PTA NO. 409/KB OF 1982-83, DECIDED ON 30TH NOVEMBER, 1992. VS PTA NO. 409/KB OF 1982-83, DECIDED ON 30TH NOVEMBER, 1992.
1993 P T D (Trib.) 1120
[Income-tax Appellate Tribunal Pakistan]
Before Syed Kabirul Hasan, Judicial Member and
Muhammad Mushtaq, Accountant Member
PTA No. 409/KB of 1982-83, decided on 30/11/1992.
(a) Partnership Act (IX of 1932)---
----Ss.4, 5, 6 & 69---Constitution of partnership firm---Essentials---Registration of partnership---Option of the partners.
For the constitution of partnership firm the following things are necessary:---
(i)A business;
(ii)Agreement, express or implied, to share profits or losses of that business;
(iii)The business must be carried out by all or any of the partners acting for all.
It has also been specified in the Partnership Act, 1932, that a partnership created under the Act need not be registered and registration is left at the option of the partners. It is true that there are certain advantages derived by a firm, if it is registered. This registration business is performed by the Registrar of Firms who has been given such powers under the said Act.
A partnership can be created by agreement, express or implied, to share the profits and loss of a business, which is carried on by all or anyone of them acting for all. Such partnership need not be registered unless its partners want to obtain certain advantages mentioned in section fig of the Partnership Act, 1932.
(b) Income Tax Ordinance (XXXI of 1979)----
----S.68---Registration of firm---Creation of genuine firm---Determination--' Principles---Mere non-contribution of capital by one of the partners and belated information to the Bank as to the constitution of firm would not be sufficient for refusal of registration of a firm---Cumulative effect of all the circumstances has to be considered in arriving at conclusion whether a partnership or firm is real or not.
Following arc the principles of registration of a firm as genuine:
(a)A partnership can be created by an agreement of partnership, express or implied, but for registration of firm under Income Tax Ordinance, 1979, it is necessary that it must be constituted expressly by an instrument of partnership.
(b)The agreement or instrument of partnership must specify the partners sharing ratio of profit and loss of the business.
(c)There must be business in existence, which may be carried out by all or any one of the partners acting for all.'
(d)Capital contribution and source of that capital is not important for the consideration of existence of firm; and
(e)Lastly, the firm is either registered or an application for registration of firm has been made to Registrar of Firms.
Contention that on the basis of no capital contribution by one of the partners and belated information to bank as to constitution of firm the assessing officer was justified to hold that genuine firm was not in existence is misconceived. The accumulative effect of all the circumstances shall be considered in arriving at conclusion whether .a partnership or firm is real or not. To take each situation by itself and then reject it on the ground that each by itself was not conclusive is not proper method of approaching the question.
1967 PTD (Trib.) 149; (1961) 4 Taxation 175; (1962) 6 Taxation 248; (1963) 7 Taxation 304; (1963) 50 ITR 628; (1965) 11 Taxation 37 and 1988 PTD (Trib.) 112 ref.
Afzal Nau Bahar Kiyani, D.R. for Appellant. Mehmood A. Hashmi for Respondent.
Date of hearing: 23rd November, 1992.
ORDER
SYED KABIRUL HASSAN (JUDICIAL MEMBER).---This departmental appeal relating to assessment year 1981-82 is directed against the order of learned CIT(A), Zone-II, Karachi, dated 19-7-1982, whereby he has directed the assessing officer to register firm under section 68 of the I.T. Ordinance, 1979.
2. The real controversy refusing the registration of firm under section 68 of I.T. Ordinance, 1979, in the language of assessing officer is as follows:---
"In order to ascertain genuineness of the firm, the assessee was asked to send under this office letter, dated 23-11-1981 certain details. This letter reads as under:---
"You are requested to furnish the following information alongwith evidence:--
(1) Copies of accounts of the partners.
(2)Source of investment by partners.
(3)Whether banks were intimated about the new constitution of the firm. If so, copy of letter sent to Bank, be furnished.
(4)Whether partners are looking after the business, if so, evidence be produced.
(5)Whether previous creditors who continue to be creditors even after 1-7-1980, have been informed of the new constitution. If so, evidence be produced."
The assessee vide its letters dated 5-12-1981 and 6-12-1981 furnished the following information:---
(1)Photo copies of capital account of Mrs. Saadat Ikram.
(2)Photo copies of drawings A/C. of Mrs. Saadat lkram.
