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TMI Blog1948 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... managed the cloth shop there. There was a disruption of the joint family and Nemichand alone separated from the family, taking among other properties, the cloth shop at Gondia. The deed of partition in this connection is dated January 23, 1941. While Nemichand managed the two family concerns at Gondia he was assisted in the conduct of the business by an employee by name Mohanlal. The assessees case is that after Nemichands separation he found it difficult to manage the grain shop at Gondia as he was living with his family at Phulgaon and hence he admitted Mohanlal as a partner in the grain shop with effect from the October 31, 1940, as evidenced by the registered instrument of partnership dated February 5, 1941. It was therefore contendeds by the assessee on the footing of this instrutment that the grain shop at Gondia was no longer a family concern but that of a firm consisting of himself and Mohanlal and consequently the grain shop income should be excluded from his assessment and should be assessed separately as the income of the firm. The Income-tax Officer, the Appellate Assistant Commissioner and also the Appellate Tribunal held that the alleged firm was not a genuine fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that no notice of partership was given to any of the constituents of the shop is equally irrelevant. The only ground that seems to be mainly relised upon by the Income-tax authorities and the Appellate Tribunal and that was also strenuously pressed by Mr. V. R. Sen is that a separate capital account of the firm was not opened and ₹ 3,300 were not debited to the personal khata of Mohanlal for being transferred to that account. It was on this ground that it was held that the partnership of Suwalal and Mohanlal was not a genuine firm. In the first place it should be borne in mind that mere omission to open capital account has per se no positive evidentiary value. It is a circumstance of some negative value which may affect the balance of probabilities in favour of the constitution of the firm provided there was some positive evidence on record to disprove the genuineness of the firm. It is clear from the account books (which have not been discredited by the Income-tax authorities) that in the year 1940-41, when the partnership came into existence the amount lying in the shop to the credit of Mohanlal in his personal Khata was ₹ 5,349-9-8 and in the year 1942-42, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing observations of Lord Justice Baggallay in Walker v. Hirsch In most cases where there is an agreement with reference to particular business and the particular parties entering into it that they shall share the profits, and bear the losses, in certain proportions, of carrying on the business, with nothing to explain or get rid of those words, that would certainly be prima facie evidence of an intention to carry on business in partnership. In the case before us there is a registered deed of partnership which embodies the essential ingredients of partnership and further credible documentary evidence is forthcoming in the shape of the account books of the form regularly maintained, which proves that profits were actually shared by Suwalal and Mohanlal, in certain proportions, in accordance with the terms of the deed of partnership. In such circumstances, it is not merely a question of the discharge of the burden of proof. Thers is strong positive evidence on one side and not a little of evidence at all on which the Income-tax Appellate Tribunal could base its decision. [Vide Muthukaruppan v. Commissioner of Income-tax, Madras. It is futile to contend that mere omission to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly been referred to me as the third Judge. The question at bottom is whether there was sufficient material before the Income-tax authorities and the Income-tax Tribunal to justify them in reaching the conclusion that there was no genuine partnership in this case. The actual question referred is :- Whether there was any material before the Tribunal for the finding that Suwalal Bansilal at Gondia was not a genuine firm ? The basic facts have been set out in the judgment of Sheode, J., and are not disputed before me. Briefly they are as follows : One Suwalal Chhogalal had a son Nemichand, as well as two other sons by another wife. They formed a joint Hindu family and owned a cloth shop and a grain shop at Gondia and a cloth shop at Phulgaon. There partition in the family in which Nemichand separated while the others remained joint. Nemichand was allotteds the cloth shop at Gondia. Suwalal and the others got a grain shop at Gondia and a cloth shop at Phulgaon. We are concerned here with the grain shop at Gondia which fell to the share of Suwalal and his other sons. This partition was on January 23, 1941. While the family was joint the two shops at Gondia were managed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siders its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. It will be observed that if the Court believes it to exist, that concludes the matter provided of course there is evidence on which such a belief can be founded. If the Court had believed that there was a partnership in this case, that would have concluded the matter. If it does not believe it to exist, then it has to determine whether, in its opinion, its existence is so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. Now the burden of proof here in the first instance was on the assessee. He undoubtedly had to prove the partnership. It is evident that the Income-tax authorities did not believe the partnership to exist; therefore, under this definition, they had to consider whether they considered its existence so probable that a prudent man ought, under circumstances of this case, to act upon the supposition that it exists. Now what is the evidence adduced of the partnership here ? First, we have the partnership deed. It is registered. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, nevertheless the parties were not prepared to share their profits and losses in the manner suggested but only pretended to do so. But that means that there was fraud, and what I have to see here is whether the material on which the Tribunal has acted cans justify an inference of fraud. The grounds on which the Tribunal states that an inference of what in effect amounts to fraud can be drawn are these. They are set out in the order of reference. First, it is said that Mohanlal was an employee managing the grain business at Gondia and that his salary of ₹ 1,800 a year as an employee was almost equal to the share of profits of ₹ 2,100 which he received in the account year. That standing by itself is not a proper objection, it is not unusual for owners of a business to take an old and faithful employee into the business as a partner. Even if the share of profits which that partner is to receive is to be more or less equal to the salary which he would get, there will be nothing to prevent that, but in actuals fact we find here that Mohanlal was not being given his usual salary. The sum credited to his share year by year is almost exactly equal to the share which he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The transfer entries in books relating to the creation of capital account cannot be held as sufficient to prove the existence of a genuine firm. It would appear from this that there were some entries in the books relating to a capital account. However, the books are not before me and there is no other material on which I cans reach a sure conclusion, but, as I say, that fact is immaterial because it is clear from the accounts and from the partnership deed exactly how much Mohanlal has to receive. The next reason given is that no notice of partnership was given to any of the shops constituents. Here again, I agree with Sheode, J., that is unnecessary and that it would be unusual in a petty concern of this kind. It would not much matter to the constituents of this firm whether Mohanlal was dealing with them as a partner or as an agent as heretofore. Next it is stated that Mohanlal did not draw any moneys from the firm during the year of account. That is not correct. The accounts show that money was withdrawn every year. Sheode, J., has givens the details. I need not repeat them. Those are the grounds on which the Tribunal has reached its conclusion. Before me another gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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