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TMI Blog1962 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... mal Saraf, at Belur near Calcutta, under the name and style of Messrs. Juggilal Kamlapat. Jhabarmal Saraf was taken in as a partner on the 29th November, 1939. On 27th October, 1941, the three Singhania brothers created a trust known as the Kamla Town Trust, principally for the welfare of the employees of the Juggilal Kamlapat Cotton Spinning Weaving Mills Ltd. of Kanpur. Members of the public have also been given certain rights under it. The three Singhania brothers became the first trustees. On 1st December, 1942, a deed of partnership was executed between Jhabarmal Saraf, and the three brothers as trustees of the Kamla Town Trust, by which they purported to constitute a fresh partnership, taking effect from the 27th March, 1942. On 2nd December, 1942, the three brothers executed a deed of relinquish ment by which they relinquished all their right, title and interest in all the assets and properties of the partnership firm constituted on the 29th November, 1939, in favour of Jhabarmal Saraf and themselves as the three first trustees of the Kamla Town Trust. The deed purported to give a retrospective effect to the relinquishment from the 26th March, 1942. What in reality happene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghania brothers. Against this order, an appeal was taken to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner rightly found the decision of the Income-tax Officer to be a strange one. He did not find any defect in the trust, nor did he find it surprising that Jhabarmal Saraf should be content with taking a 4 annas share. In view of the entire body of facts, namely, the constitution of the Kamla Town Trust and the object with which this new partnership came into existence, the Appellate Assistant Commissioner rightly thought that the whole approach of the Income-tax Officer was unwarranted. He stated as follows: It would therefore appear that the Income-tax Officer having misconstrued the facts and circumstances of the case and also the law wrongly, refused the application under section 2GA and that on a proper consideration of the facts of the case and construction of the relevant documents the Income-tax Officer should have held that the partnership was a genuine partnership and valid in law and should have registered the firm as constituted in the partnership deed dated December 1, 1942, and that the order under section 26A is against the weight of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked whether the alleged change in the constitution of the old firm had been intimated to any of the banks in which the accounts of the old firm were kept. It appears that the old firm had been running bank accounts with half a dozen different banks. For this purpose, the appellant was allowed special time. But he could not produce any evidence or letter from any of the banks to the effect that the old firm ceased to exist as from March 26, 1942, or that there was any change in the constitution of the old firm as from March 26, 1942, or December 2, 1942. It is therefore clear that the bank accounts of the old firm were continued by the alleged new firm without any intimation of any change in the constitution of the old firm. This point, in my opinion, is dead against the appellant's claim that a new firm came into existence either from December 2, 1942 or from March 26, 1942. In respect of the order of the Appellate Tribunal a reference was made under the provisions of section 66(1) of the Income-tax Act to the High Court of the following question : Whether, in the above facts and in the circumstances of this case, the partnership as evidenced by the deed of 1st of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not affect the constitution of the firm. Following this argument Mr. Meyer, counsel for the Commissioner of Income-tax, made certain concessions. This appears in the judgment of Das J. : Mr. Meyer, learned counsel for the income-tax department, did not seriously dispute the correctness of the proposition of law submitted by Mr. Gupta but pressed us to hold that the Appellate Tribunal came to a finding of fact that the partnership was not genuine, viz., that it was a mere pretence. He has accordingly submitted that no question of law arises and the reference was unnecessary. He has referred us to paragraph (7) of the statement of the case, which says that 'on the facts the Tribunal came to the conclusion that a genuine partnership as evidenced by the deed of 1st of December, 1942, did not come into existence ' The learned judge was of the opinion that Mr. Gupta, the Judicial Member of the Tribunal, did not hold that the new firm was a mere pretence. But he was not equally sure about the findings of Mr. Chatrath. Therefore, the learned judge came to the conclusion that it was not correct to say that the Appellate Tribunal had come to a categorical finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 66(2). In this case, although the court proposed to reframe the question it did not do so and directed the Appellate Tribunal to come to a fresh finding of fact although it was of the opinion that on the question of genuineness of the partnership the Tribunal had not come to any categorical finding. Upon this remand, however, the Tribunal became confused and proceeded to do something which was not warranted in law. Since the court wanted the question to be reframed, the Tribunal reframed the question as follows : 1.Whether, in the facts and circumstances of this case, can the nonregistration of relinquishment deed invalidate the transfer of the business assets to the new partnership ? 