(3)Photo copies of capita A/C. of Mrs. Ismat Riaz.,
(4)Photo copies of drawings A/C. of Mrs. Ismat Riaz.
(5)Photo copies of letter, dated 5-12-1981 from Habib Bank Limited;
Foreign Exchange Branch, Karachi stating that Mrs. Saadat Ikram and Mrs. Ismat Riaz are partners.
The assessee's counsel in their letter, dated 5-12-1981 also explained that Mrs. Saadat Ikram had contributed Rs.50,000 on 1-7-1975 out of cash gift of Rs.1 lac from Mr. Naveed Riaz. As regards Mrs. lsmat Riaz she became partner in M/s. Atherton lmrooz & Company on 1-7-1980. It was explained that she received gift of Rs.50,000 from her husband Mr. Naveed Riaz and Rs.30,000 as Meher. As all the information was not furnished, a letter, dated 10-12-1981 was sent. This letter reads as under:---
"You were required to furnish evidence in support of certain requisitions on 3-12-1982. On your request the case was adjourned to 6-12-1981 but no evidence was produced on this date to prove that partners are looking after the business. Similarly copy of your letter intimating the bank about the new partnership was not produced. You also did not produce evidence about intimation of new partners to your old creditors who continued to be your creditors after 1-7 1980. You are requested to comply with the above and also produce certificates from the banks about the partners who are operating the bank accounts alongwith dates from which they are operating.
For this purpose your hearing is fixed on 19-12-1981 at 9-30 a.m."
In reply the assessee's counsel under letter, dated 17-12-1981 sent the following:---
(1)Photocopy of cash book, dated 31-8-1980 and 30-6-1981 signed at the bottom by Mrs. Saadat Ikram.
(2)Photocopy of register of employment for August, 1980 and June, 1981 signed at the bottom by Mrs. Saadat Ikram.
(3)Petty cash book for October, 1980 signed at the bottom by Mrs. Saadat Ikram.
(4)Cash book of Lahore, dated 31-7-1980 and 6-6-1981 signed by Mrs. Ismat Riaz at the bottom.
(5)Copy of bank account, dated 7-7-1980 and 27-6-1981, Lahore as appearing in the books of Lahore Branch and signed at the bottom by Mrs. Ismat Riaz.
In response to notices of hearing Mr. Ikramul Haq, Mr. Mehmood Hashmi, Advocates attended on 19-12-1981. They admitted that the two ladies do not attend office daily but only sometimes. They also admitted that intimation of new partnership was intimated to Lahore Bank on 19-2-1981 and the Karachi Bank on 5-12-1981. The Accounting year of the assessee is the Financial year ending 30-6-1981. Mere signing of cash book and other documents at the bottom as discussed above does not prove that the two ladies are regularly conducting the business. Belated information to bank about the new partnership does not serve any purpose. No substantial evidence was produced to show that the two ladies are really carrying on the business produced before me. As regards introduction of capital evidence has been furnished. Regarding its introduction by Mrs. Ismat Riaz, this is accepted.
As regards Mrs. Saadat lkram she introduced capital as per her capital account as under:---
| Cash brought forward | Credit balances |
| 01-7-1980 b/f last year Rs.10,402 | Rs.10,402 |
| 01-9-1990 b/f last year Rs.4,000 | Rs.14,402 |
| 21-9-1990 b/f last year Rs.20,000 | Rs.34,402 |
Profit was credited on 30-6-1981
There is also drawing account of Mrs. Saadat Ikram. Photocopy has been furnished. The withdrawal shows debit balances at the end of each month as under:---
| July 1980 | Rs.2,136 |
| August 1980 | Rs.3,686 |
| September 1980 | Rs.3,686 |
| October 1980 | Rs.26,186 |
| November 1980 | Rs.39,312 |
| December 1980 | Rs.48,254 |
| January 1981 | Rs.50,125 |
| February 1981 | Rs.52,017 |
| March 1981 | Rs.61,021 |
| April 1981 | Rs.62,521 |
| May 1981 | Rs.74,421 |
| 27-6-1981 | Rs.96,052 |
On 30-6-1981 Rs.31,500 was further withdrawn to purchase NIT Units and thus total debit balance of Rs.1,27,552 was transferred to capital account in which it was adjusted against the capital of Rs.34,402 and profit of Rs:83,269 (total Rs.1,17,671) and the debit balance of Rs.9,881 was carried forward to balance-sheet.
