COMMISSIONER OF INCOME-TAX VS S.M. BHATIYA ASSOCIATES
1999 P T D 2084
[226 I T R 675]
[Rajasthan High Court (India)]
Before M. G. Mukherji and V. G. Palshikar, JJ
COMMISSIONER OF INCOME-TAX
Versus
S.M. BHATIYA ASSOCIATES
D.B. Income-tax Reference Application No.80 of 1995, decided on 22/03/1996.
Income-tax---
----Reference---Firm---Registration---Genuinenessof firm---Question regarding genuineness of firm is- a question of fact---No question of law arises from finding regarding genuineness of firm---Indian Income Tax Act, 1961, Ss .185 & 256.
The question whether a person is a partner in a firm or whether a partnership is a genuine one, is a question of fact to be determined in the circumstances and evidence present in each case. The finding of fact would be erroneous in law only if it is not supported by any evidence or it is unreasonable or perverse. When a conclusion has been reached on an appreciation of a number of facts, established by evidence, the question whether that conclusion is sound or not, must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts put together:
Held, dismissing the application to direct reference, that the Tribunal on an appreciation of the facts and circumstances of the case had believed in the existence of the partnership and the genuineness of the partnership and hence, no question of law arose.
Hemandass Dhanrajmal v. CIT (1981) 132 ITR 369 (Raj.) fol.
Brijlal Madanlal v. CIT (1980) 121 ITR, 364 (Bom.); CIT v. Juggilal Kamlapat (1967) 63 ITR 292 (SC); CIT v. Lalit Trading Corporation (1980) 125 ITR 586 (Cal.) and Subhash Medical Stores v. CIT (1984) 147 ITR 486 (Raj.) ref.
D.S. Shishodia and Sandeep Bhandawat for Applicant.
Dinesh Mehta for Respondent.
JUDGMENT
Heard learned counsel for the applicant and respondent on the application under section 5 of the Limitation Act.
We condone the delay in filing the reference application under section 256(2) of the Income Tax Act, 1961, and it be posted for hearing.
The present application under section 256(2) of the Income Tax Act, 1961, as made by the Commissioner of Income-tax, Jodhpur, is on the limited question as to "whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally, justified in holding that the firm was a genuine one and in granting registration under section 185_ to the assessee-firm"?
The assessee-firm contended that it came into existence with effect from April 1, 1986, under a partnership deed, dated December 21, 1987, and it was comprised of six partners. The accounting period relevant to the assessment year 1988-89 ended to March 31, 1988. On March 2, 1988, the assessee-firm applied in Form No. l l for the registration of the firm under section 185 of the Income-tax Act for the assessment year 1988-89. The application was duly supported by the original partnership deed.
However, the Income-tax Officer examined two of the partners, but the lady partners, who were three in number could not be produced before the Assessing Officer, since they were residing at Delhi. The Assessing Officer held that it was not a genuine firm and in recording such a finding, he was impressed by the fact that the bank account stood in the name of one of the partners, namely, Shri S.M. Bhatia, who received payments from one of the parties doing business with the firm and held further that two other supporting partners seemed to be benamidars of Shri S.M. Bhatia, in whose name the bank accounts stood. The Assessing Officer also refused registration to the assessee-firm under section 185., The learned Commissioner of Income-tax (Appeals) confirmed this finding holding, inter alia, that the partnership was not really existing, but it was a make-believe device to give a cover to the business activities of one Shri S.M. Bhatia, who was the only person involved in the business. The assessee thereafter, went up in appeal before the Income-tax Appellate Tribunal and the Tribunal by its order, dated April 30, 1993, came to a finding that the assessee-firm was entitled to a grant of registration and further held in favour of the existence of the partnership firm overruling the findings as arrived at by the Assessing Officer as also the appellate authority.
Mr. D.S. Shishodia and Mr. Sandeep Bhandawat, advocates, who appeared for the Commissioner of Income-tax, Jodhpur, cited before us various rulings in support of the contention that in appropriate cases the income-tax authorities could show a refusal of registration of the partnership firm and disbelieve in the existence of the firm itself.
