9911796707
TMI Blog1988 (4) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ements of the three partners which included two ladies. On the basis of these enquiries the ITO proceeded to disallow registration to the firm. He also opined that the firm was a benami of another firm, viz., M/s. Vijeta Industries. The relevant observations of the ITO as reproduced from the assessment order are as under: "During the course of assessment proceedings it is seen that the assessee firm consists of 3 partners which are relating to the partners of M/s Vijeta Industries in the following manner: . M/s Vijeta Industries . This firm's partner . Relation 1 Chhaganlal Trikamalal 1/3rd Narmadeben Chhaganlal 1/3 Wife 2. Mansukhlal Gordhandas 1/3 Chandrakant Gordhandas 1/3 Brother of partner 2 3 3. Ratilal Gordhandas 1/3 Lalitaben Ratilal 1/3 Wife Secondly it is seen that the business premises and factory building of both the firms are situated in the same building, the Accountant is also same. The administration of the firm is governed by none of the partners of the firm. But by somebody else. The statement of all the partners of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the same premises in which the old firm was situated. In fact, if the above agreement is scrutinised in detail, it becomes very clear that, as is indicated in cl. 18 of the agreement, this agreement was to be kept with M/s Vijeta Engg. Works. It is not known as to how the agreement which is claimed to be entered between Shri Tribhovan Dayalji and Shri Chandrakant Gordhandas was to be kept with M/s Vijeta Engg. Works. Further, it is not known as to why Shri Ratilal Gordhandas also signed the agreement entered into by the above two persons. It was further noticed that the stamp-paper on which this agreement was entered into was purchased in the name of Shri Ratilal Gordhanda, a partner of old firm and later on just to give a colour of genuineness, some changes were made. To decide the issue it is very necessary to go through the depositions given by the three partners of the appellant firm because the question of genuineness of each firm depends upon its peculiar circumstances. Some of the questions and answers given by Smt. Lalitaben Ratilal are reproduced as below: xx xx xx xx xx xx xx xx xx xx xx xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR TLR 93 in exactly similar circumstances upheld the ITO's action of refusal of registration. In that case also a partnership firm was formed by taking one partner from the old firm and wives of two partners. In the case of the appellant, brother of first two partners of the old firm is taken and the wives of two partners of the old firm are taken as partners in the new firm. In control and in the case of the appellant firm also business is conducted from the same premises and the partners of the old firm are controlling the business. In the case of Shri Dhanji Lalji vs. CIT (1977) 107 ITR 397 (Bom), the Bombay High Court held that each one of the circumstances taken itself might not be sufficient to lead to an inference about the non-genuineness of the firm but that does not mean that taking all the circumstances and factors cumulatively, such an inference can never be drawn. In the case of the appellant firm, if we examine the depositions of the three partners, the only conclusion that can be drawn is that none of the partners is a genuine partner and they are simply benamidars of the partners of the old dorm. One more important point was noted by me that regarding the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in relation to the amount of profits credited to their accounts. That the male working partner Shri Chandrakant Gordhandas was specifically asked about his share and he had correctly answered that the same was 1/3rd. That the ladies were not aware of the complete and minor details of the business, but both of them had specifically stated that they had invested capital out of their own sources in the partnership firm and Shri Chandrakant was the third and active partner of the firm and it was he who knew about the business activities of the firm. That even Shri Chandrakant Gordhandas specifically stated in his deposition that he was in charge of the management of the firm and was also working as a "turner." That his investment in the partnership firm had also been accepted by the ITO. That the ITO had specifically mentioned in an office note appended to the assessment order that the capital introduced by all the partners stood properly explained. (5) That the new firm was engaged in an independent activity of manufacturing although it was also engaged in doing job work on behalf of the old firm. That the rates paid to the new firm by the old firm were never doubted by the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case if the firm was to be treated as a non-genuine one, the ITO could at the most treat it as an URF or as an AOP. It was submitted that the income which was being taxed here on a protective basis should be so done on a substantive basis. He thereafter advanced arguments pertaining to the "benami" aspect of the matter in so far as the income had been clubbed in the hand of the old firm. These were as under: (1) That the burden of proof was squarely on the Department to prove that the new firm was the "benami" of the old firm. (2) That some of the tests laid down for establishing the benami nature of a transaction were not fulfilled in the present case. These