A comparison of capital account and drawings account will reveal that after November, 1980 no capital of this lady remained in business. What was brought forward by one hand was taken away by the other hand.
I am, therefore, of opinion that the firm is not genuine and Mrs. Saadat lkram is not a partner. The sum and substance of the above argument is, that the business will be treated as a proprietary concern of Mrs. Ismat Riaz. Registration is refused. .
The assessee filed an appeal against the above order which was allowed after considering various case-law by the learned CIT(A) by observing:-
"All the objections taken by the learned Special Officer to the registration of the appellant as I have seen are not sustainable. It is my considered view that registration was refused without any adequate reasons and the order of refusal was therefore illegal. I accordingly direct the Income Tax Officer to grant registration to the firm."
3. The learned D.R. Mr. Afzal Nau Bahar Kiyani, has contended before us that, as capital contribution of partners was not explained and also the fact that both partners were ladies their participation in business was not having been proved and also the fact that intimation to bank regarding the constitution of firm was furnished late, the assessing officer was justified to refuse registration. In reply the learned counsel for assessee/respondent, Mr. Mehmood A. Hashmi, has contended as follows:----
(a) Since the firm was constituted before end of income year and was duly registered under the Partnership Act, 1932 and also the fact that shares of partners were specified, the ITO was not justified to refuse the registration;
(b) Belated information to bank about the formal constitution of firm would not mean that firm is not in existence; and
(c) That mere fact that the partners are two ladies would not justify the presumption that no business was carried out by them or firm was not in existence, as the assessing officer has himself accepted that the business was being carried on by one of the ladies.
In support of his contentions the learned counsel has cited the following case-law:---
1967 PTD (Trib.) 149; (1961) 4 Taxation 175; (1962) 6 Taxation 248; (1963) 7 Taxation 304; (1963) 50 ITR 628; (1965) 11 Taxation 37; 1988 PTD (Trib.) 112.
4. In order to resolve this factual controversy we have to take into consideration as to what constitutes firm and what arc the requirements of registration of that firm under I.T. Ordinance, 1979. Definitions of "Partnership", "Partners" and "Firm" have been given in sections 4, 5 and 6 of the Partnership Act, 1932. Sections 4, 5 and 6 read as under:
"4. Definition of "partnership" '-partner" "firm" and "firm name".-- "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with another are called individually "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm name".
5. Partnership not created by status.--The relation of partnership arises from contract and not from status;
and, in particular, the members of a Hindu Undivided Family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.
6. Mode of determining, existence of partnership.--In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.
Explanation1 --The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.
Explanation 2..--The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business;
and, in particular, the receipt of such share or payment---
(a) by a lender of money to persons engaged or about to engage in any business,
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity or
(d) by a previous owner or part owner of the business, as consideration for the sale of goodwill or share thereof,
does not of itself make the receiver a partner with the persons carrying on the business:'
From the bare reading of above, it would appear that for the constitution of partnership the following things are necessary:---
(i) A business;
(ii) Agreement express or implied to share profits or losses of that business;
(iii) The business must be carried out by all or any of the partners acting for all.
5. It has also been specified in the Partnership Act, 1932, that a partnership created under the Act need not be registered and registration is left at the option of the partners. It is true that there are certain advantages derived by a firm, if it is registered. This registration business is performed by the Registrar of Firms who has been given such powers under the said Act. Section 69 of the said Act reads as under:---
"69. Effect of non-registration.--(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm."
(Only relevant portion has been reproduced).'
6. From the above position emerges is that a partnership can be created by agreement express or implied to share the profits and loss of a business, which is carried on by all or anyone of them acting for all. Such partnership need not be registered unless its partners want to obtain certain advantages mentioned in section 69 of the Partnership Act, 1932 (supra).
7. After having a look at how a firm is created and how it. is registered under the Partnership Act, we come to registration of firm for tax purposes under I.T. Ordinance, -1979. The section which deals with registration of firm is section 68 and reads as under:---
"68. Registration of firm.--(1) An application may be made to the Income Tax Officer on behalf of a firm for registration of the firm for the purposes of this Ordinance.
(2)No application shall be made under subsection (1) unless, before the end of the income year for which assessment is to be made--
(a)the firm had been constituted by an instrument of partnership;
(b)the said instrument specifies, among other things, the shares of the partners; and
(c)the said (firm) had been registered under the Partnership Act, 1932 (IX of 1932), or an application for registration under the said Act had been made.
