W vp. COMMISSIONER OF TAXES Court or Tz Specux bron xox Ixcssdii : “Axbitratot)}" May 17th,’ 1860) [1] Income ‘Tex dud Profits : Tax--partnership-sevidetice partnership’ agreement insulbdiént proof 4f partnership for ‘tax’ puyposés—conduct and course-of. butiness*establishing: partnership* rélitiGaship. must, be proved: Partnership does not’ coitsist. ‘mierel; Pa Contract: ‘itis a relationship: between-parties whith /arises fréin'a"contitict;“ind' if contract is not carriéd out the relationship of partnership ‘does: n: * come into existence; and therefore the. mere, proof of a. partnershi agreement is not by itself proof of a partnership's, axisterice for, tax purposes, but to establish. the relationship there must’ b= a cours dealing and conduct consistent with the terms of the agreement : (Pago 94,: lines 13-25; page i95, lines 35-38; page 96, lines 25-40). [2] Income Tax, snd Profits. Taxi—partnership—evidente—-registration of firm: insiffieient”proofof phrtnership for tix purposes—iadividual tradet tufning -buisiness“into\purteership:must inform interested zhird’ yovamswenn, parties: An individual busingssman fatending to create @ partnership ~""¥ carry-on~his business mus{ take some positive action to inform. his } bankers, créditérs,-customers: and employees that his business relation- ship-has changed:. the. meretexistence of a' ceitificate’ of registration \joF the firm is not sufficient notification of ‘the partnership's existeace +: Sor tax purposes (page 98, line 38—page 94, line. 8; page #7 Bo erga), [3] Partoecship—crestion—evidence of existence—partnership agreement insufficient proof of partnership for tax purposes—conduct and course ~ of business establishing partnership relationship must be proved: Se¢ (1) above. : : [4] Partnership—creation—evidence of existénce—-registration oi ‘fitin' insufficient proof of partnership for tax purposes—individual treder turning business into partnership must inform interested third parti See [2] above. : [5] Partnership—deftoition—relationship. where ‘each party, concribuids: to business for joint-benefit:’For aprelationship between : to constitute a partnership. each pastner must put money, labour ar” skill into a business:carried an with.the object of making @ prait tay ; . the joint benefit ofall the ‘partners;.and the contract between’ them: “y must be legal (page 95, lings 10-16). oe {8} Portnership—nature—partnerjhip not-contragt but relatiinship—part nership agreement .not carridd out does nat create partnership: See (1) above. appealed against a tax assessment made of certain business profits.10 5 20 » 40 |. personal incoine: existence and no further evic (4) dnoome, Tax 0 | rae arnican Law REPORTS * The ppellaht cartied..on “business as an: individual under, 4 business. name, 7A partnership agreement was executed and. the business name was registered. as the name of a firm consisting of the pparties-to the sgiesment as partners: None 6f the partners Dut aay- thing into. the ‘and: the appellent carried it on as befor using-imoney he!ljimself provided.end.the-seme-benk account: Note. Of .the. provisions of, the partnerthip agreement were: carried out {nd the appellant did not inform his bankers, employees, customers or eteditors of arly change i his business relationship: He credited the probs of the!business to; the partnership but they. were-taxed, as. ere was a perfectly valid and legally recognisable partnership in existence, evidenced by the partnership agreement ‘and the certificate of registration, and therefore. Pavem assessment should be'raised on each of the partners in respect Of the profits under 5.90 of the Income Tx Ordinance (cap. 158): and (b) the:appellant was'not 4 partner the business but merely a salaried nianager. P The yesponident rairifained that there was no real partnership between. the parties conceined, the partnership agreement and: the Cortifcate “of registration ‘not being suflciont probf of its