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Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in upholding the order of the Income-tax Officer refusing to grant registration to the firm. 2. Whether the Income-tax Appellate Tribunal was justified in holding that the income arising from the contract was rightly assessed in the hands of the Hindu undivided family. Detailed Analysis: 1. Refusal to Grant Registration to the Firm: The firm Kalu Ram and Co. applied for registration under section 184 of the Income-tax Act, 1961. The Income-tax Officer (ITO) refused the registration, asserting that the firm was not genuine and that the business income should be assessed in the hands of the Hindu undivided family (HUF). The ITO's refusal was based on the following observations: - The firm did not open a new bank account and continued to use the old bank account of the HUF. - No separate books of account were maintained for the firm's business. - The capital contributions by the partners were either minimal or non-existent, with Smt. Kishan Pyari having a debit balance. - The business was originally carried on by the HUF, and there was no evidence of partition of the joint family business. The Appellate Assistant Commissioner (AAC) initially found that the firm had complied with all formalities for registration and allowed the registration. However, the Tribunal reversed this decision, supporting the ITO's findings. The Tribunal cited the Supreme Court's precedent in Firm Bhagat Ram Mohanlal v. CEPT, holding that the karta of an HUF could not enter into a partnership with other family members using joint family property without a prior partition. 2. Assessment of Income in the Hands of the HUF: The Tribunal also upheld the ITO's decision to assess the income from the contract in the hands of the HUF. The Tribunal noted: - The business was initially assessed as belonging to the HUF and would continue to be so until a partition was shown and recorded under section 171(3) of the Act. - The firm was found to be a facade, with no genuine partnership existing. Smt. Kishan Pyari was allotted a 40% share without contributing capital, indicating an attempt to divert income to reduce tax liability. The High Court, upon reviewing the case, agreed with the Tribunal's findings. It emphasized that the genuineness of the firm is a factual determination, and the Tribunal's findings on this matter were binding. The court noted that the firm did not meet the criteria for a genuine partnership as the capital was not partitioned and remained joint family property. Therefore, the business continued to be that of the HUF. Conclusion: The High Court affirmed the Tribunal's decision, concluding that: - The refusal to grant registration to the firm was justified as no genuine firm had come into existence. - The income arising from the contract was rightly assessed in the hands of the HUF. The court answered both questions in the affirmative, favoring the Revenue and against the assessee, with no order as to costs.
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