(3)An application under subsection (1) shall be in such form, be accompanied by such documents, be verified in such manner and be made on or before such date as may be prescribed.
(4)Where the Income Tax Officer, after making such enquiry or requiring the firm to furnish such particulars, documents or evidence as he may think fit, is satisfied that the requirements of subsections (2j and (3) have been fulfilled and that there is, or was, a genuine firm in existence in the relevant income year constituted as shown in the instrument bf partnership, he may, by an order in writing, made within three months of the date on which the return of total income was filed under section 55 or six months of the end of the income year, whichever is earlier, register the firm for the purposes of this Ordinance and, subject to the provisions of subsection (5), such firm shall be treated as a registered firm for the income year for which it was first registered and for all subsequent income years for so long as there is no change in the constitution of the firm; and if he is not so satisfied, he may by an order in writing made within the aforesaid period, refuse to register the firm:
Provided that, where no such order is made within the aforesaid period, the firm shall be treated as a registered firm and all the provisions of this Ordinance shall, so far as may be, apply in the case of a firm registered under this subsection."
(Only relevant portion has been reproduced).
From the above it is clear that for registration of a firm firstly an application in a prescribed form accompanied by required documents and verified in a prescribed manner is to be made before the end of income year. Secondly before making an application it is necessary that the firm has been constituted by an instrument of partnership, wherein specification of the partners' shares are mentioned and the firm has been either registered under the Partnership Act, 1932 or an application for registration under the said Act has been made.
8. Thus after having the above position of law before us we now take up the arguments of both the representatives. We would first like to take up the arguments of learned counsel for the assessee because both the arguments are inter-connected.
9. According to learned counsel Mr. Mehmood A. Hashmi, the assessing officer had no jurisdiction to refuse the grant of registration as he is required under subsection (4) of section 68 of the I.T. Ordinance, 1979 to see the following:---
(i)Whether the firm had been constituted by an instrument of partnership deed;
(ii)Whether the said instrument specified amongst others the shares of the partners;
(iii)Whether the firm had been registered under the Partnership Act, 1932, or application to that effect had been made;
(iv)Whether the application for grant of registration is in such form and is accompanied by such documents and is verified in the prescribed manner and is made and or before such date has been prescribed; and
(v)Whether the genuine firm was in existence in the relevant income year, constituted as shown in the instrument of partnership deed.
10. The learned counsel has emphasized that other formalities having been fulfilled and there being no objection to that effect, the assessing officer had limited jurisdiction to see as to whether the firm was a genuine firm constituted as shown in the instrument of partnership deed. In support of his contention he has relied on various case-laws mentioned above.
11. In 1988 PTD 112 (Trib.), while considering the genuineness of firm the Tribunal has observed on page 115 as under:---
"8.We have considered the contentions of the rival parties. The contentions raised by the learned counsel for the assessee have considerable force. Under subsection (4) of section 68 the I.T.O.'s powers to see whether the firm was genuine or not is restricted. According to that provision the ITO has to see whether the genuine firm as constituted under the instrument of partnership was in existence. Therefore, what the ITO has to see at the time of granting registration is, whether the firm is constituted in accordance with the partnership deed or not. The ITO had not raised any objection in this regard. On--the contrary he had conceded that all the formalities and requirements have been fulfilled. Not only that, in the assessment year 1978-79 when the registration was granted for the first time to this firm the assessing officer discussed in detail each and every partner and then held the firm as genuine and granted registration. It is to be noted that all the major partners are the same as before. One of the minors namely Farhat who had been admitted to the benefit of partnership earlier is also the same in the present firm. The only new addition on whom any attack could be made is another minor namely Khalid. His investment of Rs.50,000 also appears to have been accepted by the ITO as his mother Shamim Akhtar has filed an affidavit stating that her husband Asghar A1 ' was serving in Saudi Arabia and she had arranged the amount of investment. This lady (the mother of the minor) is also stated to be a tax-payer in Contractor Circle-1, Zone-A, Lahore at N.T. Number 2888.
9.The question is whether a firm duly constituted under an' instrument of partnership fulfilling all the requirements required by section 68 of the Ordinance and the firm having been constituted in accordance with the instrument of partnership, can be refused registration merely on the ground that the object of the firm is to avoid or to reduce the incidence of tax. To our mind such an inference cannot be drawn from the wording of subsection (4) of section 68 of the I.T. Ordinance. It may be that the assessee had made this clever device to reduce the incidence of tax but such a device being within the four corners of law, the registration could not be refused on that ground as it is not permissible by law. In Commissioner of Income Tax v. Sivkasi Match Exporting Company reported as (1964) 53 I.T.R. 204 a similar question arose before the Supreme Court of India. While dealing with the question of genuineness of the firm, the Supreme Court observed at page 211 that "it is not an attempt to evade tax, but a legal device to reduce its tax liability". Then in the same judgment at page 217 the following observation was made by the Supreme Court.
