COMMISSIONER OF INCOME-TAX VS ORIENTAL TRADING CO.
1999 P T D 2469
[227 I T R 695]
[Madhya Pradesh High Court (India)]
Before A. R. Tiwari and N. K. Jain, JJ
COMMISSIONER OF INCOME-TAX
Versus
ORIENTAL TRADING CO.
M. C. C. No. 149 of 1992, decided on 15/04/1996.
Income-tax---
----Reference---Firm---Registration---No evidence filed to prove capital investment by new partners and why minor was admitted to benefits of partnership ---I.T.O. refusing registration ---A.A.C. and Tribunal directing grant of registration---Whether assessee was entitled to registration is a question of law---Indian Income Tax Act, 1961, Ss. 10 & 256(2).
The assessee-firm applied for registration on the basis of a deed of partnership. It had five partners and two minors admitted to the benefits of the partnership. Three partners claimed to represent their respective Hindu undivided families. The Income-tax Officer examined the formation of main Hindu undivided family and found that one J was assessed as individual and after his death inter state his sons inherited the properties. The Income-tax Officer held that the sons, partners claiming the status of a Hindu undivided family, inherited the property as individuals and could not claim the status of Hindu undivided families. No evidence of capital contribution by the new partners, especially by minor "U" admitted to the benefits of the partnership was filed. The Income-tax Officer held that the firm was not genuine and refused registration. But the Income-tax Appellate Tribunal held that the source of capital contribution would not invalidate the claim of the Hindu undivided family and directed grant of registration. On an application by the Commissioner to direct a reference:
Held, that whether, in the circumstances, the assessee was entitled to registration was a question of law to be referred.
D.D. Vyas for the Commissioner.
V.K. Joshi for the Assessee.
JUDGMENT
N. K. JAIN, J.---By this application under section 256(2) of the Income Tax Act, 1961 (for short "the Act"), the applicant/Department seeks a direction to the Income-tax Appellate Tribunal, Indore, to state the case and refer the undernoted two questions said to be of law to this Court, arising out of its order, dated February 8, 1991, passed in I.T.A. No.280/Ind. of 1986 and its refusal to refer the case by order, dated September 23, 1991, passed in R.A. No.78/Ind. of 1991 for the assessment year 1980-81.
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in confirming the order of the Appellate Assistant Commissioner allowing registration?
(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled for registration?"
For the assessment year 1980-81, the assessee made an application for registration on the basis of a deed of partnership executed on July 5, 1979, by the following persons:
(1) Shri Sharadchandra, HUF
(2) Shri Navinchandra,
(3) Shri Anilchandra
(4) Shri Prabhashchandra, HUF
(5) Shri Satishchandra, HUF
(6) Master Jayeshchandra S/o Satischandra (Minor)
(7) Master Umeshchandra S/o Sharadchandra (Minor)
For the assessment year 1979-80, the business was constituted by following partners:
(1) Shri Chandrashankar Jha,
(2) Shri Sharadchandra Jha (Indl.)
(3) Shri Anilchandra,
(4) Smt. Gangabai
(5) Shri Navinchandra
(6) Shri Jayeshchandra (Minor).
Shri Chandrashankar and Smt. Gangabai retired from the old firm. Shri Sharadchandra was a partner in his individual capacity and he joined the firm as representing his Hindu undivided family. Similarly, Shri Prabhashchandra and Satishchandra have also joined the firm representing their Hindu undivided families. After examining the formation of the main Hindu undivided family of Shri Jaswantlal Jha, the Income-tax Officer found that he was assessed as an individual right from the assessment year 1948-49 onwards and died on August 22, 1957, intestate after the coming into force of the Hindu Succession Act, 1956. After his death, the property was divided amongst the three sons, Shri Sharadchandra, Prabashchandra and Shri Satishchandra. According to these persons, they formed a Hindu undivided family on the plea that they had inherited the property on the death of their father, Shri Jaswantlal, who died intestate after the coming into force of the Hindu Succession Act, 1956, and he was assessed as an individual. The Income-tax Officer opined that the property inherited by the sons was individual property of the sons. The Income-tax Officer further asked the assessees to prove all capital investment by new partners and also the status of the Hindu undivided family. Since no evidence was filed and no evidence regarding contribution made by Master Umeshchandra, minor, was adduced, the Income-tax Officer held that the firm was not genuine in terms of section 185(1) and accordingly refused registration. In appeal, the Appellate Assistant Commissioner directed to grant registration. The Department thereafter filed appeal before the Income-tax Appellate Tribunal. Accepting the assessee's contention, the Income-tax Appellate Tribunal held that the existence of the Hindu undivided family of the parties so claimed should be examined independently of its possession of property or true nature of such possession and that the true source of capital contribution will not invalidate the claim of the Hindu undivided family and accordingly upheld the order of the Appellate Assistant Commissioner directing grant of registration. As the decision of the Tribunal was not acceptable to the Department, it made a reference application under section 256(1) which too was rejected by the Tribunal by its order, dated September 23, 1991. This application is, therefore, filed under subsection (2) of section 256 of the Act to direct the Tribunal to state the case and refer the aforesaid two questions for the opinion of this Court.
We have heard Shri D. D. Vyas, learned counsel for the applicant/Department, and Shri V. K. Joshi, learned counsel for the non applicant/assessee.
Shri D. D. Vyas, learned counsel for the applicant/Department, inter alia, pointed out that Umeshchandra, a minor, who was admitted as partner had neither invested any capital nor was a working partner. The assessee, he further contended, failed to prove the reasons for his admission. He was, therefore, a benamidar for his father and the firm was not entitled for registration on that count alone. Shri D. D. Vyas further submitted that only question No.2 may be called which would, cover question No.l also. Since we propose to call the question, we refrain from expressing any opinion as to the merits of the case lest it may prejudice one party or the other.
Accordingly, we allow the application and direct the Tribunal to state the case and refer the undernoted question of law for the opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the assessee was entitled for registration?"
The petition, therefore, stands disposed of as aforesaid but without any order as to costs. Counsel's fee is, however, allowed at Rs.750, for each side, if certified.
A copy of the order be transmitted to the Tribunal for compliance at the earliest.
M.B.A./2086/FCPetition disposed.