1981 (7) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of registration to the appellant firm under Section 185(1)(b) of the Income Tax Act, 1961.
2. Determination of whether the appellant firm was a genuine partnership or a benami (bogus) concern of another firm.

Issue-wise Detailed Analysis:

1. Refusal of Registration to the Appellant Firm:

The Income Tax Officer (ITO) refused registration to the appellant firm, M/s Bansal Carriers, under Section 185(1)(b) of the Income Tax Act, 1961. The ITO's decision was based on the suspicion that the firm was a benami concern of M/s Miri Mal Gian Chand (MMGC). The ITO argued that the appellant firm did not have its own independent identity and was merely a continuation of MMGC's business. The ITO noted that the lady partners did not make any capital contributions and were not actively involved in the business, thus considering them as "sleeping partners." Additionally, the ITO pointed out that the business premises, telephone, and other resources were shared between the appellant firm and MMGC, further supporting the benami claim. The ITO concluded that the firm was not genuine and refused registration.

2. Determination of Whether the Appellant Firm was Genuine or Benami:

The primary issue was whether the appellant firm was a genuine partnership or a benami concern of MMGC. The appellant firm argued that it was a legitimate partnership formed by a separate partnership deed and had its own independent identity. The firm contended that the ITO's decision was based on mere suspicion without any substantial evidence. The appellant firm highlighted that the three common partners between MMGC and the appellant firm had different profit-sharing ratios, indicating distinct entities. The firm also argued that the non-contribution of capital by some partners did not necessarily make the firm bogus.

The Tribunal examined the statements of the lady partners and Kewal Krishan, one of the partners, and found that the ITO's conclusion was based on assumptions and not on concrete evidence. The Tribunal noted that the lady partners asserted their active involvement in the business, and there was no indication that they were benami partners. The Tribunal emphasized that the burden of proving that the firm was a benami concern was on the revenue, which failed to provide substantial evidence.

The Tribunal also considered the fact that the appellant firm and MMGC were constituted by separate partnership deeds, and the validity of these deeds was not challenged. The Tribunal rejected the ITO's argument that the continuation of the ESSO contract in MMGC's name invalidated the appellant firm's business. The Tribunal concluded that the appellant firm was a genuine partnership and not a benami concern of MMGC.

Conclusion:

The Tribunal held that the appellant firm was entitled to registration under Section 185(1)(a) of the Income Tax Act, 1961. The Tribunal directed the ITO to accord registration to the firm and recorded a positive finding that the revenue failed to prove that the firm was a benami concern. The appeal was allowed, and the ITO's and AAC's orders were set aside.