9911796707
TMI Blog1975 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... e two sons of Pulchand Jain Sarawgi, was given in adoption to one, Balchand Barjotia, on June 16, 1954, and the said adoption was reduced into writing by a registered deed of adoption on the same date. In the returns filed up to the assessment year 1959-60, however, the assessee treated the said Ratanlal Jain as a son of Phulchand Jain and a member of the joint family along with the other brother and the father. The assessee claimed that subsequently there was an agreement between Phulchand and Ratanlal, that is, father and the son, who was given away in adoption, to run the business in partnership with effect from March 29, 1958, relevant to the assessment year 1959-60. The deed of partnership was drawn up on April 19, 1962. No profits were, however, divided between the two alleged partners in the assessment year 1959-60. But in 1960-61, the profits were divided between the two partners. It is also found from the record and not contradicted that the profits were divided between the partners in the relevant assessment years 1961-62 and 1962-63. On these facts the assessee filed its return for the assessment year 1960-61 showing its status as a firm. The Income-tax Officer in his as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts presented before us, there is no evidence that after the year 1959-60, there was any partition in the Hindu undivided family of Phulchand Ratanlal to warrant the assessment in the status of an individual. In our opinion, therefore, the Income-tax Officer was not justified in changing the status of assessment. The assessments made by the Income-tax Officer in the status of an individual are, therefore, set aside. The Income-tax Officer may now proceed to make assessments for the relevant years in correct status." The operative portion of the judgment of the Tribunal merely says that, since the assessee has not been able to establish its status as a firm (partnership firm), there was no justification for the Income-tax Officer to treat the status of the assessee as an individual and, therefore, the assessment made on the basis of individual status was set aside and the Income-tax Officer was directed to make assessments for the relevant years in the correct status, that is to say, as Hindu undivided family, because the assessee claimed its status as a firm which was rejected by the Income-tax Officer who treated the assessee as an individual. The Tribunal also found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners that year. (2) For the assessment year 1959-60, the appellant submitted a return in the status of a Hindu undivided family and it was assessed in that status. (3) It is not understood that if there was actually an agreement for partnership on March 29, 1958, why did the deed of the partnership was drawn up 4 years later, on April 19, 1962. (4) There is no explanation why the bank account was not opened in the name of the firm for about 4 years from the start of the alleged partnership. (5) The so-called deed of partnership dated April 19, 1962, was not produced before the Income-tax Officer when the proceedings for the assessment for the relevant assessment years 1961-62 and 1962-63 were going on. (6) The assessments were completed on September 4, 1963, and the deed was first filed before the Income-tax Officer on December 11, 1963." On the above grounds the Tribunal found that the claim of the appellant to the status of a partnership firm was unfounded. It is quite clear from the statement of the case as well as from the orders of the Income-tax Officer, Appellate Assistant Commissioner and the Tribunal that in the year 1959-60 the assessee was assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. On the other hand, the Tribunal laid stress on the assessment order of 1959-60, in which year the profits were not divided. Even if the profits of the partnership were not divided between the two partners in 1959-60 but if from 1960-61 onwards the profits were divided between the two partners in the books of accounts of the partnership-firm, then that may be a relevant circumstance pointing to the existence of a partnership-firm. But this material circumstance appearing on the record was not considered by the Tribunal. Regarding the second requirement that the business of the firm shall be managed by all the partners or by any of them acting for all, we find that in the assessment order of 1960-61, the Income-tax Officer found that Ratanlal managed the business. In the same assessment order the Income-tax Officer has found that Phulchand, father of Ratanlal, gave Ratanlal in adoption to one Balchand Barjotia long ago. The fact that Ratanlal was managing the business of the assessee-firm, M/s. Phulchand Ratanlal, has not been considered by the Tribunal in arriving at its decision that the assessee has failed to establish its status as a firm. The third reason gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the materials on record we find that, in arriving at the conclusion that the assessee could not establish its status as a firm, the legal requirements under section 4 of the Indian Partnership Act to constitute a partnership were not considered as discussed hereinabove. But some materials were considered which are not very relevant for the purpose. Some circumstances were considered which may at best raise a suspicion about the genuineness of the firm. But mere suspicion is not enough to discard the claim of the assessee. In the instant case the assessee had filed the return for the relevant two assessment years wherein it claimed its status as a firm. Those returns were duly verified in accordance with law. The assessee also produced the books of accounts which disclosed that the profits of the firm were divided between the partners during the assessment years 1961-62 and 1962-63. In the assessment order for the assessment year 1960-61, the Income-tax Officer found that Ratanlal was managing the business of the assessee-firm. Without considering these material requirements for the constitution of a partnership-firm, the Tribunal could not have lawfully come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are required by law to be considered but, instead, considers some circumstances which are more or legs irrelevant, such a finding will be perverse and not binding for the purpose of determination of the question of law referred. Any decision based on such perverse finding of fact will not be justified in law. A finding of fact which is arrived at without materials on record or in arriving at which essential ingredients which are required by law to be considered are not considered but irrelevant materials are considered, will be a perverse finding losing the sanctity of finding of fact in such matter. If the law requires that in order to determine a question certain facts must be considered, then the Tribunal must consider those facts if those are on record but, if without considering those facts on record, it comes to any finding such a finding, even though it appears to be a finding of fact, cannot be sustained in law and acted upon. In the instant case, section 4 of the Partnership Act is very eloquent and we have already referred to the interpretation given to it by the Supreme Court in K. D. Kamath Co. v. Commissioner of Income-tax. The question that was before the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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