TaxTMI 
TaxTMI 
1993 (9) TMI 154
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....n under the Income-tax Act, 1961, in the prescribed form and within the prescribed time. The Income-tax Officer examined Smt. Sosamma Varghese and Smt. Nimmi George on 5-11-1986 and was cross-examined by the Chartered Accountant on 26-7-1991 and 20-12-1990 respectively. From the depositions made by Smt. Sosamma Varghese, the Income-tax Officer noticed that she had once mentioned that there are three partners, viz., herself, Sri George Varghese and Smt. Nimmi George. He held that she had no clear idea regarding the actual constitution of the partnership, not to speak of the carrying on of its activities. She had not brought in any capital or investment. Smt. Nimmi George, another lady partner did not have any immovable property or bank account or any independent source of income. Everything was looked after by Sri George Varghese and she did not even know the purpose for which a sum of Rs. 102,131.62 was given to Sri George Varghese on 31-3-1984 as per the firm's books. Therefore, the Income-tax Officer held that the firm existed only on paper and the partnership did not represent the real state of affairs and thus declined to grant registration. The assessee appealed. The Dy. CIT(A....
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....ve you any connection with Indian Coir Trades? A. The business was run by my husband. Now it is of my son George Varghese. Q. It is found that you have filed an Income-tax return and other records stating that yourself and another person are partners in the business of Indian Coir Trades for the assessment year 1984-85. Whether it is true? A. Myself and wife of George Varghese are partners. Q. How many partners are there? A. We are three partners. Q. Who are the three partners? A. George Varghese, myself and Nimmy George are the partners. Q. Have you invested any money in the business? A. I have invested a sum of Rs. 20,000 in the business on different dates. Q. From which date you became a partner in the business? A. I think it is March 5th, 1983. I don't remember exactly." Further down in the statement the questions and answers are as follows: "Q. You mentioned that there are three partners in the firm Indian Coir Trades but for assessment year 1984-85 as per partnership deed filed here it is found that yourself and Nimmy George are the only partners. Why this disparity? A. Previously the business was of George Varghese and now it is that....
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....gside the statement of the other partner, viz., Smt. Nimmi Varghese it cannot be said that Sri George Varghese was also a partner besides Smt. Sosamma Varghese and Smt. Nimmy Varghese. In this context, it is relevant to refer to the decision of the Madras High Court in the case of S.S.A. Gangamirthammal & Co. In that case, four ladies of the age group of over 55 years constituted themselves into a partnership and appointed two persons, one of whom was the son of one of the ladies, as agents to carry on the business of the partnership. The Income-tax Officer examined the four ladies on oath and came to the conclusion that their oral testimony disclosed that it was not a genuine partnership and hence refused registration. This was confirmed by the Tribunal. It was observed by their Lordships at page 476 of the report as follows : "There is an instrument of partnership; the instrument specifies the individual shares of partners; it was applied in proper and due form. It is highly uncharitable of the revenue to characterise this association as a figment of imagination and therefore non-genuine. On the other hand, all the partners who were examined gave out material particulars conce....
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....usiness to know the state of affairs of the bank account and whether an overdraft has been granted by the bank or not. There is however evidence on record to show that such overdraft was granted and who the bankers were. But the Tribunal taking portions of the testimony out of their context, comes to the conclusion that the absence of knowledge of what a bank account and what an overdraft account mean, is an indicia of the non-genuineness of a partnership. This appears to be a conclusion or an opinion which cannot bear scrutiny in the region of reality and reason. We are not persuaded to hold in this case that the instrument of partnership is a departure from the well-known principle that in a partnership all act for each and each for all." 5. From the extracts of the deposition of Smt. Sosamma Varghese (see para 4 above) it is clear that she used to make enquiries with her son as her son was looking into the accounts etc. It is not uncommon that partners appoint managers or agents who actually carry on the business and occasionally enquiries are made by the partners with such persons regarding the conduct and course of the business. Smt. Sosamma Varghese has chosen this path vi....
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....the only complaint is that the amount was paid from out of the business income. So long as the payment is not disputed, no adverse inference can be drawn. There is force in the contention of Sri J. Krishnan, the learned Chartered Accountant, that there was erosion of the capital of Gerorge Varghese, the proprietor, as reflected by the debit balance in the capital account in a sum of Rs. 1,02,131.62 and in that context even the payment of Rs. 20,000 towards goodwill was a hefty sum for taking over the business. Thus, it is not without consideration that the business was taken over. Smt. Susie B. Varghese, the learned departmental representative sought to distinguish the Supreme Court decision cited supra on the ground that one of the partners alone was given exclusive powers in that case; whereas in the case of the assessee exclusive powers were given to a close relative who is not a partner as per the partnership deed. We do not find any material difference between the two. The partners have certain rights and duties. An agent can do under proper authorisation whatever the principal can do. The agent need not be a partner himself, he can be an outsider with the only limitation that....