the date of dissolution or retirement after a deduction of liabilities and prior charges." On this basis, the ultimate decision was
that a deed, evidencing the transfer of an interest of a partner in
partnership assets, does not require registration even though the
partnership assets are comprised of movable as well as immovable
property.
A Full Bench of the Lahore High Court in Ajudhia Pershad Ram
Pershad v. Sham Sunder and (Jthers(') held that the interest in a
partnership of a partner is to be regarded as movable property when
it is sought to be dealt with under 0·21 r. 49, Civil Procedure Code,
notwithstanding that at the time when it is charged or sold, the
partnership a~sets include immovable property.
The Deed of Relinquishment, in this case, was in respect of the
individual interest of the three Singhania Brothers in the assets of
the partnership firm in favour of the Kamla Town Trust, and consequently, did not require registration, even though the assets of the
partnership firm included immovable property, and was valid without registration. As a result of this deed, all the assets of the partnership vested in the new partners of the firm.
In the alternative, we think that, even if it had been accepted
that this deed of relinquishment required registration, that would
not lead to the conclusion that the partnership seeking registration
was not valid and had not come into existence in law. The deed
of relinquishment could, at best, be held to be invalid in so far as
it affected the immovable properties included in the assets of the
firm; but to the extent that it purported to tr;msfer movable assets
of the firm, the document would remain valid. The deed could
clearly be divided into two separate parts, one relating to immovable
properties, and the other to movable as5ets; and the part of the
deed dealing with movable assets could not be held invalid for want
(I} LL.II. 28 Lah. 417.
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c.I.T. v. JUGGILAL KAMALAPAT (Bhargava, J.)
791
of regisl&'ation. A deed of relinquishment is in the nature of a deed
of gift, where the various properties dealt with are always separable,
and the invalidity of the deed of gift in respect of one item cannot
affect its validity in respect of another. This view was expressed
by the Madras High Court in Perumal Ammal v. Perumal Naicker &
Anr.(1) A deed of relinquishment, or a deed of gift, differs from a
deed of partition in which it is not possible to hold that the partition
is valid in respect of some properties and not in respect of others,
because rights of persons being partitioned are adjusted with reference to the properties subject to partition as a whole. In the case
before us, therefore, the deed of relinquishment was valid at least in
respect of movable properties, and the partnership seeking registration, thus, became owner of all the movable assets of the partnership in ad~ition to having contributed a sum of Rs. 50,000/- as
capital investment in it. The Kamla Town Trust and Jhabbarmal
Saraf constituted the. partnership under a deed of partnership,
which was properly executed, and in these circumstances, the partner-
'Ship that came into existence was clearly valid in law. There is,
therefore, no force in this appeal and it is dismissed with costs.
V.P.S.
Appeal dismissed.
(1) I.L.11. 44 Mad. 196.