TaxTMI 
TaxTMI 
1986 (3) TMI 132
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....inKabul. No business is being transacted from any place inIndia. There is not even any offence inIndiafrom which it could have transacted any business. There is no income earned inIndia. Similarly, there is no expenditure incurred inIndia. The assessee-firm does not have any assets or liabilities inIndia. These and other facts placed on your record in assessment year 1977-78 are equally applicable to the facts of this year also." 3. The affidavits of the partners and the certificates from some of the Indian parties with whom the assessee-firm had dealt with were relied upon this year also. With regard to the observation of the ITO that the certificates were all couched in the same language, the assessee had the following to say : "... you have raised a further point that the certificates filed by the assessee-firm are similar in language. We accept this position. It was at our request that these persons gave these certificates to be filed with you. The nature of the certificates to be given to you and its language etc. was written by our counsel so as to meet your requirements to the best of the understanding of our counsel." 4. The following was the information regarding ....
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....eference may be made in this regard to the letters of the ITO dated21-2-1981to16-3-1981). The assessee's replies dated2-3-1981,18-3-1981and24-3-1981are also on the same lines as indicated in the course of assessment proceedings for the assessment year 1977-78. 6. The submission raised as above, and reiterated through the assessee's letters referred to above, have been considered by us in detail while disposing of the assessee's appeal for the assessment year 1977-78. For the reasons given there, we reject the assessee's plea regarding its status for this year also. The partners of the assessee-firm, including S. Narinder Singh, who has been, according to the assessee, looking after the control and management of the affairs of the firm, have been inIndiafor major part of the year. S. Surbir Singh alone was inKabulfor the major part of the year. It has, however, never been the assessee's case that he alone held the control and management of the affairs of the firm. Such plea has been taken by the assessee for S. Narinder Singh only. But he was inIndiaas noted earlier, for 217 days out of 365 days during the previous year in question. It cannot, therefore, be said that the assessee....
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....in another firm inKabulwherefrom he withdrew the said sum on1-9-1974and deposited it with the assessee. The remaining amount of Rs. 75,000 was said to be out of the savings of late Shri Dwarka Nath. An affidavit of his brother Shri R. P. Bagga to support to above version was filed by the assessee. The learned Commissioner (Appeals) has accepted the explanation of the assessee with regard to the sum of Rs. 1,75,000. With regard to the remaining sum, however, he said that there was no supporting evidence. The affidavit of Shri R. P. Bagga was ignored by him as he had not been produced by the assessee for examination by the ITO. 10. The assessee challenges the above finding of the Commissioner (Appeals). It is pointed out to us that the creditor has been identified and his credit-worthiness has been proved. So the onus on the assessee to prove the nature and source of the cash credit stood discharged. According to the assessee, Shri Dwarka Nath was living in a rent-free accommodation provided by the firm and was unmarried. He had very little household expenses and was in respect of salary of Rs. 36,000 (Afghanies) from the firm. He could, therefore, save Rs. 75,000 from his past th....
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...., therefore, the ITO could not go in reassessment proceedings beyond the question of status of the firm. Both the sides have relied on a catena of case law in support of their respective view points. 18. In our opinion, it is not necessary to refer to any case law, as it is possible to solve the issue in the present case with reference to the bare language of section 25(1) (a) of the Act, which, so far as it is relevant for our purpose, reads as below : "(1) In disposing of an appeal, the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annual the assessment; or he may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh as....
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.... for scrutiny by the ITO. But when the Commissioner (Appeals) chose to decide no ground of appeal, and set aside the assessment to the ITO for further enquiry and decision on one ground, without expressing any opinion on other grounds, the whole of the order of the ITO gets set aside, one part of it having merged in the order of the Commissioner (Appeals). The ITO, in such a case, was entitled to pass a fresh assessment, after looking into all the aspects of the assessment, as if the earlier assessment order had not been passed. Of course, in passing such an order, the ITO would be bound by the directions given by the Commissioner (Appeals), i.e., in the present case on the question of status. On the remaining issues, however, there were no directions of the Commissioner (Appeals), and so the ITO was free to decide the other aspects of assessment without any fetter on his discretion, as if the earlier order had not been passed. The learned Commissioner (Appeals) had, in our opinion, erred in not properly appreciating the nature and scope of the order of his predecessor, and in believing that he had, so to say, frozen the appeal on other grounds, while restoring the matter to the IT....
