1980 (2) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Whether the newly constituted firms were genuine partnerships.
2. Whether the Tribunal's refusal to grant registration to the firms under section 185 of the Income-tax Act, 1961, was justified.
3. Whether any question of law arises from the Tribunal's order that can be referred to the High Court under section 256(1) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the newly constituted firms were genuine partnerships:
The assessee-firms, M/s. Hemandass Dhanrajmal (Khari Feeder Project, Jaipur) and M/s. Hemandass Dhanrajmal (Jawahar Sagar Project), claimed the status of registered firms for the assessment years 1966-67 and 1968-69, respectively. The Income Tax Officer (ITO) doubted the genuineness of these firms. In the Khari Feeder Project case, the ITO concluded that the newly constituted firm was not independent and was controlled by the main firm, M/s. Hemandass Dhanrajmal. Similarly, in the Jawahar Sagar Project case, the ITO found that the new partners had no capital investment or technical experience and were merely performing supervisory roles. The Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal upheld these findings, concluding that the partnerships were not genuine and were created to divert profits.

2. Whether the Tribunal's refusal to grant registration to the firms under section 185 of the Income-tax Act, 1961, was justified:
The Tribunal declined to grant registration to both firms, stating that the new partners were dummies or benamies and that the firms were not genuine. The Tribunal based its decision on the fact that the new partners did not contribute any capital, were not authorized to prepare bills or receive payments, and performed tasks that could be done by clerks. The Tribunal also noted that no separate bank accounts were maintained for the new firms and that the main firm collected all payments. The AAC observed that the main firm had followed a similar modus operandi in previous years, introducing new partners to create non-genuine firms. The Tribunal concluded that these actions were contrary to the common course of human conduct and indicated that the firms were bogus.

3. Whether any question of law arises from the Tribunal's order that can be referred to the High Court under section 256(1) of the Income-tax Act, 1961:
The High Court held that the question of whether a partnership is genuine is a question of fact, not law. The court cited several precedents, including CIT v. Juggilal Kamalapat and Bhaichand Amoluk & Co. v. CIT, to support this view. The court noted that a question of fact is erroneous in law only if it is not supported by any evidence or is unreasonable and perverse. In this case, the Tribunal's findings were supported by evidence, including the statements of the partners and the lack of separate bank accounts. The court concluded that the Tribunal's decision was based on admissible evidence and that no question of law arose from its order. As a result, the applications filed under section 256(2) of the Income-tax Act, 1961, were rejected, and no reference to the High Court was warranted.

In conclusion, the High Court upheld the Tribunal's findings that the newly constituted firms were not genuine and that no question of law arose from the Tribunal's order. The applications for directing the Tribunal to refer the questions to the High Court were rejected.