COMMISSIONER OF INCOME-TAX VS MANOHAR GLASS WORKS, 2000 PTD-ALLAHABAD-HIGH-COURT-INDIA 575 (1997)

(a) Income-tax---

----Appellate Tribunal---Power of remand---Tribunal is final fact-finding Authority---Is under a legal obligation to record correct finding of fact-- Difficulty in recording correct finding of fact on account of contradictions in factual position--Tribunal has power to remand matter to lower Authority to state correct facts---Indian Income Tax Act, 1961, S.254.

(b) Income-tax---

----Firm---Assessment---Reconstitution or succession---Old firm dissolved on 20-8-1971, and a new firm constituted the next day--,I.T.O. making single assessment on the new firm for the whole

year---Tribunal finding contradictory statements between deed of dissolution and new partnership deed about partners who retired---Tribunal remanding matter to A.A.C. as basic facts not correctly recorded---Justified.

A partnership was formed under a partnership deed, dated March 30, 1964, by three partners S. M and K, having one-third share each. On August 20, 1971, the partners agreed to dissolve the partnership. In view of the stipulation made in clause (4) of the dissolution deed, S and M were paid off the amounts lying to their credit in their capital accounts in lieu of their surrender of their rights in the properties and assets of the firm. On August 21, 1971, a new partnership deed was drawn up between K and S, and a minor son of K, was admitted to the benefit of the partnership. For the assessment year 1972-73, the new firm filed two returns, one for the period Diwali 1970, to August 20, 1971, and the other for the period commencing from August 21, 1971 to March 31, 1972. The Income-tax Officer made a single assessment on the new firm. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal found that there were factual contradictions between the finding of fact recorded by the income-tax authorities and the evidence placed before the Tribunal, that the dissolution deed, dated August 20, 1971, gave out that S and M retired from the partnership and were paid off the amounts lying to their credit in lieu of their surrender of their rights in the properties and assets of the firm and that both of them surrendered their rights in the properties and assets of the firm in favour of the third partner, K, that on the other hand, the new partnership deed, dated August 21, 1971, recited that it was-only M who retired from the old firm pd that the two remaining partners K and S were to continue the partnership and that the assessee was unable to account for the discrepancy. The Tribunal, therefore, remanded the matter to the Appellate Assistant Commissioner to record correct findings of fact on the dissolution of the old firm in accordance with the decision of the Allahabad High Court in Dahi Laxmi Dal Factory v. ITO (1976,) 103' ITR 517. On a reference at the instance of the Commissioner, the Revenue contended that the Tribunal could not bind the Appellate Assistant Commissioner with the legal position as stated in the order, dated October 23,1978. The question arose whether the Tribunal was right in remanding the matter to the Appellate Assistant Commissioner in view of the contradictions in the factual position noticed by it:

Held, (i) that the Appellate Tribunal being the final fact-finding body is under a legal obligation to record a correct finding of fact and, as and when it feels sonic difficulty in recording a finding of fact on account of contradictions in the factual position, it may remand the matter to the lower authority to state the correct facts. There being a contradiction in the factual position in the dissolution deed, dated August 20, 1971, and in the new partnership deed, dated August 21, 1971, the Tribunal was right in remanding the case to the Appellate Assistant Commissioner.

(ii) That the Appellate Tribunal had not recorded any finding on law and no direction had been given to the Appellate Assistant Commissioner to follow it. The Appellate Assistant Commissioner was free to record a finding on facts as found by him after the remand. Therefore, there was no basis for the apprehension entertained by the Department.

(iii) That, therefore, the Tribunal was right in not confirming the order of the Income-tax Officer as the basic facts were not recorded by him.

Dahi Laxmi Dal Factory v. ITO (1976) 103 ITR 517 (All.) ref.

JUDGMENT

The Income-tax Appellate Tribunal, Delhi Bench "D", Delhi, has referred the following questions under section 256(2) of the Income Tax Act, 1961, for the opinion of this Court:

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in not accepting is law the view of the Income-tax Officer and the Appellate Assistant Commissioner that it was a case of merely change in the constitution of the firm within the meaning of section 187(2) of the Income Tax Act, 1961?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in not confirming the action of the Income-tax Officer in clubbing the income of both the periods?

(3) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in directing the Appellate Assistant Commissioner to dispose of the legal issue in accordance with the opinion expressed by the Allahabad High Court in Dahi Laxmi Dal Factory v. ITO (1976) 103 ITR 517 (FB)?"