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....f the learned Commissioner (Appeals) is stoutly supported. 22. In our opinion, the finding of the learned Commissioner (Appeals) that the trading accounts of the assessee do no deserve to be interfered with is correct. All purchases and sales of the assessee from and to Indian parties are vouched and channelled through banks. Purchases and sales inKabulare, of course, not vouched. But no instance of inflation of purchase price or under-statement of sales price has been indicated. Nor has the ITO pointed out that other traders in similar line have shown better results this year. Fluctuation of profit from one year to the other is possible, and merely because gross profit is lower this year then in the preceding year it may not be enough ground, on the facts of the present case, to reject the trading results. The order of the Commissioner (Appeals) on this point is correct and so we confirm it. His finding that in law the ITO could not have again gone into the question of adequacy of trading results, during reassessment proceedings, as the set aside of the original assessment order was on a limited issue, has been held by us to be wrong. But, on facts, his order is correct and no ....
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.... lakhs. 24. The ITO added the said amount on the ground that no satisfactory explanation as to the nature and source of the aforesaid cash credit has been given by assessee. The Commissioner (Appeals) did not go into the merits of the addition. He deleted it on the short ground that the above addition had not been made in the original assessment, and the ITO could not go into this question, while making reassessment, as his mandate was limited. We have held the above order of the Commissioner (Appeals) to be erroneous. The learned Commissioner (Appeals)'s order cannot, therefore, be sustained on this account. It is accordingly set aside and the matter is restored to him for examining the issue and determining it on merits. 25. For statistical purposes, the department's appeal will be treated as partly allowed. IT Appeal No. 1332 (Delhi) of 1982 : Per Shri Anand Prakash, Accountant Member - The first ground in the assessee's appeal pertains to the status of the assessee. The assessee has claimed the status to be non-resident, whereas the authorities below have held it to be 'resident'. No additional evidence has been placed on record by the assessee for this year. In its....
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....IfKabulpart was destroyed, the same could not be said about the Indian end. TheIndiabased partners could have produced the relevant correspondence. That was not done. It required, in fact, the drastic step of search under section 132 of the Act to discover part of such correspondence, to which reference has been made in the course of our order for the assessment year 1977-78. Drawing of adverse inference against the assessee for non-production of the relevant correspondence was, therefore, justified. For these reasons and the ones given earlier for the assessment year 1978-79, we reject the assessee's claim regarding status. The assessee was a resident firm during the previous year under consideration. The next ground is regarding the disallowance of Rs. 20,000 being interest allegedly paid to Shri Sarin Singh, on the ground that the loan taken by him was not genuine. The matter has been restored by us to the ITO for re-examining the question of genuineness of the loan in respect of the assessment year 1977-78. Accordingly the addition of Rs. 20,000 on account of interest paid to him is set aside and the matter is restored to the Commissioner (Appeals) for redetermination of ....
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....p; 25 per cent 3. Shri Rajinder Singh 10 per cent 4. Shri Narinder Singh 40 per cent 3. Prior to1-4-1975the firm consisted of the partners, namely, Swinder Singh, Inder Mohan Singh, Surbir Singh and Narinder Singh with the following profit sharing ratio : 1. Sardar Swinder Singh 25 per cent 2. Shri Inder Mohan Singh 25 per cent 3. Shri Surbir Singh 20 per cent 4. Shri Narinder Singh 30 per cent The firm with above constitution was in operation from1....
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..... 6. The assessee-firm filed its first return of income for the assessment year under consideration on30-3-1978, declaring its income at Rs. 1,74,531 in the status of a 'resident'. Subsequently, on17-5-1978a revised return was filed by it, claiming the status as 'non-resident', and consequently, declaring the total income at nil. Prior to this date, the assessee had been declaring its status as residents in all the returns filed by its from the assessment year 1957-58 onwards up to the assessment year 1976-77. In respect of the assessment years 1973-74 to 1975-76 the assessments had also been completed accepting the assessee's status as 'resident' as per its declaration. With regard to the assessment for the assessment year 1976-77, however, he assessee filed a revised return on17-5-1978on the pattern of the assessment year 1977-78, claiming its status as non-resident, because the assessment for that year was pending finalisation as on the said date. In respect of the assessment year 1975-76, the appeal was pending before the Commissioner (Appeals) and, therefore, the assessee moved an additional ground of appeal before him in respect of this question. The learned Commissioner (....