It is true that the object of enacting section 26-A and the rules relating to the procedure for registration is to prevent escapement of liability to tax. But it is not necessary that before an order refusing registration is made, it must be established that there was evasion of tax, attempted or actual. It is always open to a person, consistently with the law to so arrange his affairs that he may reduce his tax liability to the minimum permissible under the law. The fact that the liability to tax may be reduced by the adoption of an expedient which the law permits, is wholly irrelevant in considering the validity of that expedient."
Similar view was taken by the Supreme Court of India in CIT v. A. Rehman & Company reported as (1967) 67 ITR 11 in which it was held that avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed, is not prohibited by the Income Tax law and the tax payer is entitled to resort to a device to divert the income before it accrues to him and effectiveness of the device depends not upon considerations of morality, but on the operation of the Income Tax Act. It was further held in that case that Legislative injunctions may not be violated in the Taxing Statute but it may lawfully be circumvented. Again same view was taken in Arunna. Group of Estates v. State of Madras reported as (1965) 55 ITR 642 by the Madras High Court. The following observations made at page 648 of the case may be of interest to quote:
"Avoidance of tax is not tax evasion and it carries no ignominy with it, for it is sound law and, certainly, not bad morality, for anybody to so arrange his affairs as to reduce the brunt of taxation to a minimum."
12. In 1967 P T D (Trib.) 149, while considering the cases reported as: (1961) 4 Taxation 175, (1962) Taxation 248 and (1963) 7 Taxation 304, the Tribunal while deciding the question of registration of firm under the repealed Act has observed as follows as regards the business conducted by one of the partners:---
"7.In our opinion, the construction adopted by the Income Tax Officer on the basis of reservation of more power of control of the business affairs and the exclusive privilege to operate upon the firm's accounts in the banks or the exclusive right to enjoy the goodwill or the assets of the business is not legally tenable. The authorities quoted by the appellant clearly state that neither of these contingencies would derogate from the genuineness of firm. So long as the two fundamental conditions envisaged by the relationship of partnership referred to in section 4 of the Partnership Act are fulfilled, the placing of limitations on the powers and privileges of some of the partners, which according to law are the subject-matter of a contract between them, cannot be held to be inconsistent with the genuineness of a partnership. We, therefore, do not consider that the Income Tax Officer was on sound legal footing in raising these objections:"
As regards the capital contribution and source of capital contributed it is observed:---
"8.The next argument of the Income Tax Officer for withholding registration was that the source of capital contribution of Rs.9,000 made by the new partner F son of C had not been proved. This has got to be stated only to be rejected. The appellant was not responsible for proving this source. The Income Tax Officer has not doubted this investment by the partner concerned and accordingly this objection of, his was also without any substance. If the amount has been brought to the coffers of the firm the question that the source of that investment has not been proved is of no legal consequence and cannot, therefore, afford good basis for doubting the genuineness of the firm. The Departmental Representative, it may be stated, quite candidly conceded this proposition and in fact stated that he would not make bones about this point raised in the assessment order."
As regards the share proportionate to the capital contributed it is observed:--- .
"14.The authorities invoked on behalf of the appellant clearly show that the Income Tax Officer had utterly gone astray in his assumption that the allocation of shares when not proportionate to, sums contributed. by the partners concerned to the capital account in any way showed the firm to be not genuine. Partnership Act places the determination of such matters as the allocation of shares of partners, their amount, their rights to the assets and goodwill of the firm etc. entirely within the ambit of their consensus and has very wisely refused to look at such matters in a way other than this. We, therefore, cannot subscribe to 'the finding of the Income Tax Officer which we consider to be totally misconceived.