2.Can the registration application be rejected merely on the ground that the business assets were not legally transferred to the new partnership ? The Tribunal in its supplementary statement of the case dated 29th February, 1954, re-stated the four reasons which had been set out in the order of the Tribunal set out above. It then went on to state that in the meanwhile Mr. Gupta, the Judicial Member, had retired and only Mr. Chatrath was available. In fact, Mr. Chatrath was himself a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been stated that there were accounts in the books of the bank in the name of Messrs. Juggilal Kamlapat which were operated by Jhabarmal Saraf, by virtue of a proxy issued in his favour by the Singhania brothers authorising him to act for them and in the name of the firm. It also contained the information that the bank had been apprised of the fact that Messrs. Padampat Singhania, Kamlapat Singhania and Lakshmipat Singhania were the trustees for the Kamla Town Trust, Kanpur. The supplementary statement of the case clearly shows that the members of the Tribunal perused the order of Mr. Chatrath and found that he had stressed the point that in respect of the constitution of the new firm, no information was given to the banks of the change in the constitution of the firm. In the opinion of the Tribunal, since no new matter was brought to their notice, they, in their turn, proceeded to decide the question of fact referred to them based on this one fact, namely, that the information had not been given to the banks. This was what was stated : These letters indicate that the three brothers opened the accounts and authorised Mr. Jhabarmal Saraf to operate upon the accounts. The same p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere device to avoid taxation. To put it more succinctly, it would have to be found that the three Singhania brothers never really wanted to act as trustees and it was never intended to apply the income from the Calcutta firm to the purposes of the trust. What they really intended was to avoid taxation by falsely bringing into the picture the trust, and to evade taxation by claiming exemption on that score. One can understand if the case really proceeded upon this footing and there were findings in this behalf. Upon a consideration of the record, it appears that nothing of the sort happened. Das J. had held that Mr. Gupta had not dealt with this aspect of the question but he appears to have been doubtful as to what Mr. Chatrath had done. When the matter went back, Mr. Chatrath was still there and he has categorically stated that he had not considered the matter from the point of view of the facts. He had only considered it from the point of view of the legal aspect and particularly the point that since the properties had not been legally transferred there can be no new partnership. This point taken as a point of law is of course unsustainable and was given up at the earliest possi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper inference from the materials before it. Under those circumstances I do not consider this finding to be binding upon us to the extent that we must automatically proceed to answer the question in the negative. I shall now mention some facts which are already on the record although the Appellate Tribunal says that there are no such materials. On the question as to whether a new partnership firm with trustees really came into existence, the following facts are on record, but not considered by the Tribunal: 1.The deed of trust dated 27th October, 1941, by which the Kamla Town Trust was formed and the three Singhania brothers became the first trustees. This is annexure A to the statement of case dated 13th March, 1952, and is at page 5 of the paper-book. The trust deed recites the charit able purposes for which it came into existence. 2.The resolution passed by the board of trustees of the Kamla Town Trust dated 20th December, 1941, directing the trustees to enter into a partnership with Mr. Jhabarmal Saraf. This has been referred to in the order of the Income-tax Officer being exhibit E to the statement of case dated 13th March, 1952, which is at page 39 of the paper- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghania brothers renounced their rights and claims in all the properties and assets in their individual capacity. Since it was admitted that this document does not require registration it should have been considered as a strong evidence in support of the probability of the constitution of a valid firm. 6.The partnership deed dated 1st December, 1942 : Although the partnership deed is not by itself conclusive on the point, it is strong evidence of the coming into existence of a new partnership taken together with the other facts mentioned above. As stated above it contained a term that the Singhanias would bring in a capital of ₹ 50,000 and they in fact did so. 7.This reference relates to the proceedings in respect of the refusal of registration under section 26A'of the Income-tax Act. After such refusal, the assessment proceeding went on and against the assessment order there were appeals as also a reference. This is Income-tax Reference No. 62 of 1952, which is now pending in this court. Our attention was drawn to page 13, line 13, of the said paper-book, which contains a statement by the Appel late Tribunal that they were not satisfied that the document of part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of these letters but in saying that there was no evidence to show that a new firm came into existence, they fell into an error. They themselves mention one of the important items of evidence, namely, the introduction by the trust of capital to the tune of ₹ 50,000 into the account books of the new partnership. Therefore, the position in brief is that the Tribunal failed to notice the evidence which established that a new firm had come into existence, and, ignoring the same, came to the conclusion that there was no new firm, simply on the basis of the alleged fact that no information was given, of the formation of the new partnership, to the banks. This again was not strictly correct because it is inconsistent with the two letters of the banks dated 27th March, 1951, and 28th March, 1951. I do not say that if all the information is sifted carefully, it may still emerge that there was no intention of creating a new firm. But the most important evidence that would have established this has been completely ignored. The new firm came into existence in 1943. The supplementary statement of the case is in 1958, that is to say, about 16 years later. The matter would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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