1986 (9) TMI 144

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....apacity. Simultaneously the assessee executed a partnership deed by which the profit & loss received by Shri Hassan Khan from the newly created unit M/s English Wine Traders was to be shared by all the three partners of the assessee in the ratios mentioned in that deed. The ITO, however, was of the opinion that the assessee did not carry any business in this year. He, therefore, refused registration to the assessee firm. The total share of profit from the firm in M/s English Wine Traders received by Shri Hassan Khan was Rs. 39,545 as against this the assessee claimed expenses at Rs. 18,385. According to the ITO, since the assessee had not done any business, he disallowed all these expenses. Since the assessee had filed a return, he assessed....

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....d by them in the same ratio in which the partners of the assessee firm were originally sharing the profits. In otherwords, the assessee's business practically continued as before, except that it was not an independent partnership but a sub-partnership, the original partner in the firm being Shri Hassan Khan. A copy of the balance-sheet of the assessee firm was produced to show that all the three partners of the assessee firm had made investments and the assessee had some credit balance in the firm M/s English Wine Traders, Unit No. 1, Jaipur. A number of authorities were cited, namely, Murlidhar Himmat Singhka & Anr. vs. CIT (1966) ITR 323 (SC) Addl. CIT vs. Degaon Gangareddy G. Ramkishan & Co. (1978) 111 ITR 93 (AP) and CIT vs. Aslisher Co....

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....Khan was a partner in the main firm M/s English Wine Traders, Unit No. 1. All the shares of profit obtained by Shri Hussan Khan from the firm belonged to Shri Hassan Khan. The present partnership was nothing but a device to divert the share of profit earned by Shri Hussan Khan and such a device could not be recognised by law in view of the recent decision of the Hon'ble Supreme Court in Mc'Dowell & Co. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). 6. After carefully considering all the facts and circumstances of the case, we are inclined to upheld the assessee's contention raised in this behalf. Mcdowell's case may cover such cases where there is a clear intention to avoid tax. The Act can certainly expose it. However, the pr....