tests, according to him were: (i) Source of investment; (ii) Possession of assets; (iii) Position of the parties; (iv) Motives; and (v) Conduct of the parties. That the source of investment of the partners was fully established and accepted by the ITO assessing the new firm. That no active role was played by the partners of the old firm in the business and manufacturing activities of the new firm. That the assets and properties of the new firm were in the exclusive possession of its partners and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the old firm. (5) That evidence brought on record clearly proved that not only was the new firm non-genuine but it was the "benami" of the old firm. That the clubbing of income was fully justified in the hands of the old firm. 13. In support of his arguments the Departmental Representative relied on the following authorities: (i) S.P. Gramophone Co. vs. CIT (1974) 97 ITR 532 (P H) (subsequently affirmed by the Supreme Court in (1986) 51 CTR (SC) 104 : (1986) 158 ITR 313 (SC)); (ii) Sree Balajee Rice Working Co. vs. CIT (1980) 15 CTR (AP) 233 : (1980) 3 Taxman 160 (AP); (iii) R.S. Balasubramania Mudaliar vs. CIT (1952) 22 ITR 370 (Mad). He was also of the view that the decision cited on behalf of the assessee were not strictly applicable since they were distinguishable on facts. He also referred to the relevant points of the statements of the partners as also some of the other documents appended in the paper book filed by the assessee in support of his arguments. 14. In reply the assessee's counsel made the following submissions: (1) That it was not the case of the ITO that the new firm had been created with a view to reduce the income of the old firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner of the assessee firm for the lease of the premises located at 4. Bhaktinagar Station Plot and machinery situated on the said plot. According to the AAC these premises were identical to those on which the old firm was situated. The AAC further found that the agreement was also signed by Shri Ratilal Gordhandas partner of the old firm and "was to be kept with M/s Vijeta Engg. Work's." He also found that the stamp paper on which the agreement had been entered into had been purchased in the name of the said Shri Ratilal Gordhandas. Tha AAC also considered the shifting stand taken by the father of one of the lady partners Smt. Narmadaben on an inquiry being made by the IT Inspector regarding a sum of Rs. 5000 which was the capital contribution of the lady. 19. The AAC in his order also referred to the depositions of the partners and reproduced the relevant portions. According to him the decision of the Hon'ble Supreme Court in the case of Laduram Taparia was fully applicable. 20. Taking into account the relevant facts we are of the view that there is no legal bar on persons closely related to each other to engage in independent business activities of identical or different na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise it was a natural thing for a copy of the agreement to the kept with the assessee firm. 23. The question of the stamp paper on which the agreement was entered into being in the name of a partner of the old firm is something which according to us could create an initial doubt. All that we can say is that the assessee could have purchased a stamp paper in its own name and then also entered into a similar agreement may be without being suspected in the eyes of the Revenue. The partner of the old firm had countersigned the agreement merely because the stamp paper was in his name. This however did not make him a party to the document which in practice remained between the new firm and the landloard. 24. Another aspect of the matter referred to by the ITO is the common Accountant for maintaining the books of accounts of both the firms. According to us this is a common practice in small businesses and need not be discussed any further. 25. The next important aspect is the finding of the lower authorities that the lady partners were not engaged in the business and nor was the remaining male partner aware of the affairs of the business. We must say that initial doubts can be cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not care to follow these enquiries to their logical conclusion. The ITO in fact accepted the capital investment of all the three partners and specifically mentioned so in the body of the assessment order itself. This acceptance was done inspite of the fact that some doubt was created by the enquiries which the IT Inspector made with the father of one of the lady partners, namely, Smt. Narmadaben. This aspect of the matter has been referred to in the order of the AAC. We also find on the evidence available on record that no funds of the appellant firm came from the coffers of the old firm. A perusal of the balance sheet of the assessee firm clearly proves this fact. The ITO has not even doubted the transactions between the old firm and the assessee firm in so far as it related to the labour work carried out by the assessee firm on behalf of the old firm. There is no evidence on record to show that the new firm was created with a view to divert a part of the income of the old firm since none of the two firms were having income of a very high magnitude. We were in fact informed during the course of the hearing that the assessee firm lasted only for a period of 3 years. We have also ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
