1986 (1) TMI 149 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of registration of the partnership firm.
2. Assessment on a protective basis versus substantive basis.
3. Disallowance of the deduction of Rs. 26,400.

Detailed Analysis:

1. Refusal of Registration of the Partnership Firm:
The revenue challenged the registration of the partnership firm on the grounds that the property leased to Indian Petro-chemicals Corporation Ltd. (IPCL) was owned jointly by four brothers, but the lease deed was executed by one brother on behalf of all, and one of the partners was not a co-owner. The departmental representative argued that the registration was rightly refused because the partnership was not genuine, relying on case law including *Ramniklal Sunderlal v. CIT* and *Sudarshan & Co. v. CIT*. The Tribunal, however, found that the partnership deed and the warehousing agreement indicated a genuine business operation. The Tribunal noted that the business described in the partnership deed as clearing and forwarding agents included warehousing services, which were part and parcel of the business. The contribution of capital by Mrs. Harinder Kaur, who was not a co-owner but a partner, further evidenced the genuineness of the partnership.

2. Assessment on a Protective Basis Versus Substantive Basis:
The AAC had held that the assessment should be on a substantive basis rather than a protective basis. The Tribunal confirmed this, noting that the partnership was genuine and the business activities were in line with the partnership deed. The Tribunal emphasized that the lease agreement with IPCL involved substantial obligations and services provided by the lessors, indicating active business operations rather than merely renting out property. The Tribunal rejected the revenue's argument that the agreement should be viewed solely as a lease, highlighting that the warehousing agreement included numerous business-related conditions.

3. Disallowance of the Deduction of Rs. 26,400:
The revenue had disallowed the deduction of Rs. 26,400 claimed by the assessee as lease money paid to the co-owners. The AAC allowed this deduction, and the Tribunal upheld the AAC's decision. The Tribunal reasoned that since the partnership was genuine and the assessment was substantive, the deduction of Rs. 26,400 as lease money was justified. The Tribunal dismissed the revenue's reliance on previous case law that did not align with the facts of the present case, where the agreement for warehousing facilities constituted a legitimate business activity.

Conclusion:
The Tribunal dismissed both appeals by the revenue, confirming the AAC's order in all respects. The partnership was deemed genuine, the assessment was to be on a substantive basis, and the deduction of Rs. 26,400 was allowed. The Tribunal's decision was based on a detailed analysis of the facts, the partnership deed, the warehousing agreement, and relevant case law.