15.The next objection was that whereas the recital in the preamble of the partnership deed gave the arrival of fresh capital and rich experience to be the sole reason for constituting the firm anew, this avowed purpose, however, was belied by the fact that the persons holding the status of employees were brought in as partners and only a sum of Rs.9,000 being the capital contributed by F was a very poor recompense for that as the money brought by E was out of the capital of his father which was already invested in the business of the firm and there was thus no new accretion to the firm's financial power. We consider this objection again to be not worth much.. It is up to the parties concerned to see whom to bring in as partners and it is but necessary to expect persons to bring in their friends and relatives in preference to outsiders whom they do not know. In (1960) 2 Taxation 247 (Trib.) the Tribunal had an occasion to affirm this proposition. Considering the fact that the new partners stood in close relationship to the old partners, no serious objection could possibly have been taken to their admission as partners on the ground that they could have been preferably retained as employees but not as partners. It is a genuine and natural desire on the part of partners to bring in their children into their thriving business at the appropriate time. The placing of limitation on their power or the magnitude of their shares- all these are such matters which are regulated by the mutual consent of the parties. The Income Tax Officer further seems to be wrong in thinking that there was an accretion of Rs.9,000 to the capital. He has lost sight of the situation which would have resulted had A withdrawn, Rs.10,000 from his capital which in all fairness, he -could have if he wanted rather than handed it over as gift to his son E for investment as his share,. It would be conceded that it is for the parties concerned' to decide whom to take as partner. As the saying goes the devil known is better than the devil unknown, then why not to have one's own kith and kin as partners rather than outsiders about whom little is known? A partnership, as well all know, requires the pre-existence of good faith amongst those who are conjointly to work for purposes of gain and this good faith shall not arise except when partners have intimate knowledge of one another- The closer the relation, the greater the knowledge."
As regards belated information to bank as to change in constitution of firm it has been observed:---
"16.The next point urged in support of refusal to register the firm was that the appellant had not notified the change in its constitution to its banks. The appellant informed us that its accounts in the Grindlays' Bank and the Australsia Bank showing only Rs.165 and Rs.33 respectively, to its credit, were dormant accounts whereas to the third bank the Chartered Bank the change in the- constitution was notified on the 15th January, 1959. It was explained to us that no, difficulty was felt in operating this account, despite the change in the constitution of the firm and, therefore, it was not by design or by any ulterior motive that change in the constitution of the firm was not notified earlier. But it was thought that when without such a formality the accounts were being operated upon, why to disturb the old arrangement particularly when the two partners in the new firm who were also partners in the old firm continued to operate on the account for the purpose of appellant."
All other citations quoted by learned counsel for the assessee have been considered in the above case-law and there is no need to mention them separately.
13. From the reading of above case-law the following principles are deductible:--
(a)A partnership can be created by an agreement of partnership, express or implied, but for registration of firm under Income Tax Ordinance 1979, it is necessary that it must be constituted expressly by an instrument of partnership;
(b)The agreement or instrument of partnership must specify the partners' sharing ratio of profit and loss of the business;
(c)There must be business in existence, which may be carried out by all or any one of the partners acting for all;
(d)Capital contribution and source of that capital is not important for the consideration of existence of firm; and
(e)Lastly, the firm is either registered or an application for registration of firm has been made to Registrar of Firms.
14. After considering the facts and circumstances of the case and considering the above case-law. we are of the view that the contention of learned D.R. that on the basis of no capital contribution by one of the partners Mrs. Saadat Ikram and belated information to bank as to constitution of firm the assessing officer was justified to hold that genuine firm was not in existence, is misconceived. The accumulative effect of all the circumstances shall be considered in arriving at conclusion whether a partnership or firm is real or not. To take each situation by itself and then reject it on the ground that each by itself was not conclusive is not proper method of approaching the question. - It is also observed that this fact was also in the knowledge of Assessing Officer that Mrs. Saadat Ikram, who is not believed to be a partner, was in fact a partner in the earlier firm which was dissolved and that the new firm had acquired the name of old firm. And it is further observed that Mrs. Ismat Riaz who is the new partner in the firm and has been treated by ITO as the sole proprietor had no experience of any business. The cumulative effect of all these facts would negate the finding of Assessing Officer.
15.The learned counsel for the assessee has also pointed out this fact that return for the assessment year 1981-82 and the statement of accounts are signed by Mrs. Saadat Ikram, who is not believed as partner of the firm.
16. In view of above we hold that the assessing officer has gone astray by taking into consideration the extraneous circumstances which in view of the above citations are meaningless. We are, therefore, of the considered view that registration of firm was wrongly refused. The order of learned CIT(A), is, therefore, upheld.
17. In the result this departmental appeal fails and is hereby dismissed.
M.B.A./2351/T Appeal dismissed.