TMI Blog1979 (7) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the new firm, constituted by the wives of the eight partners of the assessee-firm with another partner of the assessee-firm, is a genuine firm ?" The other two references, viz., T.C. Nos. 809 of 1977 and 484 of 1978, relate to the allowability of the interest paid to what may be conveniently called hereafter as the Financing Corporation. In T.C. No. 809 of 1977, the question referred is: " Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 42,027 was paid to the genuine firm, and, therefore, not liable to be added in the assessment of the assessee for the year 1972-73?" In T.C. No. 484 of 1978, the following questions are referred: "(1) Whether, on the facts and in the circumstances of the case, it has been rightly held by the Tribunal that the assessee was entitled to registration under section 185 of the Income-tax Act, 1961 ? (2) Whether the Appellate Tribunal's finding that there was a genuine firm in existence during the accounting year relevant for the assessment year 1973-74, is based on releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Financing Corporation. The Financing Corporation in its turn made entries of having advanced the said sum of Rs. 2,70,000 to M/s., S.S.A.M. Shanmugha Nadar. No cash actually passed in these transactions which were made only by book adjustments. On 27th August, 1971, a further sum of Rs. 2,10,000 was shown to have been advanced by the partners of S.S.A.M. Shanmugha Nadar to the Financing Corporation at the annual rate of interest at 9%. This amount was again shown as having been advanced on the same day to M/s. S.S.A.M. Shanmugha Nadar at the annual rate of interest at 12%. The ITO bad before him the application for registration of the Financing Corporation. He considered that no genuine firm had come into existence and that the whole arrangement was a sham creation to avoid payment of tax by M/s. S.S.A.M. Shanmugha Nadar. In the view of the ITO, the firm of M/s. S.S.A.M. Shanmugha Nadar, instead of paying the interest on the credit balances standing in the accounts of its own partners, has made entries as if interest was paid to the Financing Corporation. If the interest had been paid to the partners of M/s. S.S.A.M. Shanmugha Nadar then the said interest would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal. We are unable to accept this submission in the reference application for the assessment year 1972-73, the question in the form in which it was asked for the assessment year 1973-74, also found a place. The Tribunal has not given any reason why it did not refer the second question. The Tribunal has also not stated that it was rejecting the application for reference with reference to the second question. We have, therefore, to draw the inference that the Tribunal considered the question referred as comprehending the existence of materials. Further, for the registration of a firm, the firm should be a genuine one. When a question is asked whether the firm is entitled to registration, implicit in the question is the point whether the firm is genuine. In order to arrive at the conclusion that the firm is a genuine one, there must be some materials to support it. Therefore, the question of the existence of the materials to support the conclusion of the Tribunal is relevant for both the years. We have already referred to the fact that the Financing Corporation came into existence on 8th February, 1971, under the deed of the same day. The firm started with a capital of Rs. 1,21,30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cash balances. In the absence of the adequate cash balance, these amounts could not have been withdrawn by the respective persons who had credit so as to advance the amounts to the Financing Corporation which in turn could have advanced it to M/s. Shanmugha Nadar. He and the Tribunal were, wrong in proceeding as if there were cash balances which could have been utilised and this triangular process of making entries merely dispensed with the actual passing of cash. There were two other objections to the grant of registration to the firm and one of them was that under cl. 8 of the partnership deed, the appointment of a manager was referred to, but no such manager had been appointed. It has been brought out by the AAC that one of the accountants of the firm of M/s. Shanmugha Nadar had been utilised as a part-time accountant of the firm of the Financing Corporation and, in his view, there was no violation of the terms of the partnership deed in any manner or non-observance of any essential covenants of the partnership deed. In the present case, the absence of a manager, which was considered to be important enough to find a place in cl. 8 of the partnership deed, clearly shows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it, actually carried on business. In the present case both the requisites are absent. In the Tribunal's order we looked in vain for any actual piece of evidence or material which would go to show that the firm had actually come into existence and had carried on business. The execution of a partnership deed is not by itself a talisman which can entitle a firm to be registered. Apart from the execution of the partnership deed there must be circumstances and facts to show that it bad come into existence and that it had carried on business. On these aspects, the evidence is clearly lacking in the present case. Both the sides referred us to certain decisions but we do not think it necessary to discuss those decisions because no decision can throw any light on the question of fact relating to the genuineness of the firm. The result is that the question referred to in T.C. No. 249 of 1975 and T C. No. 485 of 1978 are answered in the affirmative and in favour of the Revenue. In the other two references, T.C. No. 484 of 1978 and T.C. No. 809 of 1977, as indicated earlier, the only question is whether the amount paid or in fact only shown to have been paid as interest to the Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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