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TMI Blog1972 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ed renewal of registration to the firm on the ground that the partnership firm was not genuine and that Sri K. A. Choudhury was not a real partner. On his refusal to renew registration the assessee appealed against the said order to the Appellate Assistant Commissioner who remanded the case to the Income-tax Officer for making further enquiry and for submitting a report on the evidence adduced by the assessee. The Income-tax Officer duly complied with the said order and submitted his remand report. The Appellate Assistant Commissioner, after examination of the remand report, also came to the conclusion that Sri K. A. Choudhury was merely a name-lender and could not be a real partner and, as such, he confirmed the order of the Income-tax Officer on the ground that the firm was not genuine. On the same ground the Income-tax Officer and the Appellate Assistant Commissioner also refused to renew the registration of the firm for the assessment years 1959-60 and 1960-61. The Tribunal heard the assessee's appeal in respect of the assessment year 1958-59 and, relying on Commissioner of Income-tax v. A. Abdul Rahim and Co., held that registration has been wrongly refused to the assessee-fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instrument ; and (v) the partnership must be genuine and must actually have existed in conformity with the terms and conditions of the instrument of partnership in the accounting year. " He has also contended that in the present case the renewal of registration was refused because the income-tax authorities had found from the various facts that the entire partnership business was not genuine and the transactions and the business were not in accordance with the partnership deed or with the rules framed under section 26A. In support of the said contention he has relied on Sundar Singh Majithia v. Commissioner of Income-tax . Reference has also been made by him to Commissioner of Income-tax v. Hassanally and Sons. Dr. Pal for the assessee, on the other hand, has argued that on the facts as found by the Tribunal the principles of law laid down in Commissioner of Income-tax v. A. Abdul Rahim and Co. would apply with equal force to the facts of this case. According to him the genuineness of a partnership firm is a finding of fact which has not been challenged in the way the question of law has been framed. It is now necessary to express my views on the matter. The Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift was made by him to a daughter of Mrs. Kharukha. He had one son but no provision was made for him or his family. He did not possess any experience in brokerage business. He had no experience of the trade. He has admitted that he has been made as partner just as a favour. (k) According to the capital account of the said K. A. Choudhury he contributed Rs. 3,000 and he admitted that he was not made a partner by virtue of his capital contribution but out of sheer mercy and charity. He also admitted that the gift of large sums of money to the children of another partner, Mrs. Kharukha, was made out of the recognition of the generosity shown by Mrs. Kharukha. (1) Mr. Kharukha himself did not contribute any sum towards the firm's capital. He was really managing the business with his experience and influences and increased the volume of business and income from year to year. (m) The other partner is a lady who for obvious reasons cannot in any way conduct the brokerage business. (n) The capital amount at the end of May 31, 1957, indicates the credit balance of Rs. 46,156. On the basis of those findings the Income-tax Officer has come to the following conclusion : "He is just a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der to escape tax. Reliance has been placed by him on the observation of Rankin J. in Sundar Singh Majithia v. Commissioner of Income-tax at pages 461-462. There is no doubt that the facts in the present case are rather very ugly and its natural to come to the conclusion that the constitution of the partnership firm and the execution of the partnership deed have been made with the ulterior object to reduce the liability to pay income-tax. It is now well-settled that there is nothing which prevents the assessee to take recourse to a method or device to escape tax liability if otherwise permissible in law. In my view, it is difficult to make a distinction between a name-lender or a benamidar. Benamidar presupposes the existence of two persons, the ostensible owner and the real owner. A name-lender also implies that one person has allowed his name to be used for the benefit of another person. Thus, in both the cases there are two existing persons, one of whom has legal ownership and the other has beneficial ownership. But, in addition to the fact that one is a name-lender or benamidar, there may be various other facts which may lead to the conclusion that the firm has been brought int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him on the observation of Rankin J. in Sundar Singh Majithia v. Commissioner of Income-tax at page 461-462, which reads as follows : "When a document purporting to be an instrument of partnership is tendered under section 26A on behalf of a firm and application is made for registration of the firm as constituted, under such instrument, a question may arise whether the instrument is intended by the parties to have real effect as governing their rights and liabilities inter se in relation to the business or whether it has been executed by way of pretence in order to escape liability for tax and without intention that its provisions should in truth have effect as defining the rights of the parties as between themselves. " There is no doubt that Mr. Pal's argument involves an important question of law but in my view the facts of this case and the question, as framed, do not entitle him to make such submission. It may be stated here that in the said case Rankin J. immediately after the said observation has added : "To decide that an instrument is in this sense not genuine is to come to a finding of fact ; whether there was evidence upon which it was open to the income-tax autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but one of the partners, Sri K. A. Choudhury, was merely a name-lender, that is, a benamidar and not a real partner. As already discussed above, the distinction cannot be made between a mere name-lender and a benamidar unless the facts and circumstances would show that the firm is not genuine or the finding on the genuineness of the firm has been based on wrong application of legal principles. Mr. Pal has drawn our attention to two exceptions in Commissioner of Income-tax v. A. Abdul Rahim & Co. at page 658 on which the Supreme Court did not consider it necessary to express their views on them. The Tribunal in its order has referred to the said exceptions at pages 24-25 and has stated that neither of these eventualities are present in this case. Mr. Pal, however, has argued that there might be two cases of benamidar : (a) where the ostensible owner is one person and the real owner is a different person. (b) where one person, has been taken into partnership with the consent of other partners. In one sense I have failed to appreciate the second contingency in view of the fact that in all cases of a partnership all partners are taken by consent of each other but Mr. Pal wants to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax authorities may in such a case refuse registration. In one sense such a person may also be called a benamidar with the consent of other partners. But in such a case there must be a finding or a conclusion that the firm is not genuine. In this particular case all the essential conditions of the Supreme Court case in R. C. Miller & Son v. Commissioner of Income-tax have been satisfied. It is true that there are two significant facts which the Tribunal should have noticed in coming to the conclusion that the firm is genuine: (a) The withdrawals for the first three years 1953-54, 1954-55 and 1955-56 were exclusively used for the payment of taxes and out of the sum of Rs. 65,533 received by Sri K. A. Choudhury in the year ending on, May 31, 1956, a gift of a sum of Rs. 60,000 made to the son and daughter to Mrs. Kiron Kharuka, Sri Pradeep and Sri Chandralekha. Similarly in the year ending on May 31, 1957, Sri Choudhury made another gift of a sum of Rs. 30,000 to Naintara, another daughter of Mrs. Kharuka. All these gifts were made in spite of the fact that Sri Choudhury himself has children and his financial position is such that he is not in a position to provide for them. (b) S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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