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....tax inIndia. 4. It may also be pointed out that there are four partners of the assessee-firm, namely, Shri Narinder Singh 40 per cent, Shri Swinder Singh 25 per cent, Shri Inder Mohan Singh 25 per cent and Shri Rajinder Singh 10 per cent. It may, thus, be noted that the main partner in this firm is Shri Narinder Singh, who was staying inKabuland controlled the business from there. Booking of business was also done fromKabul. The assessee-firm did not carry on any business fromIndia. No correspondence was exchanged fromIndiain respect of its business. 5. It may be pointed out that imports and exports were made by the assessee-firm on principal to principal basis under the bilateral agreements between Indian andAfghanistanon the basis of which only barter trade was carried on between the two countries. It may be pointed out that there was no export by the assessee-firm intoIndiain this year on consignment basis or on own account. Thus, the assessee-firm did not carry on any business inIndiain any manner whatsoever nor the partners of the firm staying inIndiaexercised any direct or indirect control over the management of the said firm fromIndia. In fact, there was no occasion fo....
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....sp; 12-10-1979 Narinder Singh & Co. 12-10-1979 Surbir Singh & Co. 12-10-1979 Hukam Singh Swinder Singh 12-10-1979 S. Inder Mohan Singh, Amritsar 12-10-1979 Harcharan Singh 11-10-1979 Joginder Singh Rajpal 12-10-1979 9. The affidavits of the three partners referred to above are more or less identical in language and state, inter alia, as follows : "2. The above-named firm of Hukan S....
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....siness between the various parties outside India and India-based partners and pointed out that he was in possession of a bunch of papers seized from the personal possession and residence of partners Shri Swinder Singh and Shri Inder Mohan Singh, which threw light on the business activities of the firm in India or from India. The ITO also wanted the assessee to produce before him, inter alia, the order book for the assessment year under consideration for his perusal. 12. The assessee-firm replied to the aforesaid letter of the ITO, vide his letter dated4-3-1980. Along with this letter, the assessee-firm enclosed the certificates from various parties, referred to above as corroborative evidence. It also contended in it that merely because the partners of the firm were resident inIndiaand the firm Narinder Singh & Co. was resident inIndia, it would not mean that the assessee-firm was also controlled and managed fromIndia. The firm also required the ITO to give inspection to it of the seized material to which reference had been made by him. 13. Another letter was written by the assessee-firm to the ITO on17-3-1980, wherein it stated that no order book was being maintained by the ....
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....you straightaway'. Vide question No. 10 the ITO wanted the partner to produce the correspondence file of theKabulfirm and the order book of the firm. The partner replied to this as below : "Give me some time. I may be able to produce." Q. No. 30 put by the ITO again reverted to the topic of correspondence fromIndiaby the various partners with theKabulfirm and specifically posed to him, inter alia, the following query : "Was there any correspondence by the partners inIndiato theKabulfirm?" The reply of the partner was as below : "I have not written any letter to Hukam Singh Inder Mohan Singh,Kabulregarding Hukam Singh and Inder Mohan Singh and as such I need not reply to the rest of the question." The assessee-firm's counsel cross-examined the aforesaid partner and asked him, inter alia, the following question : "Are you entitled to operate upon the firm's bank account inKabulwith Bank Milly?" The partner's reply was : "I cannot say, I do not remember." On being asked as to where the records ofKabulfirm were maintained, the partner said that they were maintained inKabuland not inIndia. He further stated that he had never signed any document on behalf ofKab....
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....e it during these rainy days.'. In his letter dated3-8-1976, the message was to the following effect : ".... about caustic soda, we have taken up with DCM and the rate etc. will be sent to you by telegram in the evening. Please let us know the quotation of 800 tonnes of steel bars which we gave you some time back. ** ** ** ... we are in need of payment very badly. So, please send us dollars immediately. If you think that this is loss of 12-15 per cent, then send 10,000 dollars each in our personal names. You can chitra (sic) us for this ... ... the caustic soda in DCM is ready and can be despatched as and when required ... .... theAmritsarsuggests that green pata should not be purchased for 10/20 days because due to rains it gets heavy and on reaching atKabul, the weight will be very less." Letters dated6-8-1976and9-8-1976may also be noted at this stage as below : "Letter dated6-8-1976 Just now spoke to B. R. Malhotra atCalcutta. Purchased 300 sitara at the rate of 12.80. We are informing you about the same by telegram also." "Letter dated9-8-1976 Please note that 14 bags of Almonds have been damaged very badly due to rain water. Pista Dadi has also be....
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....f the IAC. In addition to the reasons given by the IAC, the ITO made out the following further points in his order : 1. That this year, for the first time, Shri Swinder Singh and Shri Inder Mohan Singh have been paid salaries amounting to Rs. 24,000 by their HUF's for looking after their interests in all the concerns, including the appellant-firm. 2. The inasmuch as the Kabul firm has, according to it, no agents in India to arrange for the purchase of goods from India to export them to Kabul in exchange of the import of dry fruits therefrom, it was all the more necessary for the resident partners of the firm to exert to look after the interest of the firm in this regard in India. According to him in a trading concern purchase operations are as important as sales and, unless these purchases were properly supervised inDelhifor being exported toKabul, the assessee-firm could incur loss. Therefore, the resident partners of the firm cannot but look after the interest of the firm. 3. That Shri Narinder Singh was inIndiabetween31-3-1976to31-3-1977and Shri Ranjinder Singh, the other working partner also remained inIndiathroughout the previous year and that, therefore, the control ....
