TMI Blog1970 (12) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessments for excess profits tax and business profits tax were consequential upon the income-tax assessment. Brief facts leading to the present reference are that up to the 31st December, 1945, Sarvasri Padampat Singhania, Lakshmipat Singhania and Kailashpat Singhania, the three brothers, who hereinafter will be referred to as " the Singhania brothers ", carried on partnership business in the name of Messrs. J. K. Hosiery Factory, Kanpur, along with one Sri J. P. Agarwal. The three Singhania brothers were entitled to annas 0-5-0 share each, and Sri J. P. Agarwal to annas 0-1-0 share in the profits of the firm. There was a company incorporated under the Indian Companies Act, known as J. K. Cotton Spinning and Weaving Mills Co. Ltd., in which the Singhania brothers held controlling interest. This company purchased two plots of land from the Kanpur Improvement Trust, to be utilised for housing its workers and to set up a colony which was to be known as Kamla Town. On 27th of October, 1941, the directors of the company executed an indenture expressing a desire to settle the two plots upon the charitable trust declared by that indenture. Under this document, the three Singha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits of the proposed trust to the workmen of the company alone. As there was no objection to the proposed amendment, the Civil and Sessions judge, Kanpur, decreed the suit for rectification of the trust deed by his order dated 18th August, 1945. The revised trust deed is annexure " C " to the statement of case submitted by the Tribunal. After the trust deed was rectified, the Singhania brothers took steps for retiring from the partnership firm, Messrs, J. K. Hosiery Factory, Kanpur, on 15th January, 1946. In this deed the three Singhania brothers were described as retiring partners, whereas the fourth partner, Sri J. P. Agarwal, was described as the continuing partner. The deed mentioned that it had been agreed between the partners that the partnership should be determined, and that the retiring partner would withdraw from the said business allowing the same to be carried on by the continuing partner along with Kamla Town Trust as a new partner. The retiring partners also made a provision assigning a sum of Rs. 1,50,000, to the Kamla Town Trust. Thereafter, on 5th of February, 1946, a partnership agreement was entered into between J. P. Agarwal, the continuing partner, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer also made corresponding assessments for excess profits tax for the period January 1, 1946, to March 31, 1946, and business profits tax for the period of 1st of April, 1946, to 31st December, 1946. The assessee went up in appeal, before the Appellate Assistant Commissioner of Income-tax, against the assessment made under the Income- tax, Excess Profits Tax and Business Profits Tax Acts. The Appellate Assistant Commissioner was of opinion that the trust deed as rectified went beyond the provisions contained in the memorandum of association of the J. K. Cotton Spinning and Weaving Mills Co. Ltd. According to him, under the memorandum of association the company could provide for the welfare of its employees, ex-employees and the wives, widows and families of the dependants and connections of such persons by doing certain acts. The managing director had no power whatsoever to spend the funds of this company on objects wider than those permitted by the memorandum, or on persons other than those contemplated therein. The Appellate Assistant Commissioner felt that the objects mentioned in the memorandum of associa- tion did not authorise the company to make provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being legal, it stood for all future times as a valid trust in favour of the employees and ex-employees of the J. K. Cotton Spinning and Weaving Mills Co. Ltd. and their families. An argument was advanced on behalf of the assessee that the rectification ordered by the civil court was legal and valid and could not be made a subject-matter of discussion before the income-tax authorities. It was contended that the original trust as rectified by the decree of the civil court could not be said to be void for uncertainty. The Appellate Tribunal, however, came to the conclusion that the civil court did not consider the legal consequences that would flow if the rectification sought by the plaintiff was allowed. In the circumstances, it thought that it had the jurisdiction to deal with that issue and to hold that the decree of rectification conferred no legal right upon the company to create a trust for public charitable purposes. If such a trust was created it would be void, and would not be a trust in law. It then proceeded to decide the points involved in the case on the basis of the original trust deed and ignoring the rectification made by the civil court. It came to the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessary for this court to record its opinion on those questions. He pointed out that under the Indian Income-tax Act, 1922, a firm, whether registered or not, is a unit of assessment, quite distinct from its partners. Under the law as it stood prior to its amendment in the year 1956, the total income of the firm had to be computed. In this case what has been done is to compute the total income of the firm irrespective of who its partners are. Whether the Kamla Town Trust is the partner or whether the three Singhania brothers are its partners, it will not make any difference to the assessment of the firm as such. It may be that when, in pursuance of the assessment made on the firm, the Income-tax Officer