TMI Blog2000 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter referred to as "the firm") and Kalu Ram and Co. (HUF) (hereinafter referred as "the HUF"). The previous year relevant to the said assessment year ended on March 31, 1972, in both the cases. The business was originally carried on by the Hindu undivided family. There were three members in the Hindu undivided family, namely, Bal Kishan (karta), his brother, Bharat Singh and their mother, Smt. Kishan Pyari. The income from the business was assessed in the hands of the Hindu undivided family up to the assessment year 1971-72. On March 22, 1972, a deed of partnership was drawn up constituting the firm, consisting of all the above three persons as its partners. In the said deed, Bal Kishan was described as party of the first part, Bharat Singh as party of the second part and Smt. Kishan Pyari as party of the third part. The preamble to the deed read as under: "Whereas the party hereto of the first part took the works of contract, namely, (i) supply of 18000 cu.m. of 1 1/2" gauge stone ballast (3.8 cm) and 1500 cu.m. of 1" gauge stone ballast (2.5 cm.) duly stacked and loaded into rail borne trucks at Tughlakabad (Zone No. 1) approximate contractor value Rs.4,74,405 only, and (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said partnership deed dated March 22, 1972. The Income-tax Officer (in short "the ITO") was of the view that the firm was not genuine and the entire income of the business was required to be assessed in the hands of the Hindu undivided family as it was the real owner of the business. He was of the view that the karta of the Hindu undivided family was not competent to enter into partnership with other members of the family to carry on the joint family business and that any such agreement was void ab initio. On the facts the Income-tax Officer found that the alleged firm had not opened any new bank account; it had been carrying on business on the old bank account standing in the name of the Hindu undivided family; no separate books of account had been maintained for the business of the firm; even the refund of security deposit with the railways with respect to the contract undertaken by the Hindu undivided family for the. previous two assessment years had been deposited in the books of the firm. Observing that once a business had been assessed to tax as belonging to the Hindu undivided family, it would continue to be assessed as such until it was shown that a partition had taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his orders under sections 143(3) and 185 of the Act that the firm had not opened a new bank account and that it had carried on the bank account originally standing in the name of the family and that the receipts from the contract undertaking were all deposited in this bank account. He also observed that no separate books of account for the firm's business had been maintained and that the refund of the security deposit with respect to the contract undertaken by the family for the previous two assessment years had been deposited in the books of the alleged firm. Similarly, he pointed out that the contract originally taken in the name of the karta as representing the family had been carried on as the business of the alleged firm. In our opinion, on these facts also, it cannot be said that a genuine firm had come into existence. Smt. Kishan Pyari had been allowed 40% share in the business without contributing any capital as in fact her account showed a debit balance. There is no consideration for allowing her such a heavy share except that the assessees wanted to divert a part of the income to her, to save incidence of tax. We cannot persuade ourselves to hold that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n writing refusing registration to the firm. In other words, in order to obtain registration of a firm it is not only mandatory for the assessee to file an application and declaration on behalf of and signed by all the partners along with an instrument of partnership, specifying the individual shares of the partners, it is equally obligatory for the Assessing Officer to enquire into the genuineness of the firm. Whether a firm is genuine or not is a pure question of fact. It is for the Assessing Officer in the first instance and the Tribunal, as a final fact-finding authority, to reach a final finding on this question (see Ratanchand Darbarilal v. CIT [1985] 155 ITR 720 (SC)). In the instant case, although the partnership was evidenced by an instrument of so-called partnership specifying the individual shares of the three parties but the truth of actual partnership coming into existence was seriously disputed by the Assessing Officer. As noted above, the Tribunal, while noticing the factual aspects, highlighted by the Income-tax Officer, viz., the non maintenance of any independent bank account by the firm; the nature and the extent of capital contribution by the parties, etc., h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their separate property or the property which they might have obtained as a result of a partition, complete or partial, of the joint property. That was the view taken by the Privy Council in Lachhman Das v. CIT [1948] 16 ITR 35, wherein it was held that the karta of a joint family could enter into partnership with an individual member of the coparcenary qua his separate property. This view was approved by the apex court in Firm Bhagat Ram Mohanlal's case [1956] 29 ITR 521 and in other cases. But it is well settled that before entering into such partnership, the prerequisite is the partition of that joint family asset, which is sought to be introduced as capital of the partnership so that it acquires the character of a separate property. Admittedly in the present case, there was no such partition. As noticed above, the entire capital of the business of the Hindu undivided family was treated as the capital of Bal Kishan and none of the other partners contributed any capital in the firm. The capital asset invested in the business of the firm was joint family property and was not partitioned. In the circumstances, we feel that the business of Government contract awarded to the Hindu u ..... 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