TMI Blog2005 (11) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that her share of profit would be utilized for spiritual purposes. Relevant portions of those sworn statements were extracted by the Assessing Officer on pages 3 and 4 of the assessment order. On a perusal of the statements of these two Managing Partners, the Assessing Officer observed that one of the partners of the assessee-firm is non-existing and artificial partner, created by the other partners and shown as an existing partner. He, therefore, concluded that in terms of section 185, there was failure on the part of the assessee to comply with the provisions of section 184, and as such, it has to be assessed in the same manner as AOP. The observations of the Assessing Officer in this behalf, in para 7 of the assessment order, are as follows- "7. As per Explanation to section 184(2) of the Income-tax Act, it is stipulated that for claiming status as that of the firm, the assessee should enclose a copy of the instrument of the partnership certified in writing by all the partners not being a minor. In the assessee's case, certified copy of the partnership deed filed for the assessment year 1996-97 is not in accordance with this stipulation. It is not known who has signed as "M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such the firm was entitled to registration. The CIT(A) distinguished the facts of that case from that of the instant case, with the following observations- "But in the instant case, even the facts are not similar. An attempt has been made to project that S. Mata as a living person which is illegal. One of the other partners was signing for S. Mata, and the requirement of the partnership deed having to be signed by all the partners is not fulfilled. Finally as of August 1999 only two partners remained, S. Lakshmi and K. Ramuloo and the fictitious person S. Mata. There is no evidence that S. Mata denotes Goddess Mata or that the other partners knew about S. Mata was a fictitious person or a deity or that certain proportion of the profits was to be set apart for spiritual purposes. To this extent the partnership deed is not valid. The status is upheld as AOP to be taxed at maximum marginal rate..... Besides, therefore, upholding the action of the Assessing Officer in completing the assessment treating the status of the assessee as an AOP, the CIT(A) enhanced the assessment by directing the Assessing Officer to disallow interest and remuneration payments made to the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed under section 40(b), reliance is placed on the decisions following- (a) CIT v. A. Abdul Rahim Co. [1965] 55 ITR 651 (SC). (b) Official Trustee of West Bengal v. CIT [1974] 93 ITR 348 (SC). (c) Bhagwanchand S. Jain Co.'s case. 4. On the other hand, the learned Departmental Representative countered the above submissions of the assessee and, to say in brief, supported the order impugned, besides submitting that: Ingredients of a valid partnership may be clearly seen under section 4 of the Partnership Act. In the instant case, the partnership is an invalid one. This aspect is clearly brought out by the argument of the assessee relying upon the case law to bring in benami aspect of the matter, as such aspect was never the intention of the Department but of the assessee only. The authorities below have clearly analysed the situation and meticulously examined the issue, and have rightly come to the conclusion that there could be no valid partnership under the Partnership Act between existing and non-existing persons, and that; therefore, the assessee's claim of its status as a firm, could not be conceded. The Assessing Officer has clearly given his finding that 'It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghty. The question that arises, therefore, is as to whether there is a valid partnership entitled for assessment in the status of 'firm', and whether the assessee is entitled to deduction in respect of interest and remuneration payments to partners. 5.3 In the case of Abdul Rahim and Co., cited supra, relied upon by the assessee, the Hon'ble Supreme Court has held that the registration of the partnership under the Income-tax Act, could not be refused on the ground that one partner was benamidar of the other partner. This case does not fit into the facts and circumstances of the instant case, for the reason that it is not the stand of the Department, as submitted by the Revenue before us, that there is any involvement of benamidar. 5.4 In the case of Official Trustee of West Bengalcited supra, and relied upon by the assessee again, the Hon'ble Supreme Court has held, no doubt, that a Hindu Deity is an individual within the meaning of that word under the Income-tax Act, and could be treated as a unit of assessment. However, we cannot wear blinkers to our eyes so as not to read the ratio of the Apex Court in the same decision, that it would be only through its shebaits who are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le-making authority. The signature which is prescribed by these Rules is that of the partner himself and they are not complied with by the agent signing the application on his behalf. While so, I am unable to understand as to how a signature affixed on the partnership deed by some one on behalf of an Immortal and Invisible, yet Eternal Deity, could be held to be valid. This decision, therefore, definitely comes to the aid of the Department to rule out the claim of the assessee. 5.7 In the case of Tapang Light Foundry Co. cited supra and also relied upon by the Revenue, the Hon'ble Calcutta High Court has held that, in a case where there is a firm with Hindu Deities as partners, no doubt Hindu Deity is a juristic person in an ideal sense and has to operate through a manager or shebait and that as the Hindu Law imposes certain limitations on the power of the shebait, the property of the Hindu Deity could not be ordinarily alienated by the shebait except only under exceptional cases and for the benefit or preservation of the property, as well as that partnership deed providing that capital of partners liable for ordinary losses, the firm cannot be granted registration under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 5854 of the said Treatise. As per the said Treatise, the definition of 'person' under section 2(31) of the Income- tax Act, 1961 cannot be imported in to the Partnership Act, 1932, and it is the Partnership Act alone which is relevant, under section 2(23) of the Income-tax Act, 1961, for finding out who can be joined as partners for the purpose of the latter Act, as laid down in the case of Agarwal Co. v. CIT [1970] 77 ITR 10 (SC) at 14 - SC, thus supporting our view, in the following words- "Section 4 of the Partnership Act, 1932, prescribes: "'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name under which their business is carried on is called the 'firm name'." In view of the aforementioned provision only "persons" can join as partners. Section 2(42) of the General Clauses Act says a "person" shall include any company or association or body of individuals whether incorporated or not. But this definition applies when there is nothing repugna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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