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Commissioner of Income-tax Vs. Radha Kishan Choudhury - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference Nos. 8 and 53 of 1975
Judge
ActsIncome Tax Act, 1961 - Sections 26A
AppellantCommissioner of Income-tax
RespondentRadha Kishan Choudhury
Appellant AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Respondent AdvocateJ.P. Bhattacharjee and B.P. Saraf, Advs.
Prior history
Saikia, J.
1. These two references relate to the assessment years 1963-64, 1964-65, 1965-66 and 1966-67 in respect of the assessee, Shri Radhakishan Choudhury, and shall be answered by this common judgment.
2. The assessee was earlier a partner of the firm, M/s. Boitram Debidutt, until he retired from April 12, 1962, and after his retirement, his son, Shri Prabhudayal Choudhury, was taken into the firm as a partner, bringing in a capital of only Rs. 5,000, but was given a profit share of 31
Excerpt:
- .....assessment years 1961-62 and 1962-63 to the effect that the ito was not justified in assessing the share income from the firm, m/s. boitram debidutt, in the hands of the assessee. he, therefore, deleted the additions of prabhudayal's share income for 1963-64 and 1964-65. as regards assessment year 1965-66, he ordered fresh assessment according to his instructions. the department appealed therefrom in i.t.a. nos. 5166(gau), 5167 (gau) and 5168(gau) of 1971-72 before the income-tax appellate tribunal, gauhati (hereinafter ' the tribunal '), and, in respect of assessment year 1966-67, in i.t.a. no. 174(gau) of 1974-75. the first three appeals were disposed of by a consolidated order dated august 28, 1973, and the last by order dated march 22, 1975. all the appeals were rejected and the.....
Judgment:

Saikia, J.

1. These two references relate to the assessment years 1963-64, 1964-65, 1965-66 and 1966-67 in respect of the assessee, Shri Radhakishan Choudhury, and shall be answered by this common judgment.

2. The assessee was earlier a partner of the firm, M/s. Boitram Debidutt, until he retired from April 12, 1962, and after his retirement, his son, Shri Prabhudayal Choudhury, was taken into the firm as a partner, bringing in a capital of only Rs. 5,000, but was given a profit share of 31 1/2%. Radhakishan Choudhury, however, left his entire interest amounting to Rs. 46,931 in the firm even after his retirement. The ITO for the assessment year 1963-64, taking the view that Prabhudayal Choudhury was only a benamidar or representative of his father, the assessee, who was considered the real or beneficial owner of 31 1/2% of the profits of the firm, included the share of profits of Rs. 5,085 from the, said firm in the income of the assessee. For the same reason Rs. 9,052 for 1964-65, Rs. 8,272 for 1965-66 and Rs. 8,938 for 1966-67 were included in the income of the assessee. The assessee having appealed, the AAC allowed the appeals for the assessment years 1963-64 and 1964-65 by his consolidated order dated March 18, 1971, relying on the order dated April 16, 1968, of his predecessor in appeals in respect of the assessment years 1961-62 and 1962-63 to the effect that the ITO was not justified in assessing the share income from the firm, M/s. Boitram Debidutt, in the hands of the assessee. He, therefore, deleted the additions of Prabhudayal's share income for 1963-64 and 1964-65. As regards assessment year 1965-66, he ordered fresh assessment according to his instructions. The department appealed therefrom in I.T.A. Nos. 5166(Gau), 5167 (Gau) and 5168(Gau) of 1971-72 before the Income-tax Appellate Tribunal, Gauhati (hereinafter ' the Tribunal '), and, in respect of assessment year 1966-67, in I.T.A. No. 174(Gau) of 1974-75. The first three appeals were disposed of by a consolidated order dated August 28, 1973, and the last by order dated March 22, 1975. All the appeals were rejected and the deletions of inclusions of Prabhudayal's share income of the firm of M/s. Boitram Debidutt in the total income of the assessee were upheld, holding that the AAC was correct in deleting the amounts of share income. At the instance of the department, the Tribunal referred the following question of law in Income-tax Reference No. 8/75 (relating to 1963-64, 1964-65 and 1965-66):

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the deletion of share income of Shri Prabhudayal Choudhury in the firm, M/s. Boitram Debidutt, from the assessment of Shri Radhakishan Choudhury '

3. The question in Income-tax Reference No. 53/75 is the same, except that it mentions the amount of share income of Rs. 8,938 for 1966-67.

