TMI Blog1971 (2) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... that the partnership consisted of only one person, namely, Yadam Chennaiah, and is the firm entitled to registration under section 26A of the Indian Income-tax Act ? " For a proper appreciation of the scope of the reference, it is necessary to refer to the material facts that gave rise to the question : One Yadam Chennaiah, an agriculturist of Karumuru village in Repalle Taluk, Guntur District, joined in 1950, as a partner in a firm styled M. Bullaiah and Maddula Venkatramaiah executing road contracts. In the year 1952, he came to Chirala where his father-in-law was residing and obtained contracts from the Indian Leaf Tobacco Development Company Ltd. (hereinafter referred to as " I.L.T.D. Co. Ltd.") for transportation of its goods. It was claimed by him that his business was actually carried on by him in partnership with three others, namely, Rosaiah, Kotaiah and Koteswara Rao, in accordance with, in the first instance, an oral agreement, later embodied in an instrument of partnership dated December 15, 1952. The firm constituted under the aforesaid instrument of partnership consisting of four partners with their profit-sharing ratios of 6 annas, 4 annas, 4 annas and 2 annas in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. The contention of Sri T. Venkatappa, learned counsel for the assessee, is three-fold :--(1) that there is no material for the Tribunal to come to the conclusion that the partnership consisted only of one partner, viz., Yadam Chennaiah and the other partners are only dummies; (2) that the finding of the Tribunal that there was no genuine partnership in existence in the three years in question is perverse, illegal and in any event, vitiated by irrelevant and extraneous considerations and surmises ; and (3) that there is ample material to sustain the finding of the Appellate Assistant Commissioner that there was in existence a genuine partnership during the relevant years of account consisting of four partners entitled for registration under section 26A of the Act. He cited a number of authorities to which we shall refer at appropriate places. Mr. K. Srinivasa Murthy, learned counsel appearing for the revenue, resisted the claim of the assessee contending, inter alia, that the finding of the Tribunal that there was no genuine partnership in existence and it is the sole business concern of Y. Chennaiah is one of fact supported by ample material and it is not open for this cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income under section 23 of the Act for the relevant year ; (3) that the profits or losses, if any, should have been divided or credited in accordance with the terms of the instrument of partnership ; and (4) that a genuine partnership must have been in existence as evidenced by the deed in the relevant accounting year : Vide R. C. Mitter Sons v. Commissioner of Income-tax. The discretion vested in the Income-tax Officer is of judicial character and he is not entitled to reject the application on suspicion or surmises. The firm as evidenced by the deed of partnership specifying the shares of the partners must be in existence during the year of account in respect of which registration is sought for and the instrument of partnership must have been executed before the close of the relevant accounting year. The profits of the firm must be ascertained amongst the partners and distributed or credited to their accounts in the books of account maintained by the firm. The firm must be a valid one. It must be said to be not in existence if it is a bogus or not a genuine one. The income-tax authorities have, therefore, to ascertain, firstly, whether the application is in the prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in exercise of its advisory jurisdiction under section 66. If the question is comprehensive, the parties would be entitled to urge all the aspects that have a bearing on the answer to the question, although those aspects have not been specifically argued before the Tribunal. This court has to look to the statement of facts for expressing its opinion on the question or questions of law referred to it by the Tribunal. This court can, no doubt, reframe the questions that really arise out of the order of the Tribunal in appropriate cases and answer them, but cannot frame questions which are not referred to it. The Tribunal, being the final fact-finding authority, must arrive at its own conclusions of fact after due and proper consideration of the entire material, oral and documentary, be it for or against the assessee. The orders of the Tribunal must be speaking orders indication the questions that arose for determination and the evidence pro and contra relating to each one of them and the findings arrived at on the evidence on record before it. The findings of fact can be reviewed by this court when they are based on no material or they are perverse and so unreasonable that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions though of fact basing either wholly or partly on such material without affording reasonable opportunity, such findings can be interfered with by the High Court : See Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income-tax, Omar Salay Mohamed Sait v. Commissioner of Income-tax and Bai Velbai v. Commissioner of Income-tax. In the light of the aforesaid discussion, we shall proceed to examine whether the question referred to us is one of law and answer the same it we find that it is one of law. The finding arrived at by the Tribunal in the instant case is that in none of the three years in question there was a genuine firm constituted under the instrument of partnership with four partners as alleged by the assessee and it was Y. Chennaiah alone who was carrying on business. As held by the Supreme Court in Krishna Flour Mills v. Commissioner of Income-tax whether a firm is genuine or not is normally a question of fact, but, however, whether there, was any material for the Tribunal to hold that the partnership firm constituted under a deed of partnership was or was not genuine, is a question of law. As pointed out earlier, this court can interfere with a finding of fact if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed by the three alleged partners amounts to only Rs. 3,000 which is not sufficient to finance even one lorry load of tobacco. The second reason that he cannot trust the clerks was also found to be untrue as, in fact, he had employed four clerks who were looking after the business and accompanying the lorries to Bangalore. Hence, both the reasons stated to have formed the basis for inducing Chennaiah to take the other three partners are found to be untrue and untenable by the Income-tax Officer and the Tribunal who also found that Kotaiah, an ordinary cooly in the tobacco company and Koteswara Rao who was working as a cleaner of a lorry belonging to, another person, were not having the capacity even to finance the amounts alleged to have been advanced by them. The part played by the alleged partners was not believed by the Income-tax Officer and the Tribunal or the reasons stated in their orders. On examining the statements of the partners recorded by the Income-tax Officer which disclose certain material contradictions relating to the part played by them in respect of the partnership business, the Tribunal was of opinion that : " Surely all these persons would not have been tell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt firms joining together to enter into a seperate, partnership to carry on a different business, that a partner of a firm can enter into a sub-partnership with others in respect of his share and it will not in any way affect the validity of the partnership nor the manner in which such partner dealt with his share of the profits after allocation is relevant to the question of the validity of the partnership ; and a partner can acquire his capital from any source. The subsequent utility of the share income of a partner after its division is not germane or material for the purpose of the decision under section 26A. However, Income-tax authorities are empowered to consider the fact whether there any division or allocation of profits to arrive at such a finding. The utility of the profits in certain cases by the alleged partners would certainly be a relevant and germane factor to find out whether such a partner is genuine or bogus. In the case that came up before the Supreme Court, there was no doubt about the genuineness of the partner the validity of a partnership constituted by two firms was in question. But, in the instant case, the genuineness of the firm and whether three of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner. The non-contribution of any capital by a partner is certainly not a valid ground to refuse registration. Partners may be taken as working partners without even any investment of capital. There may be sleeping partners who did not take part in the conduct of the business. Still nonetheless the firm will be entitled to registration if there are more than two genuine partners even though one or other is found to be benamidar. Hence, that case also does not render any assistance to the plea of the assessee herein. In United Patel Construction Co. v. Commissioner of Income-tax it was held that the presence of a sleeping partner who did not know the details of the partnership business nor withdraw the profits credited to his share, will not disentitle the partnership from getting registration under section 26A. That case is, therefore, not applicable to the present case. The next case we may refer to is that of the Madras High Court in P.A.C. Ratnaswamy Nadar Sons v. Commissioner of Income-tax. Therein registration was granted to a firm constituted by a father and his sons holding that mere relationship of the partners inter se is not a ground to refuse registration if there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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