1959 (5) TMI 11 - SC - Income Tax

Declining to register the appellant firm under section 26A of the Indian Income-tax Act Held that - The order of the Appellate Tribunal is reversed. The firm shall be registered under section 26A of the Act for the assessment year 1948-49. The appeal against the order of the High Court need not be considered, since it is not necessary to pass any orders thereon. Appeal allowed.

Summary

Issues Involved:
1. Registration of the appellant firm under Section 26A of the Indian Income-tax Act.
2. Assessment of the appellant firm as a Hindu undivided family or as a partnership firm.
3. Validity and genuineness of the partnership deed.
4. Compliance with the Bengal Excise Act, 1911.

Detailed Analysis:

1. Registration of the Appellant Firm under Section 26A of the Indian Income-tax Act:
The primary issue revolves around the appellant firm's application for registration under Section 26A of the Act, which was initially rejected by the Income-tax Officer. The officer cited reasons such as the absence of separate capital accounts for each partner in the business books and the non-crediting of individual partner profits in the ledger. The Appellate Assistant Commissioner and the Tribunal upheld this rejection, adding that the Bati Khata (a separate book of accounts) was not a recognized account book and that the partnership was not disclosed to outside authorities, including banks. However, the Supreme Court found that the partnership deed was indeed executed and registered, and the Bati Khata showed the capital accounts and profits of each partner. The Supreme Court concluded that there was no material evidence to support the Income-tax Officer's decision that the firm was not genuine.

2. Assessment of the Appellant Firm as a Hindu Undivided Family or as a Partnership Firm:
Initially, the appellant firm was assessed as a Hindu undivided family. Multiple returns were filed, first as a Hindu undivided family and later as a firm. The Income-tax Officer observed that no separate order was passed under Section 25A, and the assessment continued as a Hindu undivided family. The Supreme Court noted that the family had disrupted and formed a partnership in 1939, and subsequently, a new partnership deed was executed in 1947 following the death of Uma Charan Shaw. The Court emphasized that the family had the right to disrupt and form a partnership, and the earlier decision was not res judicata. Hence, the assessment should reflect the new partnership status.

3. Validity and Genuineness of the Partnership Deed:
The genuineness of the partnership deed dated April 10, 1947, was questioned by the Income-tax authorities. The Tribunal doubted the partnership's authenticity, citing reasons such as the retrospective effect of the deed and the maintenance of bank accounts in the names of individual partners. The Supreme Court, however, found that the deed was satisfactorily executed and registered, and the Bati Khata was a valid account book showing the partners' capital accounts and profits. The Court held that the partnership was genuine and not merely a veneer for income-tax purposes.

4. Compliance with the Bengal Excise Act, 1911:
The Tribunal suggested that the partnership might be in violation of the Bengal Excise Act, 1911, which prohibits the transfer or sub-letting of excise licenses without permission. However, the Supreme Court found no evidence of such transfer or sub-letting. The shops were managed separately, and their accounts were kept distinct, which did not affect the genuineness of the partnership. The Court concluded that compliance with the Excise Act did not invalidate the partnership.

Conclusion:
The Supreme Court reversed the order of the Appellate Tribunal and directed that the appellant firm be registered under Section 26A of the Act for the assessment year 1948-49. The appeal against the High Court's order was deemed unnecessary to consider further. The appellant was entitled to costs for the appeal against the Appellate Tribunal's order, while costs for the companion appeal were to be borne as incurred.