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....fairs of the firm were situated wholly outsideIndia. On the contrary it shows that the partners of Hukum Singh Inder Mohan Singh spared no efforts to facilitate the import and export of goods to and fromKabul. The assessee's claim is based only on the assumption of a fiction. The learned counsel wants the ITO to believe that when Shri Swinder Singh and Inder Mohan Singh were earning the commission which has been received by Hukum Singh Swinder Singh then they were acting in their incarnation of the partners of the firm. It is impossible to accept that they were not acting in their second incarnation as partners of theKabulfirm when they were arranging for the import of dry fruits fromKabuland arranging for export of kiryana, malmal, etc., fromDelhi." 20. Referring to the failure of the assessee to produce correspondence file before the authorities below the Commissioner (Appeals) had the following observations to make : "The IAC has given many other examples of such letters written by partners inIndiato various parties inIndiain connection with the export of goods to match import of dry fruits. The appellant on the other hand has wilfully withheld all the evidences which woul....
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.... 24.1 The assessee is dissatisfied with the above finding of the learned Commissioner (Appeals). The submissions of the assessee before us have been in effect the same as were put forward by him before the authorities below. According to the learned counsel, the firm was carrying on business fromKabuland that no business was carried on withinIndia. The above submission of the assessee was supported, according to him, by the three affidavits of the partners and the certificates filed by it before the authorities of below parties with whom the assessee-firm had been the dealing inIndia. According to the learned counsel for the assessee, the aforesaid statements and affidavits had been allowed by the authorities below to remain unchallenged, and as such it was not correct for the authorities below to have rejected them as self-serving statements. If the authorities below had any doubt with regard to the correctness of the statements made in the aforesaid affidavits and certificates, it was open to them to have question the affidavits or certificates in question by way of cross-examination. Once the authorities below did not choose to do so, the statements in question should be beli....
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....they were not acting as the partners of the assessee-firm. It would, therefore, be wrong to presume that the Indian partners of the assessee-firm worked for the assessee-firm merely because there have been certain transactions between the assessee-firm and Hukum Singh Swinder Singh. 24.3 Shri Swinder Singh and Inder Mohan Singh were, according to the assessee, playing no part in the managerial control of the assessee-firm while inIndia. It was Narinder Singh who controlled the affairs of the firm. The present firm was dissolved on31-3-1978and the aforesaid partners went out of the said firm and the firm's entire business was ultimately taken over by Sardar Narinder Singh. This showed that Sardar Narinder Singh was the main the partner having control and management of the firm. The presumption of the authorities below the part of the management and control of the assessee-firm vested in the partners residing in India because they controlled 60 per cent share of the profit of the firm was totally imaginary and without any factual basis and ignored to take into account the realities of the situation, viz., that Sardar Narinder Singh was controlling the affairs of the firm and ultim....
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....vited to the decision of the Hon'ble Supreme Court in the case of CIT v. Nandlal Gandalal [1960] 40 ITR 1, wherein their Lordships have pointed out that 'control and management' meant de facto management and not merely the theoretical right or power to control and manage the affairs of the firm. Such de facto management of the affairs of the company in the present case was with Shri Narinder Singh who was invariably inKabul. Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of v. VR. N. M. Subbayya Chetiar v. CIT [1951] 19 ITR 168 wherein their Lordships have explained as to in what circumstances it could be said that the control and management of the affairs was wholly situated outsideIndia. All the evidence, according to the learned counsel, in the present case, went to show that the control and management of the affairs of the firm was situated inKabuland, therefore, it would be wrong to hold that the management and control of the affairs of the firm was not wholly situated outsideIndiaand the firm was non-resident. 25.1 On behalf of the revenue the aforementioned submissions of the assessee are resisted and reliance is placed on the orders of t....
