TMI Blog1982 (2) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... continuation of registration to the assessee firm for the assessment year under consideration. 2. The ITO did not allow registration to the firm u/s 185 for the asst. yr. 1976-77. For the asst. yr. 1977-77 he, however, refused the benefit of continuance of registration in terms of s. 184 (7) of the IT Act, as registration for the base year i.e., asst. yr. 1976-77 had not been granted. 3. For the asst. yr. 1976-77,the claim of registration was refused by the ITO for the following reasons: 1. The partnership came into force w.e.f. 14th Nov., 1974. One of the partners, i.e. Smt. Koshalya Bai did not contribute any capital on 14th Nov., 1974. An amount of Rs. 5,000 each was deposited by her with the firm on 16th Nov., 1974 and 18th Nov., 1974 only. The contribution of Rs. 10,000 which was deposited subsequently was only an after thought. Even the amount of Rs. 10,000 brought by her was a gift from Shri Gopal Lal, one of the partners and, therefore, did not contribute even any capital of her own nor contributed any skill in the business of the firm. Therefore, there was no consideration for the partner as such. 2. She was made partner by reducing 20% share of the existing partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship came into effect or on any subsequent date. It was also urged that contribution of capital or skill or labour is not essential for constituting a valid and genuine partnership. Undertaking of responsibility of sharing the losses constituted consideration for making a valid partnership. It was, therefore, urged that all the ingredients of a valid partnership were present in the case of the assessee and the firm was genuine. In support of the above contention, the ld. counsel of the assessee relied upon the decision of the ITAT, Jaipur Bench, Jaipur in ITA No. 1649/JP/79 for the asst. yr. 1975-76 in the case of ITO, B ward, Jodhpur vs. M/s Prakash Sales Agency, Jodhpur and the reliance was placed on the following observations of the Tribunal in the said order: "We are, therefore, of the view that the agreement in question is not without consideration and the revenue cannot successfully argue that there being no contribution of capital, or skill, or labour, the case is without consideration." 5. It was also submitted that the ITO was not justified in treating her as Benamidar of Shri Gopal Lal simply because a gift of Rs. 10,000 was received by her from the partner Shri Gopal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that too according to the gift tax assessment order from Shri Gopal Lal, one of the partner. Smt. Koshalya Bai made contradictory statements about the sources of receipt of Rs. 10,000. At one point, she said that the gift was given by her father in law Shri Vikya Mal and at another time she said that it was given by Shri Gopal Lal, the second partner. Because of the contradictory statement made it was evident that the gift was only a make belief affair. Even the capital of Rs. 10,000 belonged to Shri Gopal Lal. It was also submitted that it was immaterial whether there was any deduction in the share of profit of Shri Gopal Lal. According to the ld. D.R., the 20% share of profit given to her by reducing the share of Vikya Mal in fact, belongs to Shri Gopal Lal because of the fact that he had gifted amount of Rs. 10,000 to Smt. Koshalya Bai to become partner. It was therefore, submitted that since the funds brought by Smt. Koshalya Bai, though brought subsequently were provided by Shri Gopal Lal. She was his Benamidar. It was also submitted that she is closely related to Shri Gopal Lal being the wife of his brother. It has also been submitted by the ld. D.R. that according to custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. We would consider the issue from another angle also to find out as to whether Smt. Koshalya Bai was dummy partner and whether the partnership was sham. It is argued that capital or skill or labour is not necessary for a valid partnership. Sharing of losses itself is sufficient consideration as the partner exposes himself to the liability of the firm including the risk of losses. According to the statement of the lady, her husband is not a well to do man, inasmuch as, he is working as a salesman and the salary earned by him is not enough to make both ends meet. She further stated that she joined the firm as a partner to supplement income as the income of her husband was not sufficient to run the house. For becoming partner, her brother in law gave her gift of Rs. 10,000. This shows that her financial status is also not sound, so much so, she did not have any funds of her own for being invested as capital. Even the own capital had to be provided to her in the form of gift by one of the partners in the firm. The financial position of her husband is not better as stated by her in the statement made before the ITO. May be that sharing of losses and other liabilities exposes her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the result, the revenue s appeals deserve dismissal. RAM RATTAN, A.M. There has been difference of opinion between the Members in the above appeals. The facts of the case have been set out in detail in the combined order. The following points are, therefore, being referred to the Hon ble President, IT Appellate Tribunal for being referred to 3rd Member of the Tribunal as required u/s 255 (4) of the IT Act, 1961: "Whether on the facts and in the circumstances of the case, Smt. Koshalya Bai was the benamidar of another partner in the firm and consequently the firm was not entitled to registration u/s 185 of the IT Act." B.B.PALEKAR, V.P. This matter has come up for hearing and orders before me as the two ld. Members who heard the relevant appeals in the first instance have had a difference of opinion on the following point: "Whether, on the facts and in the circumstances of the case, Smt Koshalya Bai was that Benamidar of another partner in the firm and consequently the firm was not entitled to registration under section 185 of the Income Tax Act." 2. As indicated above, the assessee is a firm. Upto 13th Nov., 1974, it consisted of two partners, Vikyamal and Gopa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted that the source of her capital is traceable to the amounts received by her from Gopal Lal it cannot be said that the consideration for her admission to the partnership was provided by Gopal Lal. This is the position because there is nothing to show that the contribution of the capital was the consideration for her admission as a partner of the firm. 8. Shri Ranka, the ld. counsel for the assessee, relied upon the decision of the Supreme Court reported at (1957) 31 ITR 28 (SC) and CIT vs. Daulat Ram Rawatmal (1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC) and the order of the Jaipur Bench of the Tribunal in the case of M/s Field Marshal Engg. Corpn. ITA No. 1824/JP/79 dt 31st Oct., 1980 and there is force in his contention that the principles of these authorities support the case of the assessee. Moreover, if the other test of beneficial enjoyment of the property in question is also applied, the case of the Department has to fail because there is nothing to show and it is not even alleged that Gopal Lal enjoyed the share in the profits of the firm of Smt. Koshalya Bai. 9. On an appreciation of the relevant facts and evidence I hold that the Department has not established t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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