Briefly, the facts are, that a partnership was formed under a partnership deed, dated March 30, 1964, by three partners, namely, Suraj Bhan, Mahavir Prasad and Mahendra Kumar, having one-third share each. The business was being carried on by the partnership in the name and style:

"Manohar Glass Works."

On August 20, 1971, the partners agreed to dissolve the partnership in view of the stipulations made in clause (4) of the partnership deed, dated March 30, 1964. Clause (4) of the dissolution deed stated that Suraj Bhan and Mahavir Prasad were paid off the amounts lying to their credit in their capital accounts in lieu of surrender of their rights in the properties and assets of the firm.

On August 21, 1971, a new partnership deed was drawn up between Mahendra Kumar and Suraj Bhan and also one minor (Sunil Kumar, son of Mahendra Kumar) who was admitted to the benefits of the partnership. For the assessment year 1972-73 (relevant herein), two returns were filed; the first one was for the period Diwali 1970 to August 20, 1971, and the second relating to the period commencing from August 21, 1971 to March 31, 1972.

The Income-tax Officer made a single assessment on the new firm.

The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.

On further appeal, the Appellate Tribunal observed as under:

"There is obvious factual contradiction present between the finding of fact recorded by the authorities below and the evidence placed before us. We have extracted supra the various provisions of the two partnership deeds, dated March 30, 1964, and June 30, 1971 as well as of the dissolution deed, dated August 20, 1971. The dissolution deed gives out that the three partners of the old firm Suraj Bhan and Mahavir Prasad retired from the partnership and were paid off the amounts lying to their credit in 'lieu of surrender of their rights in the properties and assets of the firm, and that both of them surrendered their rights in the properties and assets of the firm in favour of the third partner, Mahinder Kumar. On the other hand, the new partnership deed, dated August 21, 1971, recites that it was only Mahavir Prasad who retired from the old firm and that the two remaining partners, Mahinder Kumar and Suraj Bhan were to continue the partnership. This contradiction was put to the assessee's learned counsel, Sri D. K Gupta. . . . Shri Gupta was unable to account for the discrepancy but stated that it might have arisen because of incorrect drafting in the partnership deed dated August 21, 1971.

No doubt, the decision of the Allahabad High Court on the legal question involved is binding in this case as the assessee resides within the jurisdiction of the Allahabad High Court. But we find it necessary to restore this matter to the file of the Appellate Assistant Commissioner to record correct findings of fact on the dissolution of the old firm. We, therefore, set aside his order for this limited purpose. He is directed to hear the assessee as well as the income tax Officer in this regard. The assessee is free to rely on such evidence as is available in the matter. The Appellate Assistant Commissioner may then enter findings on the specific factual aspects noted supra and dispose of the issue in accordance with the opinion expressed by the Allahabad High Court on the legal issue involved."

So far as questions Nos. 1 and 2 are concerned, the controversy is whether the Appellate Tribunal was right in remanding the matter to the Appellate Assistant Commissioner in view of the contradictions in the factual position noticed by it. The Appellate Tribunal being the last fact finding body is under a legal obligation to record a correct finding of fact and as and when it feels some difficulty in recording a finding of fact on account of contradictions in the factual position, it may remand the matter back to the lower authority to state the correct facts. There being a contradiction in tile factual position in the dissolution deed and in the new partnership deed, dated August 21, 1.971, we are of the view that no exception could be taken to the order of the Appellate Tribunal irt not confirming the Income-tax Officer's order and in remanding the case to the Appellate Assistant Commissioner.

Then comes the last question. The submission of learned standing counsel is that the Appellate Tribunal could not bind the Appellate Assistant Commissioner with the legal position as stated thereby in the order, dated October 23, 1978. We have carefully gone through the order of the Appellate Tribunal and also we have produced the relevant findings hereinabove. From the above reproduced finding, we are of the view that the Appellate Tribunal has not recorded any finding on law and no direction has been given to the Appellate Assistant Commissioner to follow that. The Appellate Assistant Commissioner is left free to record a finding on the facts as found by him after the remand. Therefore, we do not see any basis in the apprehension of the Department.

For the above reasons, we hold that the Appellate Tribunal was right in not accepting the view taken by the Income-tax Officer as the basic facts were not recorded by him.

Question No. 3 is misconceived, inasmuch as there is no direction in the order of the Appellate Tribunal to the Appellate Assistant Commissioner to record any finding on law.

The question are accordingly answered.

M.B.A./3225/FC Reference answered