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....ndiaand that is why the assessee-firm's status was taken as resident and the assessee had itself declared that position. Therefore, when the assessee took the plea in subsequent years, particularly in the assessment year 1977-78, that its status had changed and that it was non-resident during the previous year in question, it was for it to show that the pre-existing pattern of control and management had undergone a change and its location had been shifted from India to Kabul and that there was a tacit or explicit agreement between the partners and that the partners, who were based in India would take no part in the running of the business of the firm. No such evidence was, however, placed by the assessee on the record. On the contrary, one of the partners, who resides inIndianamely, Shri Rajinder Singh has been admitted avowedly as a working partner. He never went out ofIndiaduring the previous year under consideration. How can it be then said that he worked for the firm outsideIndiaonly ? It is not the firm's case that he is not a working partner of the firm and that he had ceased to be the working partner during the year under consideration. 25.3 The argument of the assessee t....
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....the learned departmental representative, in the present case the assessee had failed to lead satisfactory evidence in support of its case and, therefore, it was not necessary for the department to have placed positive evidence on record in support of the case that the control and management of the assessee-firm was wholly situated outsideIndia. 25.7 The learned departmental representative countered the contention of the assessee that the affidavits unless tested through cross-examination, could not be rejected, by relying on the decision of the Assam High Court in the case of Chowkchand Balabux v. CIT [1961] 41 ITR 465 wherein their Lordships have held, inter alia, that, if proper reasons were given for rejecting the affidavits, which were not illegal or perverse, the affidavits in question could be rejected. According to the learned departmental representative, therefore, the learned Commissioner (Appeals) had rightly rejected the affidavits of the partners, which were no more than self-serving statements and were, in any case, contradicted by the evidence discovered in the search and as record by the ITO in his assessment order. 26. In the rejoinder the learned counsel for ....
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....t of time the situs is at the one place and at another, at another place, depending on the placement of the concerned partner at the relevant time. 28. The general presumption in the case of a firm, as per first part of section 6(2), as noted above, is that it is resident inIndia. This is, however, a rebuttable presumption, but the onus to rebut it is on the person, who alleges that the 'control and management of its affairs is situated wholly outsideIndia'. It is the person, who alleges it, who has to lead evidence in support of its case. If he does not lead such evidence, the presumption will not be dislodged. It will also be the position, when the evidence led by him is not sufficient to discharge the onus. The above position in law is well settled by now by a series of decisions and it will be enough if we refer to the following decision of the Hon'ble Supreme Court in this connection - v. VR. N. M. Subbayya Chetiar's case, Erin Estate's case and Nandlal Gandalal's case. 29. (a) In the present case the assessee has claimed the status of non-resident and so onus was on it to show that the control and management of its affairs was situated wholly outsideIndia. The firm has ....
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....e letters clearly goes to show that there is regular and voluminous correspondence between the assessee-firm and the partners residing in India, which has, however, not been produced by the assessee on the ground that no such correspondence took place. This denial of the assessee is against facts on record and has, therefore, been rightly rejected by the authorities below. Some letters written by Sardar Swinder Singh have also referred to by the authorities below in this connection. When Sardar Swinder Singh was confronted with them, he evaded to give straightforward answer. The existence of these letter, discovered in the course of a search belies the contents of the affidavits of the partners. Apart from these letters many bills and invoices pertaining to the Indian customers issued by the assessee-firm fromKabulwere found in the custody of the India-based partners at the time of the search. If the partners inIndiatook no part in the affairs of the firm, as alleged, why should these bills be with the partners inIndia? The existence of the bills, coupled with the correspondence referred to above, clearly establishes the active nature of the interest that the partners inIndiahave b....
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....e was the only partner, authorized to manage and control the affairs of the firm. If at all, the evidence on record goes to show the contrary position. The partnership deed enjoins it on all partners to work for the firm and does not give the right of management and control of the affairs of the firm exclusively to only one partner, namely, S. Narender Singh. In fact, one of the partners, S. Rajendra Singh, is taken as a working partner, and there is no reason to believe that he did not work as a working partner. The other two partners, viz., Sardar Swinder Singh and Shri Inder Mohan Singh have been found to be working and controlling and guiding the purchase operations inIndia, and even imports intoIndiaas per evidence referred to above. The withholding of the correspondence by the assessee-firm emanating from the partners residing inIndiaand the office inKabulalso compels the drawing of an adverse inference against the assessee on this point. Then S. Narender Singh has also been inIndiafor about 180 days during the previous year under consideration from1-4-1976and26-6-1976and1-1-1977to31-3-1977. His visit toIndiawas not a casual or personal one, say, to marry a son or daughter. I....