effective ce baing adduced. ‘The appellant was from the business: "The sappelladt contended that: (a) th Therefore Hable to pay tax on profits accruing Cases referred tor . (3) Ayrshire Pullman’ Motod: Services VY. Inlond ‘Rev. Commrs. (1999), 14 Aen Te ATC. 531,,dighm of Lord Clyde considered. : (@) Dickenson v. Gross (1822, LL TG. 614; 6 'AT.C. S51, dlera “ot | “" Rowlatt, J. applied. * oe ig) Hohwisen v. Inlond, Rev. Commr. (1981), sre Watermeyer, Jyepplied, 5 SAT.C. 201, dicta: of re. No, 248 (1982), 6 SALT.C. 982, dictum. of Nathan.” ¢ KC, considerde 0: 94, line 4— | Yegislation constrabd: ws of Malawi, 1957, cap. 158), 5.9 ncome Tax. Ordinance (Las ome Mejevant tyme of this-section are set out at PAB page 95, line: 6. “& 1871. “In any epfesl onder this Ordinance the burden of proof that ah : re teexampt from or not Hable to the x « shal) be wpos ot é / ‘perso cimiag such exesnption {or} non-lisbility " ‘ cy Ative, was , 4 Ad at any ct McKay for the appellant; Riseborough for the respoadent. BANDA, -Special Arbitrator In this case, the ‘appellant appeels, ‘against the assessment 0 tax Ss made on kim in respect of profits Which h:Fespondent has contended geerued to him, ‘The appellant apbeals‘ageinst this agsessment-on: the ground that the profits i question “did: retvaccrue to, him but to ‘the 7 Partnership undertaking known by: the syle of W and. S005! athe. issue in this appeal -{5. whether during the tax ‘year. ip 10 sted a Parthertif} question there ext or, the purposes: Of , Mr-itektay-for-the-«ppelant Hay so itted that the appellant is :tiot liable to be taxed for the profits in this ensé, He bas ‘submitted that there: was a perfectly valid and: legally recognisable partnership between the parties shown-on the: certiBeate of registration’ It is 15 argued for, the ‘appellant that during. the period of assessment the parties concerned carried on besiness as af partnership, and that crerefore in terms of s90-of the facome: Tax ‘Ordinance (cap. 188) separate: assessments should be made upon each ‘of the individual partners. It is farther submitted that the appellant is not 2 parner 20 Parke business but only: manager at a salary Nix, Mekay has posed two questions which the bas submitted are the vital issues ia this appeal. The Brst is whether there war 3 legally valid partnership existing ‘during. thé’ whole of the tax year: Tes cheond point, which flows From the Brsty 5 that if there was such a valid partnership at the televarit time; ‘Whetber such arrangement operated. to relieve, the. appellant from ‘Liability to taxation upoo the profits of thépartership. business: ‘Theré can be no doubt in iny mind that the bone of contention in this appeal ‘is whether or not there was a valid parmersh:p for taxation purposes. If there 9° iets such a relatonship, then’ larly: the provisions of s.90"0f the Ancome Tax Ordinance i : ‘The appellant” has’ produc executed on September 14th, 198e: 2 certificate of régistration!.” "My Centifcate operates asa ode! of 1316 people on the certificate ate ek; ge8 ‘With respect to Mr MéXay, 1" x asa Hobicagiin, 5 JF eustoiners * and vereditdrs 6% Ke hag’ now chdsgedntol partnership "How are: the \\that,’ the dE they! are 40ME APRIGAN LAW REPORTS ni McKay: cited passages | Sagar he igri, 12 ed. isu teed that. 2 é OF dealing and-conc cerofie ms. joydon's Modem Income Tax ” Tax Practice, at 55 (1939) there is the following passage: ! “ltis-cearthatiilie mere vexectition: ofa partnership agreement 4 \ is mot ia itself Sufficient to constitute a partnerthip for income tax purposes, moron the other hand will the absence of a ~~ formal-agréetient entitle one to infer. that there is no partner- ship:between-the parties concerned.” q . Mr. Nisebotpugh for the respondent has submitted that the appellant <'s.ligblésfor the profits which accrued to W and Sons. It is contended forthe respondent .that the business of W and Sous was'staited "by thé Appellant, and that