proceeds to assess the individual partners, the interest of the individual partners may be affected, but that stage has not reached so far. The first three questions concern only about the constitution of the firm and they have nothing to do with the assessment made on the norm. We are unable to accept this contention. According to law as it stood prior to its amendment in the year 1956, the total income of the firm had to be computed. If the firm was not registered under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main controversy between the parties throughout has been as to who the real partners of the firm, Messrs. J. K. Hosiery Factory, Kanpur, are, and the assessment proceeding could not be completed without resolving this controversy. In a case where the Income-tax Officer determines the partners of a firm and makes an order of assessment, it is the firm consisting of those partners that becomes the assessee. If it is claimed that the Income-tax Officer has made a mistake in determining the partners of the firm, it is the same thing as claiming that no assessable unit as found by the Income-tax Officer exists, and the unit as found is not liable to be assessed. Such an assessee could file an appeal against the assessment order both on the ground that the unit as determined was not liable to be assessed or that the income assessed was excessive. This is precisely what happened in this case. In appeal, the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal had to determine whether the firm as found to be constituted by the Income-tax Officer existed as an assessable unit or not. As a matter of fact, the main arguments that were advanced by the counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its objects as mentioned in clause 3, sub-clause (19), of its memorandum of association the company wanted to construct a settlement or colony for the workmen and other employees and to provide them with relief, recreation aid and amenities in the shape of hospitals, schools, temples, mosques, places of recreation, swimming booths, play grounds and market, and with that object it obtained the two plots from the Improvement Trust, Kanpur. The company was desirous of settling the two plots of land demised upon it on the charitable trust mentioned and declared therein and for that purpose it transferred the same to the trustees (the three Singhania brothers). Clause 2(b)(ii) of the trust deed required the trustees to erect, establish, equip, furnish, fit, maintain and repair on the said two plots of land residential quarters, chawls or buildings for the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested and for their respective families and dependants and for such other skilled and unskilled workmen, craftsmen, traders, merchants, technical or professional men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court had no jurisdiction to grant it when the circumstances mentioned in section 31 of the Specific Relief Act did not exist. The decree for rectification was obtained in a collusive manner, and that the civil court could not rectify the trust deed in such a manner that it went beyond the scope of the memorandum of association. In order to show that the rectification ordered by the court was beyond its jurisdiction, learned counsel for the Commissioner of Income-tax argued that the civil court could direct rectification of an instrument only if it came to the conclusion that because of fraud or mutual mistake of parties the instrument did not truly express their intention. According to him the rectification admittedly was not made as some fraud had been practised by any one. The civil court did not go into the question of mutual misunderstanding and granted the rectification merely because the case of the plaintiff was admitted by the defendants. According to him, the facts as stated in the judgment of the civil judge showed that the case of the parties was that the documents did not represent the true intention of the parties because of a misunderstanding on the part of the dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to those aspects of the question which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purposes of section 66(1) of the Act." He contended that the argument that in fact there was no misapprehension on the part of the executants of the trust deed is a different aspect of the same question, namely, whether the decree directing the rectification of the trust deed was valid or not and therefore it is open to him to support the conclusion arrived at by the Tribunal on an additional ground, even though these grounds might not have been specifically urged before the Tribunal. In our opinion the observations made by the Supreme Court in the case of Scindia Steam Navigation Co. Ltd. do not support this contention of the learned counsel. It is true that according to the observations made by the Supreme Court when a question of law has been referred for opinion to the High Court the various aspects required to be tackled from different standpoints may be urged before the court even though they might not have been argued before the Tribunal. These observations, however, do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questioned on the ground that by permitting rectification the court enabled the company to travel beyond the objects mentioned in its memorandum of association. This will, however, not preclude the learned counsel for the Commissioner of Income-tax from arguing that the trust as created by the rectified instrument went beyond the objects of the company as mentioned in its memorandum of association and as such it was invalid. In view of the aforesaid discussion, we are