1982 (2) TMI 145 - AT - Income Tax

Summary

Issues Involved:
1. Grant of registration to the firm under Section 185 for the assessment year 1976-77.
2. Continuance of registration under Section 184(7) for the assessment year 1977-78.
3. Determination of whether Smt. Koshalya Bai was a benamidar of another partner, Shri Gopal Lal.

Issue-Wise Detailed Analysis:

1. Grant of Registration to the Firm Under Section 185 for the Assessment Year 1976-77:

The Income Tax Officer (ITO) refused registration to the firm for the assessment year 1976-77 on the grounds that Smt. Koshalya Bai did not contribute any capital initially and that the Rs. 10,000 she eventually contributed was a gift from another partner, Shri Gopal Lal. The ITO argued that she was essentially a housewife with no business skills and that her involvement in the firm was a sham, making her a benamidar of Shri Gopal Lal. The Appellate Assistant Commissioner (AAC) held that the onus of proving that Smt. Koshalya Bai was a benamidar rested with the department and that this onus had not been discharged. The AAC noted that there was no clause in the partnership deed requiring a fixed capital contribution and that the contribution of capital, skill, or labor is not essential for a valid partnership. The AAC concluded that Smt. Koshalya Bai was a genuine partner in her own right and directed the ITO to grant registration to the firm.

2. Continuance of Registration Under Section 184(7) for the Assessment Year 1977-78:

The ITO refused the benefit of continuance of registration for the assessment year 1977-78 because registration for the base year 1976-77 had not been granted. Given the AAC's decision to grant registration for the assessment year 1976-77, the AAC also allowed the continuance of registration for the assessment year 1977-78.

3. Determination of Whether Smt. Koshalya Bai Was a Benamidar of Another Partner, Shri Gopal Lal:

The ITO argued that the Rs. 10,000 gift from Shri Gopal Lal to Smt. Koshalya Bai was not customary and was merely a device to introduce her as a partner. The ITO contended that she was a benamidar of Shri Gopal Lal and that the partnership was a sham. The AAC, however, found that Smt. Koshalya Bai was a genuine partner, noting that she had withdrawn profits for her household expenses and that there was no evidence that these profits were enjoyed by Shri Gopal Lal. The AAC's decision was based on the statements made by Smt. Koshalya Bai, which indicated that she was a partner in her own right.

Separate Judgments Delivered by the Judges:

Majority Opinion:

The majority opinion, delivered by one of the members, held that the lady had made contradictory statements about the source of her capital and that the gift was not customary. The majority concluded that Smt. Koshalya Bai was a benamidar of Shri Gopal Lal and that the partnership was a sham. Consequently, the firm was not entitled to registration under Section 185. The majority opinion reversed the AAC's order and restored the ITO's decision.

Dissenting Opinion:

The dissenting member disagreed, stating that once the money was given to Smt. Koshalya Bai, she became the full owner and could not be considered a benamidar. The dissenting opinion held that the ITO was not justified in refusing registration and that the AAC's decision to grant registration was correct.

Third Member's Decision:

The third member, to whom the matter was referred, held that the burden of proving benami rested with the department and that this burden had not been discharged. The third member noted that the genuineness of the gift was not in doubt and that there was no evidence that the capital contribution was a condition for becoming a partner. The third member concluded that Smt. Koshalya Bai was not a benamidar and that the firm was entitled to registration under Section 185.

Final Decision:

In accordance with the majority opinion, it was held that Smt. Koshalya Bai was not a benamidar of another partner and that the firm was entitled to registration for both assessment years under appeal. The departmental appeals were dismissed, and the AAC's order was sustained.