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Income Tax Officer v/s Standard Auto Sales

    ITA No.41/All/82; Asst.yr.1978-79 Dt. 27 December 1983

    Decided On, 27 December 1983

    At, Income Tax Appellate Tribunal ITAT Allahabad

    By, BISHAMBHAR NATH & V. P. ELHENCE

    K.K. Roy : A.B.L. Agnihotri



Judgment Text

The Judgment was delivered by V.P.ELHENCE, J. :

V.P.ELHENCE, J.M

The department is aggrieved of the order dt.1st Oct., 1981 of the Id. AAC of IT, Range-1, Kanpur.

2. The assessee M/s Standard Auto Sales moved an application before the ITO on 16th June, 1977 for registration in Form No. 11 along with the original instruments dt 1st July, 1976 of partnership. The following were shown as the partners :

Share

Capital

.

Rs.

(1) Smt. Nanda Devi, w/o Late L.Labh Chand Chopra

30 per cent

500

(2) Shri Arun Chopra S/o Shri Atam prakash Chopra

5 per cent

300

(3) Shri Ajay Chopra , S/o Shri Atam Prakash Chopra

5 per cent

200

(4) Smt. Santosh Chopra, w/o Shri Atam Prakash Chopra

30 per cent

500

(50 Km Neelam Chopra, c/o Shri Atam Prakash Chopra

30 per cent

500

The ITO, however, refused the registration owing to the following considerations i.e.,

(i) All the three ladies were sharing 30 per cent each in the profits and loss whereas the male partners had 5 per cent each share only.

(ii) The lady partners had not contributed substantial capital.

(iii) The lady partners did not have any active participation in the conduct of business.

(iv) The Partners were members of the family of Shri Atam Prakash Chopra.

(v) The assessee was required to produce one or two lady partners for enquiring into the genuineness of the firm, but the assessee did not comply with the same.

(vi) The name of the first partner differed at two places. In the partnership deed it was mentioned as Smt. Nanda Devi, whereas in the return it was mentioned as Nandwati.

3. In appeal, the Id. AAC after examining the relevant case law, submitted before him, did not accept any of the grounds, which influenced the ITO to be sufficient for denying registration and, therefore, he held that a genuine firm was in existence. Accordingly, he directed the ITO to modify his order.

4. The department, being aggrieved, has come up in appeal before us, Shri K.K. Roy , the Id. departmental representative placed strong reliance on the order of the ITO. He also pointed out that the Id. AAC had passed the order ex parte in the absence of the departmental records, which, though requisitioned, could not be made available to him at short notice. He also relied upon a decision of Delhi Bench of the Tribunal in ITO vs. M/s Teka Ram Hakumat Rai Narnaul (ITA No. 2050/Del/1980). Reliance was also placed by him on the order sheet entry dt. 24th March, 1981 in which the following entry occurred :

".......... Though required, but no proof regarding genuineness of lady partners filed nor were ladies produced."

Next he referred to the decision of the Hon'ble Bombay High Court in Brijlal Madanlal vs. CIT 1980 (121) ITR 364 (Bom), for the proposition that the ITO was entitled to examine whether each of the partners mentioned in the deed of partnership , was a real partner and that if inspite of summons the new partner failed to appear, the genuiness of partnership could be doubted. Next he referred to another decision of the Hon'ble Bombay High Court in P.M. Shukla vs. CIT 1982 (138) ITR 368 (Bom) for the proposition that the fact that registration had been obtained form the sales tax authorities did not conclude the matter and that the income tax. Authorities could enquire into the genuineness of the firm. This decisions was cited by the in view of the assessee contention that the assessee firm stood registered with the Registrar of Firms. Lastly Shri Roy referred to the decision of the Hon'ble Allahabad High Court in M/s Nanak Chandra Laxman Das vs. CIT 1982 UPTC 338 (All) for the proposition that if the creditor was not produced to prove the genuineness of loan the disputed amount could be rightly treated under s. 68 as the assessees income from undisclosed sources. On the other hand, Shri A.B.L Agnihotri, the Id. counsel for the assessee placed strong reliance on the order of the Id AAC firstly he disputed that the ITO had ever required the assessee to produce the ladies . He pointed out that no notices were ever issued to the assessee for producing the ladies. Secondly, he submitted that Smt Nanda Devi had died on 5th Dec., 1978, Smt. Santosh Chopra was out of station with her husband Shri Atam Prakash Chopra to Bombay to pay condolences to one her relatives and K.M. Neelam Chopra had been married on 17th Feb., 1978 and was at Lucknow. Next, he pointed out that even though the income tax record of the department was not before the Id. AAC the copy of the order sheet entry dt. 24th March, 1981 had been placed before him and that the order was passed by him only after perusing the same. Shri Agnihotri referred to t e decision of the Patna High Court in M/s Sahabuddin Mohammed Raza vs. CIT 1962 (46) ITR 203 (Pat) for the proposition that the fact that there was no separate capital account of the partners or that no share capital was contributed by some of the partners originally, was not a ground for refusing registration of a firm. Next, he referred to the decisions of the Hon'ble Supreme Court in the case of Agarwal & Co. vs. CIT 1970 (77) ITR 10 (SC) for pointing out the requisites for registration . Lastly the referred to the decision of the Hon'ble Bombay High Court in R.K Dhingra & Co. vs. CIT 1976 (102) ITR 643 (Bom) for the proposition that if larger share was given to one of the partners in the management or ownership of the assets, by itself, it could not negative the existence of a partnership or disentitle it to registration. He therefore, submitted that there was no warrant or justification for any interference with the order of the Id. AAC.

