1971 (2) TMI 37 - HC - Income Tax

Whether, there is any material for the Tribunal to come to the conclusion that the partnership consisted of only one person, namely, Yadam Chennaiah, and is the firm entitled to registration under section 26A of the Indian Income-tax Act - genuineness of a firm is a question of fact - but when there was any material for the Tribunal to find that the partnership was/was not genuine, is a question of law held that there was material for the Tribunal to conclude that there was no genuine firm and that the business was the sole proprietorship concern

Summary

Issues Involved:
1. Whether there is any material for the Tribunal to conclude that the partnership consisted of only one person, Yadam Chennaiah.
2. Whether the firm is entitled to registration under section 26A of the Indian Income-tax Act.

Issue-Wise Detailed Analysis:

1. Material for Tribunal's Conclusion on Partnership Consisting of One Person
The Tribunal concluded that the partnership consisted of only one person, Yadam Chennaiah, based on several key findings:
- Initial Business and Contracts: The business was initially started by Yadam Chennaiah alone, who secured contracts from the Indian Leaf Tobacco Development Company Ltd. (I.L.T.D. Co. Ltd.).
- Execution of Partnership Instrument: Although the partnership instrument was executed on December 15, 1952, the business had already earned most of its profits for the year ending March 31, 1953.
- Role of Alleged Partners: The Tribunal found that the reasons for including the other three partners (Rosaiah, Kotaiah, and Koteswara Rao) were not genuine. The alleged partners did not contribute significantly to the business, either financially or operationally.
- Financial Capacity and Role: The financial capacity of the alleged partners was questionable. For instance, Kotaiah was an ordinary coolie, and Koteswara Rao was a cleaner, making their financial contributions implausible.
- Management of Business: The Tribunal observed that Yadam Chennaiah alone managed the business, and the other partners did not participate in its operations.
- Contradictions in Statements: There were material contradictions in the statements of the alleged partners, leading the Tribunal to conclude that they were not genuine partners.

Based on these findings, the Tribunal held that the partnership was not genuine and that the business was solely owned by Yadam Chennaiah.

2. Entitlement to Registration Under Section 26A
The court examined whether the firm met the statutory requirements for registration under section 26A of the Indian Income-tax Act:
- Statutory Conditions for Registration: The firm must be constituted under an instrument of partnership specifying individual shares of the partners, and the application must be signed by all partners, among other conditions.
- Genuine Partnership: The court emphasized that the firm must be a genuine partnership, not a bogus one. The Tribunal's role is to ascertain the genuineness of the firm based on the material evidence.
- Assessment of Tribunal's Findings: The court reviewed whether the Tribunal's findings were based on relevant and admissible material. It found that the Tribunal's conclusion was supported by sufficient material and was neither perverse nor unreasonable.
- Precedents and Legal Principles: The court referred to various precedents to establish that the genuineness of a partnership is a question of fact. However, whether there was material to support the Tribunal's conclusion is a question of law.

The court held that the Tribunal's finding that the partnership was not genuine was supported by sufficient material. Consequently, the firm was not entitled to registration under section 26A.

Conclusion
The court concluded that there was material for the Tribunal to hold that the partnership consisted of only one person, Yadam Chennaiah, and that the firm was not entitled to registration under section 26A of the Indian Income-tax Act. The assessee was ordered to pay the costs of the reference to the Commissioner of Income-tax, with an advocate's fee fixed at Rs. 300.