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1988 (1) TMI 90

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..... come into effect from 1st August., 1978. 2. On behalf of the appellants, Shri Sachdeva explained the basic facts. About the actual execution of the partnership deed and completion of the formalities regarding filing of application etc., there is no dispute. The ITO has, however, held that no genuine partnership has come into existence because, according to him, the alleged partner Shri Baljit Singh s/o Shri Hansraj, who is claimed to have become entitled to 40 per cent was not a genuine partner and represented only Shri Hansraj Wadhwa, who was so far carrying on the same business in trucks, interest and stones. The ITO passed the original order on 30th Jan., 1981, but, when the issue went in appeal, the AAC held that the examination of Srh .....

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..... f the firm can be operated by any of the partners. 4. The ITO's grounds for refusing registration and for holding Shri Baljit as benami of Shri Hansraj are as below: (i) The bank account continued to be in the name of Shri Hansraj upto 2nd May, 1980. (ii) The statement of Baljit recorded on 27th Jan., 1981 did not show that he had adequate knowledge about his partnership interest. Shri Baljit failed miserably to show what exactly was the work done by him, though he could say that his school hours are from 7.30 A.M. to 11.30 A.M. He could not give the details of the capital or his actual profits, though he could specify his profit sharing proportion as 40 per cent. (iii) There were no withdrawals from the account of Shri Baljit for lease .....

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..... legally correct. There is nothing wrong in Shri Hansraj's relying on his trusted son for assisting him in the various activities. There has been some trading in stones, trucks etc. Shri Baljit had ample leisure at his disposal after 11.30 a.m. when the business would really commence. The inclusion of s. 41(2) profits in the income of the firm is a consequence of the partnership executed much before the sale of the trucks and it cannot be said that at the time of execution of the partnership deed and admission of Shri Baljit such profits were foreseen or worked for. Regarding the absence of withdrawals, it is quite clear that during the relevant period Shri Baljit had no expenditure at all, as all such expenditure was borne by his father. In .....

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..... hdeva contended that even assuming that the partnership is not genuine it does not automatically follow that the entire business belongs to Shri Hansraj Wadhwa merely because in the past it was so. Accordingly, Shri Sachdeva sought reversal of the decision of the AAC. 7. In reply, the D.R. highlighted the fact that it is necessary to take note of the combined effect of all the facts brought on record by the ITO. Here is a case where Shri Hansraj was obviously carrying on the business as a proprietor without any disability. The induction of Shri Baljit who was a total novice is thus clearly motivated by desire to reduce the liability to tax. The D.R. further contended that the first statement of Shri Baljit which exposes his ignorance on vi .....

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..... ld that the firm of Laxmi Stone & Transport Company is entitled to get the benefits of registration. A proper partnership deed had been executed. The partnership deed does not require any capital to be brought in by Shri Baljit. Shri Baljit was expected to work after 11.30 a.m. under the guidance of his father as a partner. The Supreme Court judgment in Kamath & Co vs. CIT shows that the partnership cannot be refused registration merely because one partner plays a more dominating role. The statement of Shri Baljit though having some oddities as pointed out by the D.R. does not in any way show that Shri Baljit did not in fact become a partner on 1st Sept., 1978. It may be that after becoming a partner, he did not take as much interest in the .....

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