TMI Blog1960 (11) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... K. DAS., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by HIDAYATULLAH J.---This appeal with special leave has been filed by Messrs. Bhaichand Amolukh Co. (referred to in this judgment as the firm) against the judgment and order of the High Court of Bombay, by which the High Court asked for a reference on a question of law but declined to include therein a question or questions which, the firm contended, also arose out of the Tribunal's order. The facts leading up to the appeal may be stated shortly. One Bhaichand Amolukh Vora, father of Chhotalal Bhaichand, started a firm in 1910, to work as principal agents for a number of insurance companies. In that firm, in addition to Bhaichand Vora and Chhotalal Bhaichand, one Nathubhai Patel was also a partner. Bhaichand Vora died in 1948, and the two surviving partners continued as the firm. Nathubhai Patel died in 1949, and it is stated that the firm thereafter consisted of Chhotalal Bhaichand and his wife, Bai Lalitaben. In the years that followed, the business of the firm was treated as the sole business of Chhotalal Bhaichand to which no objection was taken, because, as is now explaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for which Bai Manibai, the mother of Chhotalal Bhaichand. (the assessee), and his two minor sons became entitled to the income from the business, and that the reason that the goodwill was reserved for her because the business had been started by her late husband was " fallacious ". A fifth reason was given that a cheque for Rs. 6,400 being Manibai's share of profits was drawn by the firm " to self ", and in later years the amount was traced to the account of Chhotalal Bhaichand. The explanation of Manibai that she received Rs. 5,000 out of that amount and spent it on charities was not accepted. On appeal to the Appellate Assistant Commissioner, registration of the firm was ordered. On further appeal to the Tribunal, the order of the Appellate Assistant Commissioner was, in its turn, set aside, and the Tribunal reached the conclusion that Manibai and the two minor sons were not the real partners of the new firm, but that the partnership consisted of Chhotalal Bhaichand and two others. The Tribunal, in spite of this finding, restored the order of the Income-tax Officer. The firm then applied for a reference of the questions arising from the Tribunal's order, and suggested as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exit of Chhotalal, no adjustment entries were made in the books of the business, which was carried on as before by the new partnership, that an employee and an agent of the firm were taken as partners but had no right to the goodwill of the business, which was stated in the deed to belong solely to the assessee's old mother, that the monthly drawings of Premchand and Khambatta were limited to Rs. 300 which was almost equal to their remuneration or commission in the past, that the old business had three bank accounts which continued as before, one of them being operated by Chhotalal himself and the other two, by the new partners under a power-of-attorney which was not withdrawn, that no new letter of appointment was issued by the three insurance companies for whom the old firm was acting as principal agents, and that no written communication was given to them, In disposing of the matter, the Tribunal stated that Chhotalal probably wished to retain the business which had been built up by the family, and devised a scheme to transfer the business to a sham partnership consisting of his mother, an employee and an agent of the firm, with the benefits of the partnership to his two mino ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is quite obvious that there was material on which the finding could be based. If Chhotalal withdrew from the business, his wife, Lalitabai, would be left as the sole proprietor. No mention of her interest whatever was made in the subsequent deed, and she seems to have disappeared completely. On the termination of the old firm and the setting up of the new firm, one would expect some adjustment entries in the books of account, and these were singularly lacking. One would also expect a communication by the new agents to the various insurance companies in writing about the change of principal agents and an appointment letter in the name of the new firm by them. The bank accounts would have been transferred to the new partnership firm, and the power-of-attorney in favour of Premchand and Khambatta would have been cancelled and the new firm would have been authorised to deal with the accounts. Without any such action, the decision of the Tribunal, that the firm which asked for registration was not a real firm, cannot be said to be founded on no material. In so far as the addition of certain other reasons, which are characterised as surmises, conjectures and suspicions, is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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