1970 (3) TMI 9 - HC - Income Tax

Whether the Tribunal was justified in sustaining the refusal of registration to the assessee-firm on the ground that no genuine firm came into existence under the deed - Held, yes

Summary

Issues Involved:
1. Whether the Tribunal was justified in sustaining the refusal of registration to the assessee-firm for the assessment year 1961-62 on the ground that no genuine firm came into existence under the deed dated February 23, 1959.

Issue-wise Detailed Analysis:

1. Tribunal's Refusal of Registration:
The Tribunal refused the registration of the assessee-firm for the assessment year 1961-62, primarily based on two grounds. Firstly, the Tribunal questioned the genuineness of the partnership deed dated February 23, 1959, due to the status of Nishikanta, who was governed by the Dayabhaga school of Hindu law, which does not recognize a coparcenary consisting of a father and his sons. The Tribunal did not accept the plea of mistake of law in the deed's recitals and found that the second deed executed on March 4, 1962, was not merely a deed of rectification but an entirely new partnership deed. Secondly, the Tribunal held that the 1959 partnership deed was not acted upon, as the capital of Rs. 1,20,000 mentioned in the earlier deed was not apportioned to the capital accounts of the partners during the relevant accounting years.

2. Legal Framework and Precedents:
The court emphasized that in a reference under the Income-tax Act, it is required to consider only the question referred to it and not introduce other questions of law. The court examined various precedents cited by the assessee's counsel, including decisions from the Allahabad High Court, Patna High Court, Madras High Court, and the Supreme Court. However, the court found that the facts of the present case were not analogous to those in the cited cases. The court noted that in the cited cases, there was credible documentary evidence, such as account books, to prove the existence of a genuine partnership, which was lacking in the present case.

3. Analysis of Partnership Deeds:
The court compared the clauses of the partnership deeds of 1959 and 1962. Clause 5 of the 1959 deed stated that the capital of the partnership was Rs. 1,20,000, while the 1962 deed mentioned a capital of Rs. 1,56,895.60. The court found a significant conflict in the capital disclosure, which indicated that the partnership described in the 1959 deed was not genuine. The court observed that if there were a genuine partnership created as envisaged in the 1959 deed, it should have been reflected consistently in the books of accounts, which was not the case.

4. Tribunal's Justification:
The Tribunal was justified in considering the terms of the 1959 partnership deed and comparing it with the actual position reflected in the accounts. The court held that the Tribunal's refusal to register the firm based on the 1959 deed was well-founded, as the circumstances relied upon by the Tribunal were relevant and not extraneous to the issue. The court concluded that the Tribunal was correct in sustaining the refusal of registration on the ground that no genuine firm came into existence under the deed dated February 23, 1959.

Conclusion:
The court answered the question in the affirmative, upholding the Tribunal's decision to refuse registration to the assessee-firm for the assessment year 1961-62. The court made no order as to costs.