TaxTMI 
TaxTMI 
1987 (10) TMI 74
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....assessment order passed in the case of old firm the Income-tax Officer held that part of the business of the old firm in carting was diverted to another concern started in the name of Dave Transport Co. (new firm). Besides, all the receipts of the new firm were from the old firm. Again, the new firm was not found to be genuine as per the order posed in the case of new firm u/s. 185(1) (b) of the Act denying registration to the new firm. Accordingly, income of the new firm, being Rs. 75,004 was added to the income of the old firm and accordingly. the assessment was completed on an income of Rs. 3,58,000 plus. 2.1 In the order u/s. 185(1) (b) of the Act passed in the case of new firm the Income-tax Officer brought on record following facts and findings regarding the constitution of the new firm the relevant extract from the order is reproduced below. "An application in Form No. 11 signed by : (1) Shri Ramesh R. Dave (Rasikchandra N Dave-HUF) (2) Smt. Saralaben R. Asti (3) Shri Jaswantlal Naginlal Doshi (4) Shri Natwerlal Becharlal Panchal (5) Shri Madaneshkumar Jaychand Dave was filed on 1/3/1975 together with an instrument purported to have been instrument of partnershi....
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....o benefits of partnership 6. Miss Malaben Dhananjaya Dave 14% Nil 7. Miss Asha Ramesh Chandra Dave 14% Nil 8. Miss Malaben Dhanajaya Dave 14% Nil 9. Miss Nirma Dhananjaya Dave &....
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.... 2.3 The matter was referred to the IAC u/s. 144B of the Act. Before the IAC various objections on factual aspects as well as legal aspects were raised and the same were considered by him. According to the IAC (i) though the new firm was supposed to have come into existence on 1-1-1975 yet no entries were made in the books of account except one or two small entries were made in the books of account except one or two small entries for the whole month of January 1975. On 30-1-1975 only hawala entries were passed in the books of the new firm where income by way of carting job was credits by giving debit to the old firm's account. Since the job of carting was undertaken by the outside agency, viz., Shri Bansilal Patni corresponding entry was also passed crediting the account of outside agency while giving debit to freight account, (ii) the new firm had charged the old firm by way of carting charges to the extent of almost three times the amount raised by the outside agency for the work done, (iii) the first majuri payment made by the new firm was only on 3-2-1975 taking a sum of Rs. 1,000 from the old firm, (iv) there was in real activity by the new firm during the months of January a....
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.... was no tangible proof to suggest that the profits of the old firm had gone back to the partners of the old firm. However, considering the totally of the facts and the provisions contained in sec. 40A (2) he was of the opinion that there was an excessive and unreasonable expenditure in the sense that high charges were paid to the new firm and, therefore, according to him, it would be fair and equitable to consider 10 per cent of the net profits earned by the new firm on the carting job done for the old firm to be added as income of the old firm. 3.2 In respect of registration claim by the new firm after considering the various judicial pronouncements he granted registration holding that some of the partners of the new firm had been assessed to tax earlier than the order passed for refusing the registration to the new firm and therefore, decisions in the case of Hirjibhai v. CIT [1981] Laxminchand 128 ITR 747 (Guj.) where the circular issued by the CBDT was considered, the registration was required to be granted. 4. At the time of hearing before us, the learned Departmental Representative strenuously argued the case. He highlighted certain factual findings recorded by the Income-t....
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....the new firm and this fact is not challenged. Again, the clause regarding retention of the profits to the extent of 40 per cent in the case of employees could not be a bar for granting registration to the new firm. He further laid stress on the factual aspect that the surplus from the reimbursement by Tata Chemicals in respect of the carting charges went on increasing in the hands of the.old firm. 6. We have gone though the various orders passed by the authorities below and have also considered the entire material to which out attention was drawn. From the controversy before us following issues arises for consideration : (i) Whether the business of the new firm could be considered as part and parcel of the business of the old firm, that is to say, whether the new firm was only an extension of the old firm so as to justify the clubbing of the income. (ii) Whether the income shown by the new firm could be considered as the income diverted by the old firm. (iii) Whether finding of the Commissioner (Appeals) on the basis of provisions contained in sec. 40A(2) that only 10 per cent of the income of the new firm is required to be added in the income of the old firm, anyway helps the ....
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....ebate against their accounts with the company and carry interest at the rate of ten per cent per annum, from the due date to the date of payment. 13. The Distributors at their expense shall keep all books necessary for the purpose of this Agreement including invoice books and stock register which books shall at times be open to inspection by any duty accredited representatives of the company. The Distributors shall forward to the Company within seven days after the close of each month's business all stock, sales and expense reports and shall also forward such other reports, statements and accounts which the company may from time to time require. ** ** ** 15. The Distributors shall not sell the goods at rates higher than those fixed by the Company from time to time. The Distributors shall, however, be entitled to add to such fixed rates only freight, octroi, municipal charges, sales tax and other local levies payable in respect of the product." From the above, it is clear that the old fir was looking after transportation of goods consigned by the Tata Chemicals for the purpose of storing it in the warehouses as also distributing the same to various consumers industries. The ass....
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....ork done by Bansilal Patni. The new firm had any one tempo purchased in March 1975 only. In February 1978 a delivery van was purchased and only in November, 1977 again one godowns was obtained on rental basis. Therefore, in asst. year 1976-77 it could not be said that the old firm was receiving any worth while service in respect of carting, warehousing etc., availability of the finance was out of question. Therefore, we do not find any justification for the amount paid to the new firm in the context of what we have stated earlier and that the surplus lying with the old firm out of the reimbursement and recovery of the carting charges, etc., was offered for taxation by the old firm itself clearly thrown light on the income diverted by the old firm to the new firm. 8.1 Again, it is seen that there is an agreement between the old firm and the new firm entered into on 1st January, 1975 regarding the carting job required to be undertaken by the new firm which requires the new firm to promptly transport the goods of the old firm when in the fact the new firm did not have any vehicles of its own except a tempo. Besides, though the agreement is executed on 1-1-1975 actually the partnershi....
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....on of the partner not having say in the management of the new firm would not be fatal to the claim of registration. In fact the deed of partnership specifically mentions that the capital required for the business of the partnership shall be brought in by Shri Rasiklal N. Dave and Smt. Sarlaben only. Therefore, it was not necessary for the other partners to contribute any capital and that is why perhaps the shares in the lesser of the firm are specified as nil in the case of rest of the partners considering the percentage in profits of main partners. Again, there being no independent office premises or furniture or telephone would not adversely affect the claim regarding registration as long as there is material to hold that the partnership is distinct and separate. Besides, it would also not at all be necessary that all the partners must be active partners and all of them must have full knowledge of the partnership. We therefore, do not see any reason to deny the benefit of registration to the firm any on the factual aspects not acceptable to the Income-tax Officer. Again, since we are holding that the whole income of the new firm is on account of diversion of income by the old fir....