In Brijlal Madanlal v. CIT (1980) 121 ITR 364 (Bom.), it was held that the essentials for the registration of a firm are: (1) whether on behalf of the firm an application should be made to the Income-tax Officer by such person and at such times and containing such particulars and being in such form and verified in such manner as are prescribed by the rules; (2) The firm should be constituted under an instrument of partnership; (3) The instrument must specify the individual shares of the partners; and (4) The partnership must be valid and genuine and must exist in terms specified in the instrument. When an application for registration of a firm is made to the Income-tax Officer, it is open to the Income-tax Officer to verify whether the partnership is really a genuine partnership or whether the partnership is a sham one. Merely because the names of certain partners are specified in the deed of partnership and their shares are also specified, the partnership does not automatically become a genuine partnership and the Income-tax Officer is entitled to examine whether each of the partners mentioned in the deed of partnership is a real partner and whether the shares specified are real and whether the profits which are sought to be distributed under the deed will truly be the profits of the individuals who have been shown as partners. If the Income-tax Officer finds that there is no genuineness in respect of any one of these, it is open to the Income-tax Officer to reject the application for registration on the ground that no genuine partnership has been brought into existence by the partnership document.
In the facts and circumstances of the case, however, it was held by the Bombay High Court that the conclusion of the income-tax authorities and the Tribunal was correct and the claim to registration of the firm stood rightly refused by the Department.
The Calcutta High Court in CIT v. Lalit Trading Corporation (1980) 125 ITR 586, also reiterated the principle that it was a well-settled proposition that in granting registration the Income-tax Officer has to find out whether there was a genuine partnership firm evidenced by a partnership deed. The fact that there is an order of assessment in respect of the firm does not preclude the examination of the question whether the firm was genuine or not. The cumulative effect of the facts in the case was that there was no evidence at all of any overt act by any of the partners doing anything regarding the management or the carrying on of the business except signing some letters and cheques and these, were indicative of the fact that there was in fact no genuine firm and the firm was not entitled to registration. The fact that there was an order of assessment in respect of the firm did not preclude the examination of the question whether the firm was genuine or not in the proceedings for the registration of the firm.
The Rajasthan High Court in Subhash Medical Stores v. CIT (1984) 147 ITR 486, held that individual circumstances need not lead to the conclusion that the partnership is not genuine, but the cumulative circumstances are to be taken into consideration to decide whether a particular firm is entitled to registration under the Income-tax Act or not. The inter se relationship between the partners and all of them not being concerned with the control and management of the business, need not give rise to a suspicion that the whole affair is a farce coming in the way of registration under the Income-tax Act. Similarly, the partnership being carried on by an agent authorised need not necessarily led to the conclusion that the partners have no control over the business.
In this particular case, it was found that the Tribunal was not justified in holding that the firm was not genuine and in refusing registration to the firm.
The learned advocate for the respondent-assessee, however, drew our attention to the judgment of the Supreme Court in CIT v. Juggilal Kamlapat (1967) 63 ITR 292, for the proposition that the question whether, in fact, on the evidence, a firm had been constituted and came into existence, is a pure question of fact on which the decision of the Tribunal is final and no reference to the High Court would lie.
Practically the same view was reiterated in Hemandass Dhanrajmal v. CIT (1981) 132 ITR 369 (Raj), wherein it was given out, inter alia, that the question whether a person is a partner in a firm or whether a partnership is a genuine one, is a question of fact to be determined in the circumstances and evidence in each case. The question of fact is erroneous in law only if it is not supported by any evidence or if it is unreasonable or perverse. When a conclusion has been reached on an appreciation of a number of facts, established by evidence, the question whether that conclusion is sound or not, must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts put together. That was a case of a firm having five partners. It was held that the evidence relied upon was relevant and admissible in support of its conclusion and no question of law arose out of the appellate order of the Tribunal for a reference.
We also hold on appreciation of the facts and circumstances of the present case that in view of the findings as made by the Income-tax Appellate Tribunal that it believed in the existence of the partnership and that the partnership was a genuine one, they are such findings which need not be assailed in reference under section 256(2) of the Income-tax Act and no abstruse question of law arises therefrom. The application for reference, therefore, stands rejected. There will be, however, no order as to costs.
M.B.A./1954/FC Application rejected