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TMI Blog1982 (7) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... hip firm. The assessee-firm had a branch at Bangalore till 23rd October, 1957 (end of Samvat Year 2013). It is the case of the assessee that it wound up its business so far as the Bangalore branch was concerned with effect from 23rd October, 1957, and thereafter an independent firm styled as Ishwarlal Company came into existence with effect from 24th October, 1957. This independent firm consisted of two major sons of Nagindas, namely, Ramanlal and Ratilal, each of whom had 27 1/2 per cent. share in the profits and losses of the partnership. Three minors, namely, Narendra jamnadas, Arvind Bhagwandas and Ishwarlal Kishandas were admitted to the benefits of the partnership and each was given a share of 15 per cent. in the profits of the partnership. It thus appears that in the new and independent firm, which is stated to have taken over its business in Bangalore with effect from 24th October, 1957, two sons of Nagindas, who were majors at the date of the creation, of the new partnership, and one minor son of each of the remaining three partners of the Surat, firm, namely, jamnadas, Bhagwandas and Jaikishandas, were admitted to the benefits of the new partnership. In other words, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear indication that the firm is not genuine. The Tribunal did not accept the explanation that Jamnadas Moolchanddas was specially authorised to operate the bank accounts since no such authority appeared from the terms of the partnership deed. Besides, it was observed that if Jamnadas was operating under any such authority, he would have been described as a person having authority to operate the bank account or in any other manner to suggest the same but not as a partner along with Ramanlal dropping the name of Ratilal. In that view that it took the Tribunal held: " The old branch of the Surat firm is continued under the guise of an independent firm. " The appeals were, therefore, dismissed. The Bangalore firm, therefore, sought a reference under section 66(1) of the Indian I.T. Act, 1922. The question which the High Court of Mysore at Bangalore was required to consider was: " Whether there was evidence on which it was open to the income-tax authority to come to a decision that the firm of Ishwarlal Co., as constituted under the partnership deed dt. 24-10-57, did not exist ? " At the hearing of the said reference the learned counsel for the Revenue conceded that the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the conclusion that the Bangalore firm was not a genuine firm and did not exist as evidenced by the partnership deed dated 24th October, 1957. The reasons which prevailed with the Bangalore Bench have been reproduced in extenso in para. 14 of the Tribunal's order. Those reasons show the foundation laid by the Revenue before the Income-tax Appellate Tribunal, Bangalore Bench, in support of its contention that the Bangalore firm was not a genuine firm and did not really exist was accepted. It transpires from the reasons which have been set out in the Tribunal's order that Ramanlal Nagindas when asked had stated that he was unaware of the extent of his share in the partnership because his uncle, Jamnadas, was carrying on the business at Bangalore. This statement which is found in the extracted portion from the judgment of the Tribunal at Bangalore shows that it was Ramanlal Nagindas, the partner of the Bangalore firm, who had appeared before the taxation authorities and had stated that Jamnadas was managing the affairs of the business carried on by the Bangalore firm. Having regard to the various circumstances placed on record which have been dealt with in the extracted portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue was held to be without jurisdiction : vide Ishwerlal Bros. v. N. N. Seth, ITO [1972] 85 ITR 414 (Guj). Mr. J. P. Shah, the learned counsel for the assessee, pointed out from this judgment that the question whether the Bangalore firm was a branch of the Surat firm even after 24th October, 1957, was settled after a reference to the Commissioner who had the benefit of going through all the relevant orders passed by the tax authorities concerning the Bangalore firm. This clearly emerges from the following paragraph appearing at p. 417 of the judgment: " It appears that finally on 18th February, 1964, the Commissioner of Income-tax wrote to the petitioner-firm that the matter in controversy was discussed by the petitioner's representatives with the Commissioner and thereupon necessary instructions were issued by the Commissioner to the concerned Income-tax Officer. It is an admitted fact that thereafter the assessment of the petitioner's income for the assessment year 1959-60 was completed on March 23, 1964, on the basis that the income earned by the Bangalore firm was an income earned by a separate and independent entity and should, therefore, not be clubbed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable to the Tribunal at Ahmedabad when it disposed of the assessee's appeals which have given rise to the present reference. The Tribunal took the view that since the Tribunal at Bangalore had held that the Bangalore firm was not genuine and did not exist for the purpose of refusing registration, it followed as a consequence that the status quo ante was restored and, therefore, the Bangalore firm ought to be treated as a branch of the Surat firm. It was on this premise that the Tribunal upheld the order of the ITO and reversed the order of the AAC. Mr. J. P. Shah, the learned counsel for the assessee, pointed out that the Revenue had failed to Jay facts in the proceedings commenced by the ITO, Surat, to prove that the Bangalore firm was a branch of the Surat firm. He pointed out and, in our opinion rightly, that the observations reproduced from the order of the Tribunal at Bangalore would only go to show what foundation was laid by the Revenue in the proceedings concerning the Bangalore firm but those facts could not be read as established facts so far as the proceedings initiated by the ITO, Surat, is concerned. That is because the assessee-firm was not a party to the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urat firm was being assessed as an independent firm (without a branch at Bangalore) from the assessment year 1955-56 to assessment year 1965-66 after the Commissioner had taken a decision that the Bangalore -firm was not branch of the Surat firm. We are not suggesting that that decision is final but that is also a circumstance which must be taken into consideration. It is also not known whether the assessment made by the tax authorities at Bangalore in so far as the Bangalore firm is concerned is final and if so the Tribunal has failed to take into account the effect thereof. It, therefore, appears to us that from the mere fact that the Tribunal at Bangalore refused registration to the Bangalore firm on the ground that it is not genuine and does not exist, the Tribunal at Ahmedabad has jumped to the conclusion that the Bangalore firm is an appendage of the Surat firm. In our opinion, it was not possible for the Tribunal to come to a finding of fact that the Bangalore firm was a branch of the Surat firm in the absence of facts laid before it by the Revenue. As stated earlier, the facts which were laid before the Tribunal at Bangalore could not be used against the assessee because it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the assessee, that the assessment orders made, in regard to the Bangalore firm have become final and the tax, has been recovered from the partners of the said firm in pursuance of the said orders. He submitted that should the Revenue succeed in proving that the Bangalore firm is a branch of the Surat firm, the Revenue will be recovering tax twice over because it has already recovered the tax from the Bangalore firm and would then proceed to recover the tax from the Surat firm since the income of the Bangalore branch has already been added as income of the assessee-firm on protective basis. In order to allay this fear, Mr. S. N. Shelat, the learned counsel for the Revenue, has placed on record the following statement: " Taxes paid by the Bangalore firm in the status of U.R.F. for the assessment years 1966-67 to 1969-70 will be given credit, in case the income of the Bangalore firm is added as income of a branch in the hands of M/s. Ishwarlal and Brothers of Surat. For the purpose of any interest or penalty the Surat firm shall be deemed to have paid the taxes on the date of payment by the Bangalore firm. This statement made by Mr. Shelat is sufficient to allay t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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