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.... Then, who did it ? It was the assessee's onus to explain this position. It has not done so. It has merely contended itself by suggesting that the barter system somehow brought about some alchemical changes in the business pattern which rendered the India-based partners totally irrelevant and otiose. Admittedly they had been taking very active interest in the management and control of the affairs of the business of the firm from 1957-58 to 1972-73, when barter system of trade was not there. And then came the barter system, which, according to the assessee, changed everything and rendered the India-based partners otiose and incapable of taking any interest in the affairs of the firm. We fail to see any alchemy of the type suggested. There is nothing inherent in the system to exclude the partners from participating in the management of the affairs of the firm. The partners could, of course, could consciously decide not to participate in the affairs of the firm. But there is no evidence to show that such deliberate decision was taken by them. Whatever little evidence had been allowed to trickled into (despite the assessee's attempts at total withholding of the necessary evidence in th....
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....fore, turns on these certificates, more particularly when direct evidence showing India-based partner's participation in the firm's business inIndiais available on record. 35. Thus the evidence, and pleas of the assessee based thereon, have no merit and are opposed not only to the normal course of events and human probabilities, but to the positive evidence placed on record, and we, therefore, reject the same. The evidence on record goes to show that for 178 days (178 days - 10 days) in the year the control and management of the affairs of the firm was wholly in India, as all the four partners were in India (for 10 days in April in 1976, Sardar Swinder Singh was Kabul, while S. Narender Singh was in India. These ten days are, therefore, excluded from 178 days that S. Narender Singh was inIndia). During the remaining days, he was partly inIndiaand partly inKabul. It is, therefore, not possible to hold that the management and control of the affairs of the firm was wholly outsideIndiaduring the previous year. 36. The assessee's plea that the assessee's business in entirely in Kabul, that in India there has been neither purchase nor sale, that there are no liabilities in India no....
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....ly for an year or a little more than that, but before coming over to India he had executed a general power of attorney in favour of one P. The partnership envisaged or enabled S. to delegate his powers to some other person who could manage the firm on his behalf. Apart from the agent being there, partner T. of the assessee also went fromIndiatoMalayaand attended to the business of the assessee for which he was paid remuneration. Thus, between T. and the agent, the entire management and control was being exercised, and that too inMalaya. 39. On the basis of the aforesaid facts it was held by their Lordships of the Madras High Court that there was nothing to show that any part of the control over the firm was exercised from India and that, therefore, the Tribunal had rightly concluded that the assessee should be assessed as a non-resident, because the management and control of the assessee was wholly outside India during the relevant accounting period. 40. When we compare the facts of the above case with the facts of the present case, we find no similarity between them. In the present case S. Narender Singh is not designated as managing partner of the firm. On the contrary, the....
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....ttested by the officers of the Indian Chamber of Commerce atKabul. The learned Commissioner (Appeals) did not accept the claim of the assessee, as, according to him, the mere fact that the Indian Chamber of Commerce had attested the signatures of the creditors did not establish their credit-worthiness. The learned Commissioner (Appeals) also found some discrepancies in the account of Sardar Sarin Singh. Two copies of account of the aforesaid party were filed with the ITO, one appearing at page 1 of the paper book and the other appearing at page 66 of the paper book. In one case the account stood squared up and in the other case the amounts had been carried over to the next year. The learned Commissioner (Appeals) in the circumstances felt that the assessee had not discharged the onus, which lay upon him of proving the cash credits. 43. The assessee assails the above concurrent finding of the authorities below, and, so far as the question of presenting the said creditor before the ITO was concerned, it is stated that the same was not possible as the creditors were inKabul. The genuineness of the said creditors, had been proved by getting the signatures attested by the Indian Cham....
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....nting out that the credits had appeared in the assessee's name in the earlier years also. We have seen above that though the credits appeared in the earlier years but they have been directed to be looked into once again. It would, therefore, be just and fair to grant one opportunity to the assessee to prove the credit-worthiness of Shri Biharilal and Shri Sarin Singh this year also. It will be for the assessee to lead such evidence in support of their credit-worthiness as it may deem fit. The ITO may, thereafter, redetermine the issue on merits and in accordance with law. In respect of cash credits, therefore, we set aside the orders of the authorities below and restore the matter back to the ITO for doing the needful. 45. Ground Nos. C, D and E were not pressed by the assessee. In the result the assessee's appeal stands partly allowed. IT Appeal No. 2747 (Delhi) of 1981 : The first ground in the departmental appeal is with regard to deletion of addition of Rs. 5 lakhs made by the ITO to the trading results of the assessee. The addition in question was made because, according to the ITO, the rate of gross profit this year had declined to 7.4 per cent from 9.2 per cent show....