of opinion that the invalidity of the decree in Suit No. 40 of 1945 cannot be challenged on the ground that the rectification Ordered by the court was beyond its jurisdiction. We now proceed to consider the second aspect of the question, namely, whether the trust created by the rectified deed is invalid ? On this aspect, the learned counsel for the department advanced a two-fold argument. He contended that the trust created by the rectified deed was invalid as (i) it went beyond the scope of clause 19 of the memorandum of association of the company, and (ii) it was vague inasmuch as it was a trust the object of which was a mixture of charitable and non-chariable purposes and it was open to the trustees to appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arts. The first part is to provide for the welfare of the employees or ex-employees of the company and wives, widows and families of the dependants or connections of such persons by making certain constructions or by granting money, pensions, allowances, etc. The second part of the clause clearly empowers the company to subscribe, contribute or otherwise to assist or to guarantee money to charitable, benevolent, religious, scientific, national or other institutions or objects which shall have any moral or other claim to support or aid by the company either by reasons of locality of operation or of public and general utility or otherwise. This part clearly entitles the company to create a charitable, benevolent or religious trust which may have any moral or other claim to support or aid by the company because of its public or general utility. It has not been disputed that establishment and maintenance of public schools, hospitals and other institutions, of general public interest, would be covered by the expression " charitable " benevolent or " religious" objects. Learned counsel for the department urged that a reading of the second part of clause 19 shows that the company was au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not used so as to confine the powers of the company only in respect of such objects for which there is some sort of legal obligation on the part of the company to support or aid. In our opinion, while making a provision for the establishment of public schools, patshalas, hospitals and other works of general public utility the company did not go beyond its objects as mentioned in clause 19 of the memorandum of association. The rectified trust deed, therefore, cannot be held to be invalid on this ground. Learned counsel for the department then contended that clause 2(b)(i) required the trustees to erect, establish, equip, furnish, fit, maintain and repair residential quarters, chawls or buildings for the workmen in general and in particular for the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested and for their respective families and dependants and for such other skilled and unskilled workmen, craftsmen. traders, merchants, technicians or professional men whom the trustees may permit to reside or work in the said two plots with a view to supply their nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision for any or all the four clauses of persons can be said to be a provision for public or charitable purpose. The expressions " charity " or " charitable purpose " do not admit of rigid definition. In order to understand what these expressions legally convey, one can merely enumerate its various aspects and characteristics as they have been recognised by the laws of a particular country. In Umar Baksh v. Commissioner of Income-tax, it was observed that for construing the words " religious or charitable purpose ", it is necessary to investigate the meaning of these words in the particular system of jurisprudence that may be followed by the assessee. In the Hindu system, there is no line of demarcation between religion and charity. The system regards charity as a part of the religion itself. Courts of law in India have been inclined to look to the decisions of English courts for guidance for determining what would constitute a charitable purpose in cases where indigenous authorities are scanty or insufficient (See B. K. Mukherjea on the Hindu Law of Religious and Charitable Trusts, third edition, pages 10 and 38). In Commissioners for Special Purposes of Income Tax v. John ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable. Similarly, under section 4 of the Indian Income-tax Act, 1922, any income derived by a religious or charitable institution is exempt from taxation under certain circumstances. The expression " charitable purpose " has been described as including relief of the poor, education, medical relief, and advancement of any other object of public utility. It is, therefore, clear that the law in India recognises the four objects as laid down by Lord Macnaghten in the case of Commissioners for Special Purposes of Income Tax v. Pemsel as charitable purposes. According to Halsbury's Laws of England, 3rd edition, volume 4 (pages 209 and 210), all the purposes falling under the aforementioned four classes would be, prima facie, charitable, provided they are of a public nature, that is to say, when the object is to benefit the community or some part of it, and not merely of private individuals or fluctuating class of private individuals pointed out by the donor, would also be charitable. Sri Ashok Sen, learned counsel appearing for the assessee, argued that a provision for effecting, establishing, equipping, furnishing, fitting, maintaining and repairing residential quarters, chaw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in any concern in any capacity whatsoever and who may be drawing high salaries. Making a