he continued to trade in that cay fading -the year of assessment, Mr. Riseborough has strongly argued th:t there :was no effective partnership agreement between the parties coucemed, cither on September 14th, 1966 or at any other time. In these circumstances, Mr. Riseborough has argued that the profits of £9,250-earnéd by the fim of W & Sons were properly taxable in terms of the Income Tax Ordinance. It shold. be observed that these ‘profits are-included in the assessment dated June 29th, 1968,,and form part of the taxxble income of 212,281. ‘As I bave already observed above, if indeed a partnership did exit in this case then clearly the. provisions. of 5.90 of the Income Tax Ordinance inust surely apply. Section 90 provides as follows: "Persons carrying on any trade in partnership shall'make @ 4one nnn ae W 9 COMMISSIONER )OF TAXES, "id6d (1) ALB Conm, 91.° joint return as partners inj respect-of such: trade, together with stich particulars as may from: time. to: tim prescribed and” each ‘partner..ghall..be sqparately and. individually. liable for rendering -of:ithe joint retumn, but the partaersisball, be Habl income tax only in their area individual. capacities. Separa assessments shall be made, upon partners.” 7 Section 90 isiof couse obly relevant if Ido Bnd that:theré was. partnership, and before I can make such Ginding facts rust clealy show that the relationship between the. parties..js.one of partners The relationship of partnership requires that. certdin-conditigns mist be fulfilled before such relatfonship’ can be recognised as @ partuic:~ chip. By definition, a parthership must have. four essenti (a) each, 1 something inte the business, i.¢.; mosey, 4 tabour or ska) aay inebs faust be carried..9n. for the joint benelit . of all partners: (c) the tet must fe to sake a,probit and a) the WP Garact must be leg: ere Ts Ho evIdeHeE befpré this.tribunal to show that-any ef the - ; alleged parmers pooled anything into the-business. D workéd’ in. | the business at a salary.. In iny judgment, although ‘D worked’therc, He rendered no more servieés than he previously did to his father before the deed was executed. The: appellant is the:only person, who provided the whole of the capital for the. business. The appellant ‘has submitted :that this sum of £6,000 was and still is a loan ‘to the firm of WV and Sons. But it'should be’ noted that there is: jothing in the books of the firm, prbduced in this court, to show thet the * 26,000 is due to the appellant as a loan, Mr. Riseborough has cited a number of casés to support “his contention: that in the instanticase there was no effective partije/ship | for the purposes of taxation.’ “All the cases and authorities cited to * me by both Mr. Riseboroyghjand Mr. McKay hiavé-heen ‘of cozsider- | 7 able: assistance to me, but for the purpose of my judgment 1, wil) | only refer to a few of tiem. In the case of Hoheisen ¥, Inland Rev. Commr. (8); Watermever J. says this (5 S.A.T.C.-at 210)s> "“Pastnership does not. cofisist merely of a contract, | relationship between parties which arises from a cont ©. athe contract isnot then the relationship. of partner- ship does not come into stence.” Mr. Riseborough has subipitted that the provisions .of the partrier. ship deed produced in this court were not followed and did not regulate the business transactibns ofthe appellant, ‘There is evidence: it is Tact, and 95 asi.