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....n to the ITO to subject any particular purchase or any particular sale to his scrutiny and to point out if there was any manipulation of purchases or sales, if any. This has not been done by ITO. The variation in the gross profit rate is the normal incident of trade and merely because the gross profit may have gone down slightly it may not be possible to infer that the assessee had manipulated its trading results. From a chart of sales and gross profit rates disclosed by the assessee, placed at page 310 of the assessee's paper book, it is seen that the gross profit rate has varied from year to year as will be clear from the following chart : "Hukam Singh Inder Mohan Singh (Kabul) Details of gross profit rates Assessment year Sales Gross profit  ....
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.... the addition in this count in the firm's case was not justified. 48. On the face of it, the aforesaid finding of the Commissioner (Appeals), appears to us in accordance with the material of record. As such we see no scope for inference with the orders of the learned Commissioner (Appeals). The remittance in question were personal remittances of the persons named above and there is nothing on record to connect the said remittances with the firm. In fact one of the persons named above, namely, Sardar Surbir Singh was not a partner of the firm during the year under consideration and, therefore, remittances of 5,000 dollars to him could be no way linked with the firm. The learned Commissioner (Appeals) is, therefore, in our opinion, is justified in having made the deletions in question. The reasons given by learned Commissioner (Appeals) in paragraph 7 of his order are correct and we endorse them. 49. The ITO had made an addition of Rs. 53,770 to the assessee's total income under the head 'Langar expenses', as, according to him, the said expenses were in the nature of entertainment. 50. On appeal the learned Commissioner (Appeals) held that even if such expenses were held as ....
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....n relief and not the individual partners. This contention does not appeals to us. Section 91 grants relief from double taxation to a 'person' and not to the 'business'. Section 91, which is relevant for our purpose, reads as below : "(1) If any person who is resident in India in previous year proves that, in respect of his income which accrued or arose during that previous year outside India ... he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that county, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or at the Indian rate of tax or the rate of the tax of the said country, whichever is lower, or at the Indian rate of the tax if both the rates are equal." It is clear from the language of the aforesaid sub-section (1) of section 91 that, in order to claim relief under the aforesaid sub-section, the person, namely, the firm in the present case, has to prove that it had paid the tax inAfghanistanin respect of his income which had accru....
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....ting, inter alia, that, while exporting goods to the assessee-firm, they 'did not have any dealings with any of the partners of the above firm inIndia'. All the certificates are couched in similar language and the assessee admitted that the draft of all these letters was prepared by the assessee's counsel and was then got signed from the parties in question. The submissions made on the basis of the above evidence, vide the assessee's note filed on4-6-1980, were, inter alia, the 'the control and management of the affairs of the firm was situated wholly inKabul. There was not even partial control fromIndia. Books of account were being maintained inKabul.... Admittedly, some of the partners were residing inIndia, but they were not exercising any control over the firm fromIndia. Partners inIndiaw ere no doubt making temporary journeys toKabulfor consultation, etc. That only shows that the control was exercised fromKabul. Only active partner of the firm was S. Narinder Singh, who was invariably staying inKabul. Trading activities and physical operations of the firm were carried on inAfghanistanwhich was seat of management and control. There was no asset or liability of the firm inIndia.....
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....had not maintained any record, correspondence, file or order book regarding imports and exports made ... whatever records were maintained in loose forms were destroyed at the time of last disturbances in India'. Regarding to stay of various partners inKabul, it was stated that S. Narinder Singh wasKabulfor the period from1-4-1972to17-8-1972and from5-5-1973to3-2-1974, during the previous years relevant to captioned assessment year S. Surjit Singh was inKabulduring the period from13-5-1972to21-1-1975. The particulars of stay of S. Inder Mohan Singh and S. Surinder Singh shall be furnished on the next date of the hearing'. (This information was, however, never given till the date of the assessment order.) 6. The above evidence and submissions were considered by the ITO, but he was not impressed by the assessee's reasoning. He reject the assessee's claim for the status of non-resident, inter alia, for the following reasons that the firm was constituted under the Indian Partnership Act, that the firm had, right from its inception (in the assessment year 1957-58), was claiming the status of resident, that it had given its address as 517, Katra Ishwar Bhawan, and, the mere fact that no....
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....e assessee along with its letter dated 1-1-1981 in the proceedings for the assessment year 1975-76. The additional information contained in the assessee's letter dated20-2-1982is about the stay of S. Narender Singh was inIndiaduring the period1-4-1972to31-3-1974, from18-8-1972to4-5-1973and again from5-2-1974to31-3-1974. S. Surbir Singh was inIndiafrom1-4-1972to12-5-1972only during the rest of the period he was inKabul. 9. We have discussed the above evidence (except that regarding stay of S. Narender Singh and S. Surbir Singh inIndiaas extracted above) in great detail in the order for the assessment year 1977-78. For the reasons given there, we hold that the assessee has not discharged the onus to show that the control and management of the affairs of the assessee-firm during the years under consideration was wholly outsideIndia. According to the assessee's own averment, Shri Narender Singh was the main active partner, who looked after the control and management of the affairs of the firm, which, according to it, was inKabul. The business of the assessee-firm, as its management, is a continuous affair, which cannot be held in abeyance for part of the year, while S. Narender Sing....