provision for constructing residential quarters, etc., for the benefit of the employees irrespective of whether they are poor or not, can hardly be said to be a charitable object or a work of general public utility. It is also to be noticed that there is no indication in clause 2(b)(i) that the trust is not expected to earn profit by providing residential quarters, etc., for the workmen in general. The trust deed does not exclude the element of profit earning by the trustees from the workers' colony, intended to be set up under clause 2(b)(i). Even if the trust sets up residential colonies exclusively for the workmen in general, but the idea of profit earning is not excluded, the act of setting up such colony can hardly be described as an act of charity or of general public utility. In the circumstances, we feel that erecting or establishing residential quarters, etc., for the workmen in general cannot be said to be a work of public charity or of general public utility. Mr. Sen has not been able to cite any case where it has been held that making residential quarters, chawls or other buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly for religious or charitable purpose. The Supreme Court repelled this argument. It held that under the deed the trustees were at liberty to hold the trust fund and to apply the net income thereof for all or any of the six purposes mentioned therein, and the relations or members of the family of the said Sir Sassoon David, Bart., including therein distant and collateral relations, did not figure as direct recipients of any benefit under sub-clauses (b) to (f), and, therefore, in so far as those purposes are concerned, the trust certainly involved an element of public utility. Although it was open to the trustees to utilise the net income of the trust entirely for the purposes referred to in clause (a) to the exclusion of the other clauses, but the fact that the relations or members of the family did not come in directly under any of the later sub-clauses could not be ignored as it certainly had some bearing on the question as to who or what were the primary objects of the trust as a whole. The purpose of sub-clause (a) was the relief and benefit of the poor and indigent members of the Jewish or any other community of Bombay or other parts of India or of the world. That clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 2 of the trust deed provided for the application of the net income in giving help or relief to such poor Vaisbyas and other Hindus as the trustees might consider deserving of help in the manner and to the extent specified in the trust deed and subject to the conditions and directions stated in the next following clauses. Sub-clause (a) of clause 3 provided that Vaishya, Hindus who were members of the Seksaria family should be preferred to poor Vaishyas not belonging to the said family. Under sub-clauses (b) and (c) of clause 3, provision had been made for the maintenance of the male and female descendants of the settlor. Sub-clauses (d) and (e) of clause 3 made provision for the marriage expenses of poor male and female descendants. It may thus be seen that, in that case, the testator, while making a provision for indigent Vaishyas and other Hindus, provided that before the money was spent on such persons, it should first, be utilised for the purpose of indigent persons belonging to the family of the settlor. After considering the entire circumstances of that case, the High Court observed that the particular trust they were dealing with was a fairly blatant illustration of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company may for the time being be interested. The argument raised on behalf of the assessee was that the primary intention underlying this clause was to erect and establish buildings, etc., for workmen in general, and while doing this, preference was to be given for setting up constructions for the benefit of the workmen of the company, in the same way as preference was to be given to the poor and indigent relations or members of the family of Sir Sassoon David, Bart., in the case of the Trustees of the Charity Fund. The deed clearly provides that though it is open to the company to set up residential quarters, etc., for the benefit and welfare of the workmen in general, yet such constructions should be made particularly for the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested. The language of clause 2(b)(i) does not justify, a conclusion that the workmen, staff and other employees of the company are a part of the wider class of " workmen in general ". If the expresson " workmen in general " was intended to include in its ambit other classes of persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or subsidiary object of the objects mentioned in other clauses. The object mentioned in clause 2(b)(i) is a distinct and independent object quite different from those mentioned in clause 2(b)(ii) to clause 2(b)(iv). Learned counsel for the assessed next relied upon the case of Commis- sioner of Wealth-tax v. Trustees of J. P. Pardiwala Charity Trust. In this case, under a deed of settlement certain properties were transferred to a trust. Clause (v) of the deed authorised the trustees to spend money on certain religious ceremonies for the repose of the souls of the members of the settlor's family. Clause 6 of the deed authorised the trustees to pay money for the maintenance and support of the settlor's relatives and/or other indigent persons. The Wealth-tax Officer held that the properties settled on trust were not entitled to exemption from wealth-tax as the object of the trust was not charitable inasmuch as the money could be spent on the settlor's