TMI Blog1964 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the answer given by the High Court is correct. Appeal dismissed. - - - - - Dated:- 4-11-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.--This appeal by certificate raises the question whether the Income-tax Officer can refuse to register a genuine partnership entered into between more than two persons on the ground that one of them is only a benamidar for another. The relevant facts may briefly be stated. Three persons by name Abdul Rahim Valibhai, Abdullah Rehman and Abdul Rahim Malangbhai, constituted a partnership having 9 annas, 5 annas and 2 annas, shares respectively. The said partnership was carrying on business in goat and sheep skins. From the beginning of Samvat year 2012 (November 15, 1955, to November 2, 1956), there was a change in the constitution of the said firm. A fourth partner by name Abdul Rehman Kalubhai was inducted into the partnership with 2 annas share carved out of the 9 annas share of Abdul Rahim Valibhai. The said Abdul Rehman Kalubhai is a nephew of Abdul Rahim Valibhai. On March 6, 1956, a partnership deed was executed between the said four persons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing two points : (1) Abdul Rehman Kalubhai is only a dummy and, therefore, the partnership is not a genuine one ; (2) even if Abdul Rehman Kalubhai is a benamidar of Abdul Rahim Valibhai in respect of the 2 annas share in the partnership, Abdul Rahim Valibhai has in fact 9 annas share in the partnership ; as the partnership deed shows that he has only 7 annas share instead of 9 annas share, there is no correct specification of his individual share within the meaning of section 26A of the Act and, therefore, the Income-tax Officer rightly rejected the firm's application for registration under section 26A of the Act. Learned counsel for the respondent, on the other hand, argued that the question whether the partnership was genuine or not is one of fact and indeed presumably for that reason the question of genuineness was not referred to the High Court by the Tribunal and that the learned counsel for the revenue cannot now raise that question before this court. He further argued that, as the partnership is genuine, the circumstance that under some internal arrangement one of the partners is a benamidar of another partner will not detract from its validity or disqualify it from bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual shares of the partners ; (ii) an application on behalf of, and signed by, all the partners and containing all the particulars as set out in the rules must be made ; (iii) the application should be made before the assessment of the firm under section 23 for that particular year ; (iv) the profits or losses if any of the business relating to the accounting year should have been divided or credited, as the case may be, in accordance with the terms of the 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. This court again, in Commissioner of Income-tax v. Sivakasi Match Exporting Co., held : " The jurisdiction of the Income-tax Officer is, therefore, confined to the ascertaining of two facts, namely, (1) whether the application for registration is in conformity with the rules made under the Act, and (ii) whether the firm shown in the document presented for registration is a bogus one or has no legal existence. " It is, therefore, settled law that if a partnership is a genuine and valid one, the Income-tax Officer has no power to reject its reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should in truth have effect as defining the rights of the parties as between themselves. To decide that an instrument is in this sense not genuine is to come to a finding of fact : " In view of the finding given by the Tribunal that the instrument of partnership was genuine, it follows that it was not executed as a pretence in order to escape liability for tax, but in truth it defined the rights and liabilities of the parties between themselves. This leads us to the question whether the benamidar can be in law a partner of a firm. In the context of the right of a benamidar to sue in his own name to recover immovable property, the Judicial Committee in Gur Narayan v. Sheo Lal Singh defined the status of a benamidar in law thus : " As already observed, the benamidar has no beneficial interest in the property or business that stands in his name ; he represents, in fact, the real owner, and so far as their relative legal position is concerned he is a mere trustee for him...............The bulk of judicial opinion in India is in favour of the proposition that in a proceeding by or against the benamidar, the person beneficially entitled is fully affected by the rules of res jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner with the consent of the other partners, he will only be a " dummy ". We do not propose to express any final opinion on the said two questions, as they do not arise in this appeal. A Division Bench of the Bombay High Court in In re Central Talkies Circuit, Matunga, held that there was evidence to justify the finding of the income-tax authorities that the alleged partnership was not a genuine partnership and that they acted rightly in refusing to register the firm. That finding was sufficient to dispose of the reference before the court. But Beaumont C.J., in the course of the judgment, made some observations which lend support to the contention of the appellant. The learned Chief Justice said : " Speaking for myself, I should say that if it were shown that one of the partners was only a nominee of a share allotted to him or her for another partner, the deed would not then specify correctly the individual shares. I think it must specify correctly the individual and beneficial shares, because that is a matter which is relevant from the point of view of the income-tax authorities. If the Assistant Commissioner had any evidence before him to lead to the conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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