5. We have considered the rival submissions. So far as the first objection of the ITO is concerned it may be noticed that the two essential conditional which are necessary to constitute a partnership are (i) that there should be an agreement to share profits as well as the losses of the business and(ii) that each of the partners should be acting as agent for all. If these two conditions exits, other provisions, like the giving of a large, share to one of the partners in the management of the ownership of the assets cannot negative the existence of a partnership or disentitle it to registration. The partnership deed also conforms to the same. In this connection, therefore, the reliance placed on behalf of the assessee on the decision of the Hon'ble Bombay High Court in the case of R.K. Dhingra & Co (supra) was right. So far as the second objection is concerned, it will be seen that whereas the lady partners had contributed Rs. 500 each, and male partners had contributed only Rs. 300 and Rs. 200 each, Moreo er, cl. 5 of the partnership deed provided that the capital shall be invested by the parties from time to time as may be deemed necessary. It is also seen from the assessee's reply dt. 24th March, 1981 that a sum of Rs. 4, 000 had also been received as loan from Shri Atam Prakash Chopra. Even the ITO was not seriously doubting the fact that the nature of business of the assessee (dealing in batteries and their parts and accessories, automobile parts and electrical goods) was such where much capital was not required. In this connection, reliance placed on behalf of the assessee on the decision of the Hon'ble Patna High Court In the case of M/s Sahabuddin Mohammed Raza (supra) was, therefore, justified. The third point relating to active participation in the conduct of business, which influenced the ITO was also not material, because it is not necessary for any or all the partners to participate in the conduct of business. The fact that the partners were members of the same family is by itself not a sufficient ground for doubting the genuineness of the firm. Therefore the fourth factor was also not rightly relied upon the ITO. So far as the difference in the name of the first partner is concerned we find that the name Smt. Nanda Devi finds mention in the partnership deed , in the statement of particulars deed in the statement of particulars dt 19th April, 1977 as also in form No.11. The fact that the name smt. Nadwati was mentioned in the return would, therefore, not make any difference. Lastly, we come to the question of production of the ladies. In this connection, it is material to notice that the first hearing in this case took place before the ITO on 19th March, 1981 when the matter was adjourned to 24th March, 1981. On that date, the hearing concluded and the order was passed by the ITO on 27th March, 1981. On 24th March, 1981 itself, the assessee had filed a detailed and permanent accounts Nos. Of some of the partners. Smt. Santosh Chopra was an assessee. It was also mentioned that Smt. Nanda Devi had expir d on 5th Dec., 1978. No notice were issue by the ITO for the production of the ladies. Therefore, the entry in the order sheet dt. 24th March, 1981, which we have quoted in this order and which was relied upon on behalf of the Revenue, would only show that what the ITO had in mind, was that the assessee had not produced the ladies, voluntarily. In our view it was not necessary for the assessee to produce the ladies, unless the ITO wanted to produce them. Therefore, the ITO was not justified in doubting the genuineness of the firm due to the non-production of the ladies before him. Further, as rightly pointed out on behalf of the assessee, for the asst. yr. 1980-81, for which the assessee firm had undergone re-constitution, the ITO had treated the firm as genuine and granted registration to it vide his order dt. 31st March, 1982 under s. 185 (1)(a). There, the two surviving ladies, Smt. Santosh Chopra and Km. Neelam Chopra were partners having 30 per cent and 25 per cent share, besides had 30 per cent share nd genuineness of the firm was not doubted. In the case relied upon on behalf of the Revenue, namely, in the case of Brijlal Madanlal (supra) summons had been issued by the ITO t

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o examine the new a partner. No such facts exists in the case before us. In the case of M/s Nanak Chandra Laxman Das (supra), the matter did not relate to registration, but only to cash creditors, where it is for the assessee to establish the genuineness of the cash credits. That decision, therefore, does not help the Revenue. So far as the decision of Delhi Bench of the Tribunal in the case of M/s Tekaram Hakumati Rai (supra) is concerned, the source of investments of the partners had been doubted and there were two lady partners, who were sleeping partners and had not contributed anything. It is on the peculiar facts of that case that the Tribunal had held that the firm was not a genuine entity. No such facts exists in the present case. Considering all this and looking to the totally of all the facts and circumstances, we are, the efore, of the opinion that there was no basis or justification before the ITO to doubt the genuineness of the firm and that the Id. AAC was eminently justified in accepting the firm to be genuine and to be entitled to registration. We hold accordingly . 6. The appeal is dismissed.
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