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TMI Blog1984 (3) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated in brief thus: On the strength of a partnership deed executed on October 20, 1971 (annexure-E), between Smt. Darshandevi, w/o Shri Kailashchandra Agrawal, and Shri Rajendrakumar and Shri Ashok Kumar, sons of Shri Kailashchandra Agrawal, the assessee-firm, M/s. Mahavir Industrial Works, Indore, claimed registration of the firm under s. 185 of the I.T. Act, 1961, for the accounting years 1973-74 to 1976-77. The ITO examined the claim and found that Shri Kailashchandra, husband of Shrimati Darshandevi and father of the other two partners, who was given the general power of attorney dated October 25, 1971 (annexure-F), was the de facto proprietor of the assessee firm and the assessee-firm was only a benami concern of Shri Kailashchandr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essments. Against the findings of the ITO, the assessee went in appeal and before the AAC it was argued that the general power of attorney in favour of Kailashchandra was given to enable the manager to negotiate contracts with the Government and public sector undertakings. It was also pointed out that in the said power of attorney it was nowhere stated that the partners were divested of their own rights in the firm and that it was clear that Kailashchandra will not be in a position to tamper with the fundamental constitution of the firm and the partners' rights in its assets. The AAC accepted the contention of the assessee, cancelled the ITO's order under s. 185 of the I.T. Act and directed him to allow registration to the said firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case. Section 185 of the said Act deals with the procedure on receipt of application of which sub-s. (1) provides that " (1) On receipt of an application for the registration of a firm, the Income-tax Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and (a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year; (b) if he is not so satisfied, he shall pass an order in writing refusing to register the firm. Explanation.-For the purposes of this section and section 186, firm shall not be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld plan and execute the business from behind and that by virtue of the general power of attorney, the entire business of the partnership firm was entrusted to Kailashchandra who was to decide everything including the fact from whom the purchases were to be made and to whom the sales were to be made. They also relied on the testimony of Kailashchandra wherein he has stated that his wife never directed him in the matter of sales and purchases and that he carried on all routine tasks and no complicated matter ever arose. On the basis of these facts, it was found that no genuine firm had been brought into existence. Shri G. M. Chaphekar, learned counsel for the assessee, M/s Mahavir Industrial Works, Indore, contended that neither the ITO n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach partner should physically carry on the business of the, firm and that they have the authority to appoint a manager who can look after the affairs of the firm but that does not mean that by appointing such a manager they lose their control over the affairs of the partnership business, because if they have the right and authority to give a general power of attorney to their manager, they have also the right and authority to revoke and cancel the said power of attorney and, therefore, by no stretch of imagination, in the absence of any other material on record, it could be held that the said partnership firm was not a genuine firm. The learned counsel for the assessee in support of his submission placed reliance on the decisions in CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion that the reference must be answered in favour of the assessee and against the Department. The deed of partnership suggests that the two male members are the working partners and the capital is invested by the lady partner in whose name the business was carried on till the assessment year 1972-73. It is also clear, as was argued, that the power of attorney was given to enable the manager to negotiate the contracts with the Government and public sector undertakings and that the terms and conditions of the power of attorney nowhere indicate that the partners are divested of their own rights in the said firm, but on the contrary clause (6) of the said document makes it clear that Kailashchandra Agrawal will not be in a position t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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