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TMI Blog1973 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961-62. Pal Singh and Sadhu Singh were carrying on business in radio and radio parts under the name and style of S.P. Gramophone Company in partnership prior to April 1, 1960. In this partnership their shares were equal. On April 1, 1960, there was a change in the constitution of the partnership. A fresh deed was executed and besides the original two partners, four other persons, namely, Gulzar Singh, Surjit Singh, Hari Singh and Harbans Singh, were taken in as partners. The shares of Pal Singh and Sadhu Singh were equal, being 25 per cent. each. Those of the remaining four were also equal, being 12 1/2 per cent. each. The new partners were not to make any capital contribution but were to share the profits and losses according to their respective shares. In the account books, there were only accounts of three of the partners. There is no material from which it can be concluded that the profits and losses of the partners were divided or separately shown in the account books. However, a profit and loss account was drawn up on a loose sheet of paper and filed before the Income-tax Officer during the course of the assessment proceedings. It clearly indicated that the net profit was R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as before the change. The various clauses of the deed have been discussed earlier which lead to the inescapable inference that in the eye of law no valid and genuine partnership has been created by the deed dated 1st April, 1960. Shri Hari Singh in his statement recorded by the Income-tax Officer on November 20, 1965, stated that he not aware of the profit of the firm in 1960-61, 1961-62 and 1962-63 was no accounting years. He categorically stated that profit and loss account was prepared in the books of account for 1960-61 accounting year and added that he inspected the profit and loss account and balance-sheet in the books. He even stated that they used to get the signatures on the balance-sheets in the ledger books. The statement is obviously false because, admittedly, there is no such profit and loss account and balance-sheet. The following question is indeed revealing : "Question: Were they (Pal Singh and Sadhu Singh) consulted by all the partners before writing the deed that they intend to make all other four as partners ? Answer : No; they simply called all of us (four new partners, Hari Singh, Surjit Singh, Harbans Singh, Gulzar Singh), and asked us to sign the dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the village and he was called from the village. He came to jullundur and went to the office of Messrs. S. P.Gramophone Company on April 1, 1960, (added by way of afterthought that he came of his own accord). He did not know who read the deed. He was not aware of the deed. He did not know as to who were the witnesses. In fact he frankly admitted " I do not know anything ". When asked what was his share in profit and loss he stated " 2 annas in the case of profit and in case of loss, I do not know and also do not remember ". He did not know the profits of the firm in 1960-61 and his own share therein. Similarly, he bad no knowledge of the extent of profit and his share in 1961-62 and 1962-63. He stated that he was in charge of a factory but did not know the amount of sales effected by the firm. He could not even tell the production of the spare parts in the factory of which be was in charge. It is also important to note that the alleged partners of the second part have not withdrawn any suim from the account books except the salary by Sarvshri Hari Singh and Harbans Singh. Equally significant is the circumstance that the banks from whom overdraft has been taken have not been informe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no evidence even of the profit being credited to a reserve account showing the allocation thereof, in accordance with the shares specified in the instrument of partnership. On these facts the Income-tax Officer has rightly held that the requirements of rule 8 of the Income-tax Rules, 1922, regarding the certificate that the profits or losses were/will be divided or credited has not been satisfied in this case." It is significant that the Appellate Assistant Commissioner did not refuse registration merely on the ground that the partnership consisted of some persons who were merely benamidars for the real partners. The assessee being dissatisfied with the order of the Appellate Assistant Commissioner filed a further appeal to the Income-tax Tribunal. It appears that the Tribunal was side-tracked in many ways and lost sight of the real question that it had to determine, though in a roundabout manner it did to some extent deal with that question. On the other hand, it went on to deal with the question that some of the partners of the firm were benamidars, and, therefore, that was a good ground to refuse registration. The net result, however, in appeal before the Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach clause of it as if it was in a water-tight compartment. The partnership deed has to be read as a whole to see whether it in any way militates against the finding at which the departmental authorities and the Tribunal arrived. The best that can be said in favour of Mr. Bhandare was that the document was capable of interpretation which could be consistent with a finding, if it was recorded, that the instrument of partnership brought about a genuine partnership. As already observed, the facts and circumstances of this case and the evidence which was led and has been appraised, leads to the only conclusion that there was no genuine partnership and the various clauses in the partnership deed lend support to that conclusion and do not militate against it. Thus, there is no escape from the conclusion that the decision that the partnership is not genuine is not open to attack. This is a decision on a question of fact and is binding on us in our advisory jurisdiction. In this view of the matter, the first question, as reframed, has to be answered in favour of the department and against the assessee, i.e., it is to be answered in the negative. There is ample material on the record to jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial placed on the record and if that is so, the position remains where it was. The decision of the Appellate Assistant Commissioner on this matter is very elaborate and we see no reason to differ from it. The Tribunal has also come to the same conclusion and rightly. The decisions cited by Mr. Bhandare do not help him. They relate to the peculiar facts of those cases and have no bearing on the facts of the present case. It may, however, be mentioned that in those cases the actual state of affairs was traceable to the books of account which is not the case so far as the instant case is concerned. For the reasons recorded above, the second question must be answered in the negative, that is, in favour of the department and against the assessee. So far as the third question is concerned, the answer to it must be given in favour of the assessee. Mr. Bhandare is right in his contention that the Tribunal was wrong in its conclusion that even if some of the partners are benamidars for the others, it would not defeat the application for registration under section 26A of the Act. Mr. Bhandare went further and urged that there were no benami partners. It is not necessary for us to pronounce ..... 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