Income-tax-----

----Income---Firm---Partners making deposit in firm on its first day of existence---Onus on partners to explain source---Partners failing to do so-- Amount to be added in their assessment and not in assessment of firm.

Deposits were made by the partners of a firm on the very first day when the firm came into existence. On a reference of the question whether the deposits were to be treated as income of the firm from undisclosed sources:

Held, that the onus was on the partners to explain the source of the deposits made on the first day when they entered into partnership. If they failed the amount could be added in their hands and not in the hands of the assessee-firm. The Tribunal was not justified in holding that the deposits constituted income of the firm from undisclosed sources.

India Rice Mills v. CIT (1996) 218 ITR 508 (All.) fol.

JUDGMENT

At the instance of the assessee, the Income-tax Appellate Tribunal referred the following question to this Court for its opinion:

"Whether, on the fats and in the circumstances of the case, the Tribunal was justified in holding that the deposits constituted income of the firm from undisclosed sources?"

From a perusal of the statement of the case, it clearly appears that the deposits had been made by the partners on the very first day when the partnership firm came into existence. The question for consideration is whether such deposits can be taken to be the income of the assessee-firm. A similar question came up for consideration before this Court in Income-tax Reference No. 152 of 1990---India Rice Mills v. CIT (1996) 218 ITR 508, and then this Court held that the onus was on the partners to explain the source of the deposits made on the very first day when they entered into partnership and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm.

Following the said decision, we answer the above question in the negative, i.e., in favour of the assessee and against the Revenue.

A copy of this order be sent down to the Appellate Tribunal to enable it to pass an order conformably to our order.

M.B.A./1249/FReference answered.