relatives who were not indigent persons. The Bombay High Court held the entire trust to be charitable. Learned counsel, therefore, argued that, since some of the objects of the trust, in the present case, were charitable in nature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposition that in a case where some of the objects on which the trustees spend the trust income are not charitable and it is open to the trustees to apply the whole of the income on a non-charitable object, the trust is not a good and valid charitable trust and that it is void on the ground of uncertainty. In such cases, courts cannot compel the trustees to spend the whole of the trust income on charitable purposes and become incapable of administering it, In view of the aforesaid authorities, it is clear that the trust created by the document dated 27th October, 1941, as rectified by the decree of the civil court dated 18th August, 1945, which is a mixture of charitable and non-charitable objects and in which the trustees cannot be compelled to spend the total income of the trust on charitable purposes alone, is invalid in law. At this stage, it will be convenient to consider the third question reframed by us. This question is in two parts : (i) Whether the trust as such could be a partner in law ? and (ii) Whether the deed of partnership dated 4th February, 1947, is valid ? So far as the first part of the question is concerned, Sri Brij Lal Gupta, learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate bodies with rights of property vested in the corporation apart from its individual members, but also the judical persons or subjects called foundations '. The religious institutions like mutts, choultries and other establishments obviously answer to the description of foundations in Roman law. The idea is the same, namely, when property is dedicated for a particular purpose the property itself upon which the purpose is impressed is raised to the category of a juristic person so that the property which is dedicated would vest in the person so created.... " The aforesaid view expressed by Sri B. K. Mukherjea clearly brings out that, as against the English conception about the persons who could be recognised as legal persons, the Hindu law recognised a class of juristic persons which is capable of holding property. It also recognised that whenever the property is dedicated for a charitable purpose, the property itself upon which the purpose is impressed, is raised to the category of a juristic person, and the property so dedicated would vest in the person so created and a religious and charitable trust comes into existence. In Ganga Metal Refining Co. Pvt. Ltd. v. Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax v. Juggilal Kamlapat. The case related to this very trust, which is involved in the present case. In that case, the three Singhania brothers were partners along with one Jhabarmal Saraf, all having equal shares. In the year 1942, the three Singhania brothers executed a deed, by which they relinquished their rights and claims to all the properties and assets of the firm in favour of the trust. A fresh partnership deed was executed between Jhabarmal Saraf and the trustees, by which a new firm was got constituted. The question that arose for consideration was whether the firm as constituted by the deed executed between Jhabarmal Saraf and the trustees was legal and could be registered as such under section 26A of the Indian Income-tax Act, 1922. The Supreme Court ultimately came to the conclusion that the partnership so created was legal and could be registered as such under section 26A. Learned counsel for the assessee contended that this is a clear authority for the proposition that a trust as such could be a partner in law. A perusal of the decision of the Supreme Court shows that validity of the partnership firm consisting of Jhabarmal Saraf and the trust was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Appellate Tribunal recorded a finding that the three Singhania brothers exploited their dual capacity and made an arrangement by which it was made to appear that the trust was doing business, although, in fact, the same was conducted by the three Singhania brothers in their individual capacity. In other words, the finding recorded by the Tribunal was that, although on paper it was the trust which was doing the business, in fact, it was the three Singhania brothers who were doing business for themselves. For this purpose, the Tribunal relied upon a number of circumstances. The Tribunal noticed that the three Singhania brothers, who were the three trustees, were in a position to manage the affairs of the trust in any manner that they liked. They made the trust to retire from a firm called J. K. Bankers in Samvat 2002, and gave a donation of Rs. 50,000 to the trust. This donation was not given in cash, but was effected by making certain book entries in the account books of the assessee's firm. While giving this donation, the three Singhania brothers did not leave it to the trustees to utilise this fund in any manner, but the money was given to the trust as a conditional gift, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal reasoned that if the accounts were not ready and complete on September 2, 1946, it was difficult to believe that the balance-sheet could have been prepared and accepted as early as 15th January, 1946. It, therefore, came to the conclusion that the release deed dated 15th January, 1946, must have been prepared some time after September 2, 1946, and before the return was actually filed. In the circumstances, the Tribunal found it difficult to hold that the release deed could have genuinely come into