TaxTMI 
TaxTMI 
1971 (2) TMI 37
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....oad contracts. In the year 1952, he came to Chirala where his father-in-law was residing and obtained contracts from the Indian Leaf Tobacco Development Company Ltd. (hereinafter referred to as " I.L.T.D. Co. Ltd.") for transportation of its goods. It was claimed by him that his business was actually carried on by him in partnership with three others, namely, Rosaiah, Kotaiah and Koteswara Rao, in accordance with, in the first instance, an oral agreement, later embodied in an instrument of partnership dated December 15, 1952. The firm constituted under the aforesaid instrument of partnership consisting of four partners with their profit-sharing ratios of 6 annas, 4 annas, 4 annas and 2 annas in a rupee was styled as Messrs. Madhusudana & Co. For the assessment year 1953-54 corresponding to the relevant accounting year ending with March 31, 1953, the registration of the firm under section 26A of the Act was refused by the Income-tax Officer holding that the business was the sole concern of Sri Y. Chennaiah and the other three alleged partners were only dummies. For the assessment years 1954-55, 1955-56 and 1956-57, the assessee repeated his claim for registration but without success....
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....d surmises ; and (3) that there is ample material to sustain the finding of the Appellate Assistant Commissioner that there was in existence a genuine partnership during the relevant years of account consisting of four partners entitled for registration under section 26A of the Act. He cited a number of authorities to which we shall refer at appropriate places. Mr. K. Srinivasa Murthy, learned counsel appearing for the revenue, resisted the claim of the assessee contending, inter alia, that the finding of the Tribunal that there was no genuine partnership in existence and it is the sole business concern of Y. Chennaiah is one of fact supported by ample material and it is not open for this court to interfere with such a finding in exercise of its advisory jurisdiction under section 66 of the Act. It was replied by the assessee's counsel that this court has jurisdiction to interfere with a finding of fact in cases where there was no evidence or it is vitiated by irrelevant and illegal considerations. Before we proceed to consider the question referred for our opinion, we feel it convenient and profitable to advert to the provisions of the Act and titles relating to the grant of reg....
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....plication on suspicion or surmises. The firm as evidenced by the deed of partnership specifying the shares of the partners must be in existence during the year of account in respect of which registration is sought for and the instrument of partnership must have been executed before the close of the relevant accounting year. The profits of the firm must be ascertained amongst the partners and distributed or credited to their accounts in the books of account maintained by the firm. The firm must be a valid one. It must be said to be not in existence if it is a bogus or not a genuine one. The income-tax authorities have, therefore, to ascertain, firstly, whether the application is in the prescribed form, furnished the requisite information and material as required by the rules, and, secondly, whether a genuine and valid firm is in existence in the relevant accounting year. Where an application for registration under section 26A is in conformity with the Rules, the jurisdiction of the Income-tax Officer is limited to ascertaining the fact whether the firm as evidenced by an instrument of partnership sought to be registered is a bogus one or void in law : vide Commissioner of Income-tax....
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....he order of the Tribunal in appropriate cases and answer them, but cannot frame questions which are not referred to it. The Tribunal, being the final fact-finding authority, must arrive at its own conclusions of fact after due and proper consideration of the entire material, oral and documentary, be it for or against the assessee. The orders of the Tribunal must be speaking orders indication the questions that arose for determination and the evidence pro and contra relating to each one of them and the findings arrived at on the evidence on record before it. The findings of fact can be reviewed by this court when they are based on no material or they are perverse and so unreasonable that no reasonable prudent person would arrive at : See Sree Meenakshi Mills Ltd. v. Commissioner of Income -tax. The material must be valid and garmane and relevant, but not irrelevant extraneous and inadmissible in evidence. In order to find out whether there is material in support of a finding of fact arrived at by the Tribunal on a consideration of the material on record, the court must read the order of the Tribunal as a whole to determine whether every material fact for and against the assessee ha....
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....of law. The finding arrived at by the Tribunal in the instant case is that in none of the three years in question there was a genuine firm constituted under the instrument of partnership with four partners as alleged by the assessee and it was Y. Chennaiah alone who was carrying on business. As held by the Supreme Court in Krishna Flour Mills v. Commissioner of Income-tax whether a firm is genuine or not is normally a question of fact, but, however, whether there, was any material for the Tribunal to hold that the partnership firm constituted under a deed of partnership was or was not genuine, is a question of law. As pointed out earlier, this court can interfere with a finding of fact if there is no material in support of it, or it is perverse, or so unreasonable that no reasonable prudent person can arrive at or if it is based on irrelevant and extraneous considerations. We shall now turn to the contention of Sri Venkatappa that the other three partners are genuine partners and the finding of the Tribunal that the firm is not genuine is perverse and, in any event, based on irrelevant and inadmissible material or surmises or conjectures and is, therefore, liable to be interfered....
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.... the Tribunal who also found that Kotaiah, an ordinary cooly in the tobacco company and Koteswara Rao who was working as a cleaner of a lorry belonging to, another person, were not having the capacity even to finance the amounts alleged to have been advanced by them. The part played by the alleged partners was not believed by the Income-tax Officer and the Tribunal or the reasons stated in their orders. On examining the statements of the partners recorded by the Income-tax Officer which disclose certain material contradictions relating to the part played by them in respect of the partnership business, the Tribunal was of opinion that : " Surely all these persons would not have been telling the truth and reading through the evidence as a whole, we are of the opinion that their general statement that it was Y. Chennaiah alone who was managing the business is true and none of them ever took any part in the business of the firm. " None of the partners other than Chennaiah is found to know anything about the conduct of the business. Chennaiah was solvent enough to finance his business. The profit earned by him in the business was considerably large. The Tribunal did not believe the pl....
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....ome of a partner after its division is not germane or material for the purpose of the decision under section 26A. However, Income-tax authorities are empowered to consider the fact whether there any division or allocation of profits to arrive at such a finding. The utility of the profits in certain cases by the alleged partners would certainly be a relevant and germane factor to find out whether such a partner is genuine or bogus. In the case that came up before the Supreme Court, there was no doubt about the genuineness of the partner the validity of a partnership constituted by two firms was in question. But, in the instant case, the genuineness of the firm and whether three of the alleged partners are bogus, fell for consideration. The promissory notes produced by the alleged partners to establish their claim that the profits of the firm were in fact allocated to them, were found to be new and not genuine. The Tribunal held that they have been got up by the alleged partners in order to show that they were real partners. Though there is no specific finding by the Tribunal that the entries in the account books showing the crediting of division of profits are false, it can be infer....