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....om to purchase and then to follow up the delivery schedule. Similar decisions had to be taken for the sales or exports toIndia. All this had to be done in India by India based person. In fact, from the letters of Shri Inder Mohan Singh to the firm, referred to in the order for the assessment year 1977-78, all this became fairly clear. The assessee's plea, therefore, that the India-based partners had no say in the management and control of the affairs of the firm is entirely opposed to the normal course of events and human probabilities. The contention that the ITO has placed no evidence on record in support of his case has merely to be stated to be rejected, for it was not for the ITO to bring any evidence on record on this subject. He had the legal presumption, raised by clause (2) of section 6, namely, that a firm is resident inIndiain every case, in his favour. The assessee wanted to get out of this presumption. The onus was, therefore, on it to prove by cogent evidence, that the control and management of the assessee-firm was situated, during the previous years in question, wholly outsideIndia. It has failed to discharge this onus. Accordingly, the assessee's plea must fail. In....
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....Acts read as under : "Definition of 'partnership', 'partner', 'firm' and 'firm name' - 'Partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the 'firm name'." 6. Section 6 of the same enactment reads as under : "Mode of determining existence of partnership. - In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together. Explanation 1 : The sharing of profits or gross returns arising from property by persons holding a joint or common interest in that property does not itself make such persons partners. Explanation 2 : The receipt by a person of a share of the profit of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the pe....
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....revent the substance and reality of the transaction from being adjudged to be a partnership. Further, although two persons may hold themselves out to be partners and be liable to third parties, accordingly, yet it does not necessarily follow that they would be partners inter se. The intention is legal intention. The cumulative effect of all the circumstances should be considered in arriving at the conclusion whether a partnership is legal or not. To take each circumstance by itself and then reject it on the ground that each by itself was not conclusive is not the proper method of approaching the question.". 7. Now on the facts of the present case it is an admitted position that at all times, i.e., during the accounting periods relevant to assessment years under appeal, three of the four partners were carrying on business atKabulinAfghanistanunder a trade permit commonly known as 'Jawaz-Nama.' It is a permit to carry on a business. It is also an admitted position that those three persons at the relevant time have been paying tax on income over there and the payment was made in their individual capacities. Vide paragraphs 52 and 53 of our order made on appeals by the assessee and ....
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....l, for doing the needful : "Whether the question of existence of the firm can be gone into while deciding the assessee's grounds of appeal in respect of the assessment year 1973-74 and 1974-75, more particularly, when the existence of the firm has never been in question at any stage ?" 2. In respect of the assessment years 1973-74 and 1974-75, there is only one ground of appeal and the aforesaid question, therefore, refers to the said ground. In respect of the assessment years 1977-78 and 1978-79, the aforesaid question arises from ground of appeal marked 'A' in the respective memos of appeal for the said two years. In respect of the assessment year 1975-76, the aforesaid question arises with reference to the ground of Appeal No. 1. THIRD MEMBER ORDER Per Shri T. D. Sugla, President - There has been a difference of opinion between the learned Members, who heard the above appeals. The following point of difference has been stated for decision by the Third Member in terms of section 255(4) of the Act : "Whether the question of existence of the firm can be gone into while deciding the assessee's grounds of appeal in respect of the assessment years under consideration, m....
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....ssion is that the learned Judicial Member's separate note only means an expression of his personal opinion. He has also taken us through the paragraphs 52 to 54 of the common order to point out that the Bench has not stated that there was no existence of the business entity by the name and style of Hukam Singh Inder Mohan Singh (Kabul). What has been stated is that so far asAfghanistanwas concerned, its law did not recognise the entity of the firm and did not subject the firm to any income-tax. This, according to the departmental representative, could not mean that there was no existence of its business under the style of Hukam Singh Inder Mohan Singh (Kabul). However, in response to query from the Bench he admitted that the learned Accountant Member has not disputed this inference of the learned Judicial Member. In response to another query from the Bench he stated that if the existence of the firm inKabulis questioned, a question may reasonably arise as to the citus of control and management of the affairs of a non-existent entity inKabulfrom withinIndia. 4. Having heard the parties and after going through the relevant portions of the common order and the dissenting note of th....