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TMI Blog1983 (3) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... of income arising from the assets received as a result of partition. Shri Jagannath Dhoot, however, made a Will before his death which provided that Rs. 25,000 should be given to Smt. Rukma Bai w/o late Shri Jagannath Dhoot for her life as a limited owner only. After her death this amount was to become property of Shri Shyamsunder Dhoot. It was also provided in the Will that Smt. Rukma Bai would be entitled only to income arising out of the principal amount of Rs. 50,000 and she must return Rs. 50,000 as much. Shri Shyamsunder Dhoot was named as the executor of the Will. Later on 14th November, 1966 Shri Shyam sunder Dhoot and Smt. Rukma Bai entered into partnership under the name and style of M/s Gulabdas Jagannath. Smt. Rukma Bai brought Rs. 52,733 as her capital. Registration was granted to the firm u/s 185 for the asst.yr. 1968-69 which was continued for the subsequent asst. yrs. 1967-68 to 1977-78 in view of the provisions contained in s. 184(7) in the IT Act. While considering the claim of the assessee for continuation of registration for the asst.yr. 1978-79, the ld. ITO appears to have made enquiries in respect of the genuineness of the firm. The ITO as well as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Shyamsunder Dhoot. According to the ITO the real beneficiary of the profit was, therefore, Shri Shyamsunder Dhoot. He also enjoyed the fruit of Rs. 50,000 during the life time of Smt. Rukma Bai, though he was entitled to the same only after her death. He also observed that since gifts made were more that the capital and the income earned loans from the HUF of Shri Shyamsunder Dhoot were shown to have been taken by Smt. Rukma Bai to wipe out the debit balance in her capital account. The ITO has given the following position with regard to investment of Smt. Rukma Bai in the firm and loans from the HUF for the asst. yrs. 1974-75 to 1977-78: Asst. yrs. Investment of Smt. Rukma Bai .1974-75 In the firm 45,536.00 . Loan from HUF 69,278.00 1975-76 Investment in firm 74,967.00 . Loan from HUF 82,787.00 1976-77 Investment in firm 20,610.00 . Loan from HUF 92,722.00 1977-78 Investment in firm 10,501.95 . Loan from HUF 95,326.41 3. In other words, the ITO held the firm is not genuine for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the Case of Krishna Flour Mills vs. CIT (1982) 44 ITR 501 (SC) that partnership consisting of close relatives should necessarily be suspected is not justifiable either by partnership law or by human being experience. I further feel that the partnership should not be considered ingenuine only and solely on the ground that the capital invested by the lady partner was the one which other partner had vested interest because it is not necessary that a partner must contribute capital. What is required to be seen that if a partner has contributed capital whether it has any nexus in origin or enjoyment or in destination with the income of any other person or partner, because in such a case the partner so introduced will be benami, and therefore, will fall within the mischief of explanation appended to s. 185(1). In the present case the lady received Rs. 50,000 under a will of her late husband and according to the terms of the will she was to enjoy income earned on this amount during her life time. If follows that she had a right to employ this amount in such a manner where she can get maximum return. It cannot be denied that investment of the amount in a firm to become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. On the contrary she had incurred heavy liabilities in the form of loans from HUF without any reasons or necessity. He, therefore, told that the ultimate destination of the capital as well as the profit in the name of Smt. Rukma Bai was the children of Shri Shyamsunder Dhoot or indirectly Shri Shyamsunder Dhoot himself. This is how the learned AAC held that the partnership was not genuine and the learned ITO had rightly cancelled the benefit of continuation of registration for the years under appeal. 6. The assessee is aggrieved and is in second appeal before the Tribunal against the above findings of the learned AAC, Shri N.M. Ranka, learned Counsel for the assessee has at the out set pointed out that Smt. Rukma Bai was a lady partner and she was not very actively engaged in the day to day affairs of the business and therefore she was not acquainted with the business activities of the firm. Her participation in the affairs of the firm was very limited and, therefore, she could not be expected to know the minute details. He further pointed out that Smt. Rukma Bai during the course of statements made by her before the ITO had clearly stated that she was a partner with her so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property got by Shri Jagannath Dhoot at the time of partition out of ancestral porperty belonged to the HUF consisting of Shri Jagannath Dhoot and his wife Smt. Rukma Bai, the entire property of the HUF devolved on Smt. Rukma Bai after the death of her husband and become her absolute property. The writing of a will by her deceased husband in respect of HUF properties was invalid and, therefore, the cash of Rs.50,000 which was said to be fore life interest only as per the invalid will was an absolute property of Smt. Rukma Bai. Alternatively, he also argued that she being a member of HUF had a right to maintenance and the right of maintenance became absolute in view of the provisions contained in s. 14(1) of the Hindu Succession Act, 1956. He, therefore, urged that the capital contributed by Smt. Rukma Bai was her absolute property and, therefore, it could not be said that the other partner Shri Shyamsunder Dhoot enjoyed this property even before it became due to him on the death of the lady. With regard to the contentions on behalf of the revenue that she had gifted her share as well as the capital to her grand-children who were none-else but the children of Shri Shyamsunder Dh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and his wife Shirmati Rukma Bai and, therefore, he had validly made the will. By virtue of this will Smt Rukma Bai had limited interest in the corpus during her life time and, therefore, Shri Shyamsunder Dhoot by introducing that capital in the firm in the name of the lady grabbed the same before it become due to him. Not only the capital was grabbed by him, even the income earned by Smt. Rukma Bai as a partner was diverted to his sons in the form of gifts. He further submitted that the control and management on the affairs of the firm was with Shri Shyamsunder Dhoot and he managed the capital account of the lady in any manner Shri Shyamsunder Dhoot liked by the virtue of his position as a managing partner. He also referred to the statements of Smt. Rukma Bai recorded by the ITO according to which she was not aware about the details of the affair of the firm. He further submitted that the outstanding balance in the capital account of the lady at the time of her death by raising loans form the HUF of Shri Shyamsunder Dhoot had no relevance. He also submitted that the possession of the gold ornaments by Smt. Rukma Bai which otherwise were to devolve on Shri Shyamsunder Dhoot after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm. Their lordships of the Supreme Court in the case of K.D. Kamath Co. Have held that even though vast power of management and control had been given to K the business was being carried on by him on behalf of all the partners. In a partnership firm, control and management by one partner on behalf of the others is an essential ingredient of mutual agency and, therefore, no adverse inferences could be drawn therefrom. We also hold that the gifts made by Smt. Rukma Bai to her grand-children were only an application of income. She has full right to dispose of her assets in any manner she liked. Ultimately, these assets were to devolve on those children through their father Shri Shyamsunder Dhoot. We also agree with Shri Ranka that raising of loans by Smt. Rukma Bai form the HUF of Shri Shyamsunder Dhoot would not support to the conclusion that partnership was a sham affair. We also notice from the copy of the capital account of Smt. Rukma Bai filed in the paperbook that for the asst. yr. 1972-73 there was no debit balance in her account. On the contrary there was credit balance of Rs. 37,059 at the end of the year. While refusing registration for this year the ITO was infl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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