[SES 1” quis APRICAN LAW, REPORTS cat there’ were so drawings: made; there, vas. no. written aut for, appcinting employees; ‘there Was no. statement signed partners whea.an annual drawing-up of i tal Bid there was no majority: agreement. tak: profits, Mr, Riséborough deficiencies ‘or omissions inthe myself that by 3.197 of the Income is cast upon’ the appellant: He must ‘prove TAY be assessed for the profts which were.camed bi Sons. In the-saine case of Hoheisen..v. Inlond. Ri ‘Watermeyer, J. says this (ibid, at 21 "Tt is true that the father and son that’ sufficient -had been said by. them: or done: by constitute a partnership, but the evidence and conduct 0) partners in making no notifcation of the change in their relatia tip, either to their etnployees, to thelr bankers or '9 the outsid sonia indicates that they themselves bad not’ ente i formal alteration of their relationship.” ‘Mr. Riseborough-bas contended that there was no niotifical to‘the appellant's bankers, employees or creditors. Certainly fs no evidence apart from ‘the ‘certificate of registration that outside world was notifed about the changed business rélat Of the appellant., In the case of Dickenson ¥. Gross (2), Row! Pas this to say (IL T.C. at 620; 6 A-T.C. at 557): 7 spur in this ease the facts show that in very many. ©). deed was simply sét on one side and disregarded, and you find the deed is disregarded, and also that it was.enters jnto’for the purpose of:obtaining relief from ‘taxation ‘one “perhaps naturally ‘and guitp properly vpes the question of jon to those circumstances: and. Chel cwpartnertiip for the-sp + ig no teal ‘partnershij people think there ean be. Th fh the drawer ‘they can make an Income they. go. on testing ‘the undertaking as tho the scie uncontrolled; property of the one:person, instead of a partnership.” : Ye should further be oted that in the preseat-case the finn 96to such income fo. another person “that none’ of the proBt in this case ar The respondent & are not sufficient @ Case. No. 248 (4), Nat w prove thi Liability. Io my judgment, although: it’ is. deed was execu ceaied out by the appellant.. ‘There xia world that business and Waving regard t optve in this appeal, J\find iLimpessible to 5a reve partners auteemient oe otis of case of Dickenson vi the so Unfortunately, in. this case. arrangement recognisable under, thei 1B f i nership. forthe purposes, of. the In deed wes executed, there was RO ‘change’ in the nam: ‘and diere was ho change in the op’ ‘make an income tax partuesships It is. Whole object.of draiving mp.the:deesiby., ‘a relief from tax linbility. “OF ohirsé; ‘allman's' 8 AIT.C. at 537} "the:taxpayerts and Sons was: starte-prior-to the date of the.deed. “Aftertie © 7 : .¢ of the business, fe ef the. bank-nocotint which Sas coed by the. appellant prior 16 the date of the gael ae “Me. Riseborough fas, submitted that! oftce income ha: a person, tat person carinot off-lorid his lability” Te Wsatgued for th eto any of the’ pe (contended that erSdit-entries made In the’ b yes. ecrual. for’-taxaticn purposes. Tn Income {Tax 20. hao, K.C- says this. (6 $:A.T.C. at 385): ‘hn the’ books o/ the partnershfp, which are “yy ig trie that ‘the same, books: as were used by the appellant prior to his tntering into tis deed of partnership with is_sons, the thres 15 beem eredited with thelr shares of profit +, 1990, Iyat that fs, all,that has taken Jere has merely been a cridit entry, but thece has been «af any kind in terms of ».7(1) of Act 40 of 1995." i that the onus is on the.appellant. He tmust be relieved from the tax 20 Clear that a partnership jone of its provisions pwere ification to the outside there was a. change_ol yelavonship fp the appellant's Sa the evidenze adduced before this tibunal, 25 ‘othe authorities onthe vital issue T have to there was ai uf. inthe Gross (2); the apppellantrahroughit ithat-by-putting ¢ deed in a drawer mid Avithont sirrying/outcits term hescould §— 90 pleirinziny. opinion that tie sons bave respectively for the year ended 30 June place. no real accent Thave already sai there.was.a-partnership.if.h¢ is, to, ted, it is edually. clear'that 9 sdes no notifi or Sercices velnlatd Revi Somme: 4 -T C2. 184; i 85. Jy ea; the depleticncof hiszmenns by ht Revenue.” ‘he appellant failed tcimake-an. elféctive Taoonie Tax Ordinance (cep-158). ‘feos, and that-these sas no part ma. trex-Orginance. L.findthet — 40 ae rf Wand Sons. ‘nok.nenahy continu ‘put zzontinued far as he bonestl there was no partners