9911796707
TMI Blog1987 (3) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... was refused registration on the ground that the partnership firm was not genuine. This was ultimately upheld by the Tribunal in order passed on 18th December, 1976. The firm was not granted registration on the basis that the mother was not a genuine partner and, therefore, required to be held as benamidar of the assessee. Accordingly, the whole income of the firm was taken as the income of the assessee. The Income-tax Officer had also initiated penalty proceedings under section 271(1)(c) of the IT Act and had levied the penalties for concealment of income and furnishing of inaccurate particulars. The penalties were deleted by the first appellate authority and the deletion was confirmed by the Tribunal vide order dated 19th March, 1979. 2.1 The assessee is also regular assessee under the Wealth-tax Act. Since the mother of the assessee was held to be benamidar in the partnership firm the original assessments completed under section 16(1) of the Act in the case of the assessee wherein accumulated profits going to the share of the mother were not included were sought to be reopened under section 17 of the Wealth-tax Act. Consequent to reopening the assessee filed return of wealth sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by creating bogus firm. Within 7 months of the gift made to his mother the assessee converted his proprietary concern into partnership firm. The assessee did not require any further finance. Otherwise, he would not have gifted an amount to his mother. The old mother did not have much knowledge either about the partnership or about the business of the firm. Therefore, applying the ratio of the Supreme Court decision in the case of McDowell & Co. Ltd. v. CIT [1985] 154 ITR 148 the penalties were requited to be upheld. He also rejected the contention of the assessee that necessary disclosure was made in Part IV of the wealth-tax return and, therefore, particulars were disclosed on the basis that on similar facts the penalty was upheld in the case of CIT v. Suleman Abdul Sattar [1983] 139 ITR 8 (Guj.). 4. At the time of hearing before us, the learned representative of the assessee reiterated the submissions made before the authorities below. It was further submitted that there was no question of any fraud or gross or wilful neglect on the part of the assessee. At the most the question was of difference of opinion and there was no intention of concealing any particulars. Besides, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sham and he lady was benamidar does not establish the concealment or even an attempt of concealment on the part of the assessee. As the assessee had not withheld any information but claimed on same facts a benefit which has been denied to him, I am of the view that the assessee has not concealed the particulars of income. Therefore, the penalty is not exigible under section 271(1)(c)." Appreciating the issue before us in the light of the above observations of the Tribunal, we find no material to uphold the penalties. Besides, the relevant finding in respect of the device adopted by the assessee cannot be the findings under the Wealth-tax Act because it is impossible to hold that the assessee adopted the device of converting the proprietary firm into partnership with the purpose of avoiding the wealth-tax as could be seen from the assessment order under the Wealth-tax Act the assessee wealth is around Rs. 1,60,000 approximately considering the highest figure in all the four years. 6.1 Moreover, the issue has to be considered in the light of natural course of events. If any tax planning measure is adopted by the assessee for the purpose of either siphoning off the profits or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no right to claim the ownership of the accumulated profits on the basis of some material which conclusively proved that even the ownership of such accumulated profits remained with the assessee it would not be possible to uphold the penalties under the Wealth-tax Act in spite of the fact remaining that penalties were upheld in the income-tax proceedings for concealment. Some more aspects of the case require consideration. All along it has been the stand of the assessee that mother was a partner in the partnership firm and the profits allocated to her belonged to her. But because of the finding of the ITAT while granting registration to the firm what is held is that the mother is only benamidar of the assessee so far as the partnership firm is concerned. Therefore, in essence the share going to the mother is added to the income of the assessee because the share of profit in fact accrued to the assessee though allocated to mother, i.e., diverted to the mother after accrual to the assessee. Hence, it appears it is the case of diversion of profits which should attract gift-tax provisions rather than provisions under the Wealth-tax Act for inclusion in the wealth of the assessee the am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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