1972 (3) TMI 24 - HC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that renewal of registration under section 26A of the Indian Income-tax Act 1922 was wrongly refused to the firm for the assessment years 1958-59 1959-60 and 1960-61 ? Questions answered in the affirmative

Issues Involved:
1. Whether the Tribunal was justified in holding that the renewal of registration under section 26A of the Indian Income-tax Act, 1922, was wrongly refused to the firm for the assessment years 1958-59, 1959-60, and 1960-61.

Issue-Wise Detailed Analysis:

1. Tribunal's Justification for Renewal of Registration:
The primary issue is whether the Tribunal was justified in holding that the renewal of registration under section 26A of the Indian Income-tax Act, 1922, was wrongly refused to the firm for the assessment years 1958-59, 1959-60, and 1960-61. The firm, constituted by a deed of partnership in September 1950, included Sri B. M. Kharukha, Mrs. Kharukha, and Sri K. A. Choudhury, each having equal shares of profit and loss. The firm was granted registration for the assessment years 1952-53 to 1957-58. However, for the assessment year 1958-59, the Income-tax Officer refused renewal on the grounds that the partnership was not genuine and that Sri K. A. Choudhury was not a real partner. This decision was upheld by the Appellate Assistant Commissioner, who found that Choudhury was merely a name-lender. The Tribunal, however, relying on the principles laid down in Commissioner of Income-tax v. A. Abdul Rahim and Co., held that the registration was wrongly refused and directed the Income-tax Officer to grant renewal for the assessment year 1958-59, and similarly for the subsequent years.

2. Revenue's Contention:
Mr. Pal, on behalf of the revenue, argued that the Tribunal wrongly applied the principles of law from Commissioner of Income-tax v. A. Abdul Rahim and Co. According to him, the Supreme Court decided that registration should not be refused if one partner is a benamidar. He emphasized that the refusal was based on the entire partnership being non-genuine and not just on Choudhury being a benamidar. He cited R. C. Mitter & Sons v. Commissioner of Income-tax, highlighting essential conditions for a firm's registration under section 26A, including the genuineness of the partnership. He also referenced Sundar Singh Majithia v. Commissioner of Income-tax and Commissioner of Income-tax v. Hassanally and Sons to support his contention that the entire partnership was not genuine.

3. Assessee's Argument:
Dr. Pal, representing the assessee, contended that the Tribunal's finding of fact regarding the genuineness of the partnership was not challenged in the framed question of law. He argued that the principles from Commissioner of Income-tax v. A. Abdul Rahim and Co. applied equally to this case. The Tribunal found that the partnership was genuine and that Choudhury was merely a name-lender, not affecting the firm's genuineness.

4. Findings of Fact by Income-tax Officer:
The Income-tax Officer concluded that Choudhury was a name-lender brought in to reduce tax liability, based on several findings:
- Choudhury admitted to having no significant income before joining the partnership.
- He did not actively participate in the firm's business.
- He was a salaried employee elsewhere and did not draw from the firm for personal maintenance.
- He had no significant assets or bank account.
- His relationship with the Kharukhas and his financial transactions indicated he was not a genuine partner.

5. Tribunal's Conclusion:
The Tribunal concluded that the firm was genuine under the Partnership Act, and its validity had never been questioned in its assessment history. The Tribunal applied the principles from Commissioner of Income-tax v. A. Abdul Rahim and Co., finding no defects in the partnership's form or violation of the Partnership Act. The Tribunal's conclusion that the firm was genuine was based on sufficient evidence and was not challenged as being unreasonable or perverse.

6. Legal Principles and Precedents:
The judgment discussed the distinction between a name-lender and a benamidar, emphasizing that both imply the existence of two persons with legal and beneficial ownership. It was noted that a partnership must be genuine and not a subterfuge to escape tax liability. The Tribunal's finding that the firm was genuine was supported by the principles laid down in Commissioner of Income-tax v. A. Abdul Rahim and Co., Agarwal and Co. v. Commissioner of Income-tax, and K. D. Kamath and Co. v. Commissioner of Income-tax.

Conclusion:
The question was answered in the affirmative, favoring the assessee, with no order as to costs. The Tribunal's decision to grant renewal of registration was upheld, as the firm was found to be genuine based on sufficient evidence, and the primary facts were not challenged by the revenue.

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