existence on 15th January, 1946. It observed that, if the document was not genuine, the deed of partnership dated 5th February, 1946, would also become equally unreliable. It will be seen that the Tribunal has drawn certain inferences from the circumstances appearing in the case, which it was competent to do. The circumstances relied upon by the Tribunal in this connection are certainly materials on the basis of which it could have come to the conclusion that the deed of release dated 15th January,1946, as also the deed of the partnership dated 5th February, 1946, were not genuine documents. Sri Ashok Sen, learned counsel for the assessee, vehemently criticised this finding, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be to see whether the material relied upon by the Tribunal was such that on its basis the finding that the partnership deed was not genuine could be recorded. The Tribunal also observed that as on 31st March, 1946, and 31st March, 1947, the total funds of the Kamla Town Trust amounted to Rs. 10,85,535 and Rs. 2,66,887, respectively. Out of this total fund, a sum of Rs. 6,74,604 and Rs. 20,70,905 (sic) stood utilised in the business of the Singhania brothers as on 31st March, 1946, and on 31st March, 1947, respectively. The learned counsel for the assessee tried to explain these huge investments in the business of the Singhania brothers on the ground that the funds could not be utilised by the trust for its charitable objects for want of availability of the building materials at the relevant time. It appears that this explanation was not given by the assessee before the Tribunal. From the order of the Tribunal, it appears that what was argued before it was that merely because the trustees utilised the trust money for their own business in violation of the conditions upon which the trust was being held, the remedy of the trust was by way of a suit against the trustees personally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal for coming to the conclusion that the business carried on in the name of the trust was really a business which was being carried on by the Singhania brothers in their individual capacity. Another significant fact noticed by the Tribunal was that by means of the document dated 25th February, 1949, the three Singhania brothers again became partners with J. P. Agarwal, with the shares of five annas each, which they originally had in the firm before they retired on 31st December, 1945. Clause 7 of this partnership deed provided that the assets of the new firm that came into existence on January 1, 1949, would be the assets of the old firm which dissolved on 31st December, 1945. The new firm on January 1, 1949, therefore, ignored the depreciations and appreciations of the assets between January 1, 1946, and December 31, 1948. The Tribunal observed that if this new firm was a genuine one, it could not accept the assets as they stood on 31st December, 1945, without any modification. All this showed that the three Singhania brothers who were partners up to 31st December, 1945, continued to be partners during the subsequent period and remained so till the indenture dated 10th Jan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of Rs. 500 per thousand needles. The cost of needles was recalculated and the Tribunal held that instead of Rs. 59,000 the amount disallowed should have been Rs. 37,656 and directed the modification of the assessment order accordingly. The assessee's account showed cash purchase of 1,00,091 needles for Rs. 87,657-7-0 and credit purchase of 1,22,412 needles for Rs. 34,415, the total amount debited being Rs. 1,22,072-7-0. The credit purchases made by the assessee were verifiable. The average price of needles purchased by the assessee, which were verifiable, comes to about Rs. 282 per thousand needles whereas, that for which no verification was available came to Rs. 876 per thousand needles. Learned counsel for the assessee relied upon a decision of this court in Misc. Case No. 217 of 1959 in the matter of J. K. Hosiery Factory, Kanpur v. Commissioner of Income-tax, dated 5th April, 1966. In this case, in respect of earlier accounting years, a question whether there was any material for the estimate by the Tribunal that the needles purchased in the black market in the previous years or chargeable accounting periods in question were purchased at the rate of Rs. 500 per thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this view of the matter, we find that there was material for the finding of the Tribunal that the rates of needles purchased in the black market during the previous years were relevant to the assessment year, and that the assessee had purchased needles at the rates of Rs. 500 per thousand needles. In the result, we answer the four questions as follows : Question No. 1. Whether the rectification by the decree of the civil judge in Suit No. 40 of 1945 of the file of the civil judge, Kanpur, was valid ? Answer. Yes, in favour of the assessee. Question No. 2. Whether there is any material in support of the Tribunal's findings that no genuine partnership came into existence by which the Kamla Town Trust became a partner ? Answer. Yes, in favour of the department. Question No. 3(i). Whether the trust as such could be a partner in law ? Answer. Yes, in favour of the assessee. Question No. 3(ii). Whether the deed of partnership dated 5-2-1946 is valid ? Answer. No, in favour of the department. Question No. 4. Whether there was material for the finding of the Tribunal that the needles purchased in the black market during the previous year relevant t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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