1984 (2) TMI 59 - HC - Income Tax

High Court invalidates partnership deed, upholds AOP status and reassessment proceedings

The High Court ruled against the assessee, finding that the partnership deed dated May 24, 1948 was invalid due to one party being a minor. The court ... Association Of Persons Issues Involved:1. Validity of the partnership deed dated May 24, 1948.2. Existence of an Association of Persons (AOP).3. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Validity of the Partnership Deed Dated May 24, 1948:The primary issue was whether a valid partnership was created by the deed dated May 24, 1948. The assessee claimed that Tarachand was a major at the time of the deed's execution, relying on an affidavit, horoscopes, and an insurance policy. The Revenue, however, relied on Tarachand's matriculation records and his statement during revision proceedings, which indicated he was a minor on the relevant date. The Tribunal found that no valid partnership was constituted by the deed, as Tarachand was a minor. This finding was based on substantial evidence, including the matriculation records and Tarachand's own admission. The Tribunal's conclusion was not deemed perverse or contrary to the evidence on record.2. Existence of an Association of Persons (AOP):Assuming no valid partnership was constituted, the Tribunal examined whether an AOP consisting of the three brothers came into existence. It was established that Shamendra gifted his business to his three sons, and the business was carried on jointly. Tarachand, even after attaining majority, did not renounce his share or object to the business being carried on in his name. The business was thus carried on as a joint venture with unitary control, fitting the definition of an AOP as per the Supreme Court's ruling in Mohammed Noorullah [1961] 42 ITR 115 (SC). The Tribunal's conclusion that the business was carried on by an AOP was supported by sufficient material and was not considered perverse.3. Validity of Reassessment Proceedings Under Section 147:The reassessment proceedings under Section 147 were initiated after the cancellation of the firm's registration. The Tribunal held that the reassessment in the status of an AOP was valid. The assessee contended that the notice under Section 148 was bad as it was addressed to 'Sudhansu Kumar Bose and others' without specifying who were to be assessed. However, this specific question was not allowed to be raised in the reference. The Tribunal's direction to adjust the tax already paid under the earlier assessments made on the firm in computing the tax payable by the AOP was noted. The High Court upheld the Tribunal's findings, stating there was no lack of jurisdiction in the initiation of the proceedings as per the earlier ruling in C.R. No. 4735(W) of 1965 (Cal).Conclusion:The High Court answered question No. 1 in the negative and question No. 2 in the affirmative, both in favor of the Revenue. The Tribunal's findings regarding the existence of an AOP and the validity of the reassessment proceedings were upheld. The court found no order as to costs in the facts and circumstances of the case.