9911796707
TMI Blog1973 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... valid partnership came into existence ? (2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under section 26A of the Indian Incometax Act, 1922, read with rule 6 of the Income-tax Rules, 1922 ? (3) Whether, on the facts and in the circumstances of the case and in view of the fact that the parties of the second part have been found to be benamidars of the parties of the first part, the assessee-firm is entitled to the grant of registration ? " The assessee claims to be a partnership firm. The assessment year in question is 1961-62. Pal Singh and Sadhu Singh were carrying on business in radio and radio parts under the name and style of S.P. Gramophone Company in partnership prior to April 1, 1960. In this partnership their shares were equal. On April 1, 1960, there was a change in the constitution of the partnership. A fresh deed was executed and besides the original two partners, four other persons, namely, Gulzar Singh, Surjit Singh, Hari Singh and Harbans Singh, were taken in as partners. The shares of Pal Singh and Sadhu Singh were equal, being 25 per cent. each. Those of the remaining four were also equal, being 12 1/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of the alleged partners, pre-existing relationship of master and se rvant and total ignorance of the alleged partners of the affairs of the firm, the Income-tax Officer has rightly held that the partners of the second part are only dummies. They are mere benamidars for the parties of the first part. The parties of the first part have retained their respective shares, 50% by introducing two dummies each and allocating to them 12 1/2% profit each erased out of their own original 50% share. The share retained by Sarvshri Sadhu Singh and Pal Singh together with their benamidars is the same as before the change. The various clauses of the deed have been discussed earlier which lead to the inescapable inference that in the eye of law no valid and genuine partnership has been created by the deed dated 1st April, 1960. Shri Hari Singh in his statement recorded by the Income-tax Officer on November 20, 1965, stated that he not aware of the profit of the firm in 1960-61, 1961-62 and 1962-63 was no accounting years. He categorically stated that profit and loss account was prepared in the books of account for 1960-61 accounting year and added that he inspected the profit and loss account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n April 1, 1960. The following question and answer clearly show that he signed the deed mechanically without knowing, reading and much less understanding the implications thereto: "Question : How do you know that losses are not to be shared? Answer : When I was student of law, we were taught that the losses should never be shared and I took that notion. I never read the deed. " Shri Gulzar Singh has also a similar story to tell when his statement was recorded by the Income-tax Officer on November 24, 1965. He stated firmly that he did not know when the deed was executed. He was in the village and he was called from the village. He came to jullundur and went to the office of Messrs. S. P.Gramophone Company on April 1, 1960, (added by way of afterthought that he came of his own accord). He did not know who read the deed. He was not aware of the deed. He did not know as to who were the witnesses. In fact he frankly admitted " I do not know anything ". When asked what was his share in profit and loss he stated " 2 annas in the case of profit and in case of loss, I do not know and also do not remember ". He did not know the profits of the firm in 1960-61 and his own share ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- 64,796.34(?) Add profit 1,56,447.00 2,21,430.81 Rs. Rs. 3. S. Hari Singh 22,745.74 Add profit 32,398.24 55,143.98 --------------------- 4. S. Harbans Singh 32,398.24 5. S. Surjeet Singh 32,398.24 6. S. Gulzar Singh 32,398.24." Neither the profit and loss account nor the balance-sheet annexed with the return is signed by any of the partners. Nor has any such profit and loss account and balance-sheet duly approved and signed by all the alleged partners been produced at any stage of the proceedings . . . . There is no other evidence of actual division of profits amongst the alleged partners. There is no evidence even of the profit being credited to a reserve account showing the allocation thereof, in accordance with the shares specified in the instrument of partnership. On these facts the Income-tax Officer has rightly held that the requirements of rule 8 of the Income-tax Rules, 1922, regarding the certificate that the profits or losses were/will be divided or credited has not been satisfied in this case." It is significant that the Appellate Assistant Commissioner did not refuse registration merely on the ground that the partnership consisted of some perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion is based on no evidence. Mr. Bhandare made an attempt to argue that there was no evidence on which this conclusion is based. We are unable to agree with this contention. In fact, the statements of the socalled partners clinch the matter. In fact, their statements disclose that they were totally oblivious to the fact that they were in fact partners under the partnership deed dated April 1, 1960. This deed has been brought into existence merely to get over the tax burden. The construction of the partnership deed also points towards that conclusion. Mr. Bhandare, while dealing with the partnership deed, dealt with each clause of it as if it was in a water-tight compartment. The partnership deed has to be read as a whole to see whether it in any way militates against the finding at which the departmental authorities and the Tribunal arrived. The best that can be said in favour of Mr. Bhandare was that the document was capable of interpretation which could be consistent with a finding, if it was recorded, that the instrument of partnership brought about a genuine partnership. As already observed, the facts and circumstances of this case and the evidence which was led and has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was created. When the account books were examined, the Income-tax Officer detected that : "The profits of the business relating to the accounting year ended March 31, 1961, had not been divided and credited in the individual personal accounts of the alleged partners in their profit sharing ratio as specified in the instrument of partnership in the books made on March 31, 1961, itself. Mr. Bhandare, however, contends that it was not necessary for the partners to do so in the books of account. This may or may not be necessary but the fact still remains that the veracity of the balance-sheet cannot be judged from any material placed on the record and if that is so, the position remains where it was. The decision of the Appellate Assistant Commissioner on this matter is very elaborate and we see no reason to differ from it. The Tribunal has also come to the same conclusion and rightly. The decisions cited by Mr. Bhandare do not help him. They relate to the peculiar facts of those cases and have no bearing on the facts of the present case. It may, however, be mentioned that in those cases the actual state of affairs was traceable to the books of account which is not the case so fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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