AI Structured Summary
Not yet generated for this judgment
Judgment
In this case the Income Tax Appellate Tribunal has stated a case on the following question of law u/s 66(1) of the Income Tax Act :
"Whether on the facts and in the circumstances of the case the applicant firm was rightly refused registration u/s 26A ?"
For the assessment year 1956-57 the assessee applied for registration on the strength of a partnership deed dated the 21st of March, 1953. Registration of the firm was refused by the Income Tax Officer and this decision was affirmed by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal in appeal. Prior to the formation of the partnership the business of the assessee was carried on by an association of persons consisting of Mohammad Raza and Mohammad Rahamatullah. Mohammad Raza died some time before the 1st of April, 1952. After the death of Mohammad Raza there was a partnership formed between Mohammad Rahamatullah, the widow of Mohammad Raza, and the sons of Mohammad Raza and Mohammad Rahamatullah. The entire capital of the association was distributed in the following proportions between the new partners :
As.
1.
Mohammad Rahamatullah
...
4
2.
Bibi Hakima
...
2
3.
Mohammad Fasi
...
2
4.
Mohammad Ahmad
...
2
5.
Mohammad Aiyub
...
2
6.
Mohammad Sayeed
...
2
7.
Nazir Ahmad
...
2
On behalf of the assessee learned counsel put forward the argument that there was no material before the Income Tax Appellate Tribunal for holding that there was no valid and genuine deed of partnership in this case. In our opinion, the argument on behalf of the assessee is well founded and must be accepted as correct. The first ground given by the Appellate Tribunal for refusing registration is that in the account books of the assessee there was no determination of the capital of Mohammad Raza and Mohammad Rahamatullah. It was observed in the next place by the Tribunal that no separate capital account stood in the books in the name of Mohammad Raza and Mohammad Rahamatullah and there was no allocation of definite share between these two brothers. It was also observed by the Tribunal that it could not understand why the undivided shares of the two brothers were distributed among the alleged partners in the ratio mentioned in the partnership deed. In our opinion, none of these reasons has any relevant bearing on the question whether the deed of partnership dated the 21st of March, 1953, submitted for registration by the assessee is a valid and genuine document. It is not disputed on behalf of the assessee that there was no specific allocation of shares in the association of persons. But in the absence of any such definite allocation there is the implication of law that each of these persons has equal share in the business, and if by the deed of partnership dated the 21st of March, 1953, Mohammad Rahamatullah chose to forgo two annas out of his eight annas share in favour of the family members of Mohammad Raza there is no reason to doubt the validity of the partnership deed. It is a matter of contract between Mohammad Rahamatullah and the other partners as to how the shares of the new business are to be allocated between the new partners and if Mohammad Rahamatullah voluntarily gave a portion of his assets in favour of the family of his brother, Mohammad Raza, that is no ground for doubting the validity of the partnership deed. In the second place the fact that there was no separate capital account of the partners has no relevance to the question whether there was a genuine partnership. It Umacharan Shaw & Bros. v. Commissioner of Income Tax, the Supreme Court held in similar circumstances that there was nothing to establish that the partnership was not genuine and the circumstances that there was no separate capital account of the partners was not very material. It was observed by the Supreme Court in that case that the finding of the Income Tax Officer that the firm was not genuine was a finding based upon surmise and conjecture and was not supported by a sufficient material. The same view has been expressed in another case, namely, Haja Allauddin Maracair v. Commissioner of Income Tax, where it was pointed out by the Madras High Court that merely because no share capital was distributed, nor was it contributed by the sons at the time of the original partnership, it cannot be said that the partnership was not a real partnership, but merely a make-believe affair. In our opinion the principle laid down in the two authorities applied to the present case. There was no material before the Income Tax authorities in this case to support their conclusion that the partnership constituted under the deed of partnership, dated the 21st of March, 1953, was not a valid partnership. We therefore hold that there was a genuine partnership firm under the deed dated the 21st of March, 1953, and hence the firm should have been granted registration u/s 26A of the Income Tax Act. We accordingly answer the question of law referred by the Income Tax Appellate Tribunal in favour of the assessee and against the Income Tax department. The assessee is entitled to the costs of this reference. Hearing fee, Rs. 250.
Question answered accordingly.