4. Mr. G. K. Talukdar, learned counsel appearing for the revenue, submits that the deletion was not justified as it was based wholly on the finding of genuineness for registration of the firm and was not on any finding as to whether Prabhudayal was benamidar of his father, Radhakishan Choudhury. It appears from the statement of the case in Reference No. 8/75 that the firm, M/s. Boitram Debidutt, filed an appeal against refusal in the registration proceeding for the assessment year 1963-64, which was disposed of by order dated November 17, 1967, by the Income-tax Appellate Tribunal, Calcutta Bench, Camp Shillong, in I.T.A. No. 4808 of 1966-67. The order showed that the ITO found that Prabhudayal Choudhury had brought in capital of only Rs. 5,000, but was allotted l/3rd share. He was a student of law classes and there were no regular drawings from his account. The ITO, therefore, came to the conclusion that the partnership sought to be registered was not genuine, and, therefore, he refused registration. While the AAC agreed with these findings, the Tribunal did not agree that the firm was not a genuine one and pointed out that those circumstances did not militate against the genuineness of the firm and that the mere fact that Shri Radhakishan Choudhury, father of Prabhudayal Choudhury, did not actually withdraw from the firm the amount standing to his credit, did not stand against the genuineness of the firm and that it was not necessary for Radhakishan Choudhury to give any reason why he retired from the firm. Disproportionate capital contribution of Prabhudayal was not material and that Prabhudayal, pursuing a part-time evening class in law, could attend to the business during the other hours. Absence of regular drawings was immaterial considering the age of Prabhudayal. The Tribunal, therefore, held that the firm was genuine and it directed its registration. This tantamounted to finding that Prabhudayal was not a benamidar. This order was relied upon by the AAC as also the Tribunal in the instant appeals to justify the deletion of the share income. Mr. Talukdar submits that the decision to allow registration of the firm holding it to be genuine did not necessarily imply the finding that Prabhudayal was not the benamidar of his father, Radhaldshan Choudhury, but was a genuine partner. The Tribunal, according to him, without deciding the question whether Prabhudayal was the benamidar of his father, Radakishan, ought not to have upheld the deletion.

5. The submission, at first blush, appears to be logical. In CIT v. A. Abdul Rahim and Co. [1965] 55 ITR 65, it, was held (Headnote) :

' When a firm makes an application under section 26-A of the Act for registration, the Income-tax Officer can reject the same if he comes to the conclusion that the partnership is not genuine or the instrument of partnership does not specify correctly the individual shares of the partners. But once he comes to the conclusion that the partnership is genuine and a valid one, he cannot refuse registration on the ground that one of the partners is a benamidar of another. If the partnership is genuine and legal, the share given to the benamidar will be the correct specification of his individual share in the partnership. The beneficial interest in the income pertaining to the share of the said benamidar may have relevance to the matter of assessment, but none in regard to the question of registration.'

6. The genuineness of the firm for registration does not always negative the possibility of one or more of its partners being benamidars of non-partners. But in the instant case genuineness was doubted on the ground of benami only. The order also gives reasons why Prabhudayal could not be held to be the benamidar of Radhakishan, namely, that he could devote time ; his disproportionate profit sharing ratio to capital was immaterial; that a retired partner was free to leave his interest in the firm unwithdrawn, etc., and on this basis there was the resultant finding that Prabhudayal was not a benamidar of the assessee. This finding is a finding of fact and consequently final; and this court has no jurisdiction to decide its correct-

ness except by reference to the question about the validity of the finding on the ground of being not based on evidence, which has not been done in the instant case. That finding having been final, the justification for deletion becomes obvious. The question referred has, therefore, to be answered in the affirmative, against the revenue and in favour of the assessee.

7. The question is accordingly answered in the affirmative. There will be no order as to costs.

D. Pathak, Actg. C.J.

8. I agree.


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