TMI Blog1984 (7) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the firm was opened with the Bank of Baroda, M.I. Road, Jaipur, on November 23, 1967. All the three partners were authorised to opt-rate the said bank account. Smt. Gyan Devi, mother of the other two partners, had brought in as per the books of the firm, a capital of Rs. 22,631. She remained a partner in the firm up to March 31, 1970. Capital in her account in the books of the firm in respect, of previous years ended on March 31, 1968, March 31, 1969, and on March 31, 1970, showed no withdrawals meant to cover her household expenses, Withdrawals were, however, made to make a gift of Rs. 9,950 to her son, Shri Kaushal Kishore, and another sum of Rs. 10,000 was similarly gifted. The income-tax payable on her share was also debited to her capital account. The credit balance in the capital account of Smt. Gyan Devi when she left the assessee firm on March 31, 1970, was Rs. 33,425. This credit balance in her account continued in the books of the firm for some time and interest was credited thereon. Ultimately, the entire credit balance was withdrawn and such withdrawals were invested in the purchase of a plot of land. The assessee-firm submitted on application to the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he status of association of persons and completed the assessment in that status. The assessee, aggrieved against the order of the Income-tax Officer, filed appeal before the Appellate Assistant Commissioner. The assessee took the plea before Appellate Assistant Commissioner that Smt. Gyan Devi, whose statement was recorded on oath on August 24, 1971, was mentally ill and as such could not give proper answer to the Inspector and such fact was also made known to the Inspector at the time of recording the statement of Smt. Gyan Devi. It was further pleaded that Smt. Gyan Devi could not be produced before the Incometax Officer as she was mentally ill. The assessee also filed a certificate of vaidya and an affidavit of the husband of Smt. Gyan Devi before the Appellate Assistant Commissioner on April 7, 1972. The Appellate Assistant Commissioner discarded the above submissions of the assessee and also placed no reliance on the certificate of the vaidya as he found discrepancy in the dates in the certificate. It was pointed out that this certificate was dated August 20, 1971, and yet it was certified that the lady was under the treatment of the vaidya with effect from August 10, 1972. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estions of law and were pure questions of fact. As regards question No. 6, the Tribunal held that the same was purely academic because it had already been concluded by their Lordships of the Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775. The Tribunal thus found that only the following question of law arose out of the order of the Tribunal which, in their opinion, was proper to be referred to this court: "(1) Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the appellant could be assessed as an association of persons notwithstanding the assessment of the members of the association of persons earlier than the assessment of association of persons." The Tribunal, therefore, referred only one question as mentioned above which is the subject-matter of Income-tax Reference No. 26 of 1974. The assessee has filed an application under section 256(2) of the Income-tax Act for giving a direction to the Tribunal to state the case and refer the remaining five questions also and that is the subject-matter of Income-tax Case No. 172 of 1974. In our view, the Tribunal has already sent the statement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d share of profit have been credited in her account for the assessment year 1970-71 in the books of account of the assessee-firm. It is submitted that there was no reason whatsoever to doubt the genuineness of the partnership deed and the books of account and there was no occasion whatsoever for recording the oral statement of Smt. Gyan Devi on August 24, 1971. It was further submitted that in any case according to the admitted case of the assessee, Smt. Gyan Devi had remained a partner in the firm only up to March 31, 1970. Her statement was recorded by the inspector on August 24, 1971, thus admittedly after she had ceased to remain a partner in the firm. Annexure 'E'- statement of Smt. Gyan Devi dated August 24, 1971, shows that the first question put to her was in the following manner : Question: 1 In how many firms are you a partner ? If so, please let me know the names? To this Smt. Gyan Devi answered as follows: Answer: 1 I am partner only in one firm but do not know the name. The second question put to her was : Question: 2 When you became partner ? How much amount you have invested therein and source of investment ? To this Smt. Gyan Devi answered in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been placed on record of this court and her statement has been relied upon for the purpose of granting registration to the firm for the assessment year 1970-71. The Income-tax Officer, 'B' Ward, Jaipur, also granted registration for the assessment year 1971-72 and in his order dated December 24, 1973, placed reliance on the partnership deed and the book profit distributed according to the partnership deed. It was held that the firm appeared to be genuinely constituted. Mr. Ranka placed reliance on Subhash Medical Stores v. CIT [1984] 147 ITR 486 (Raj). A Bench of this court in the above case observed as under (p. 497) : "In order to claim registration under the Income-tax Act, what is required to be established is that the legal requirements of partnership are fulfilled. From the principles enunciated in the above referred cases, it is clear that the inter se relations of the partners and all of them not being concerned with the control and management of the business, are not the circumstances coming in the way of registration of the partnership under the Income-tax Act." It was held that there was no satisfactory material before the Tribunal to come to the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them. The income-tax authorities should not have misconstrued the provisions of the partnership deed upon irrelevant considerations. Correct it is that mere registration of a firm under the Partnership Act will not entitle the firm, as of right, to be registered under section 185 of the Income-tax Act, 1961, because the question of tax is involved. The income-tax authorities are of course expected to take into consideration the facts and circumstances of a given case to find out whether in the garb of a sham transaction, the assessee was avoiding liability to tax. However, if from the circumstances taken as a whole, it can be deduced that it is not an unlawful attempt to avoid payment of tax and at the most, it may be a legal device to reduce tax liability, there is no justification for rejecting the request for registration under the Income-tax Act." Thus, we are clearly of the view that in the facts and circumstances of this case, the learned Tribunal had no material and was not correct in holding that Smt. Gyan Devi was not a partner in the appellant firm and no firm came into being as a result of partnership deed dated November 14, 1967. The answer to the above question is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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