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Dhanji Lalji Vs. Commissioner of Income-tax, Poona - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-Tax Reference No. 106 of 1966
Judge
Reported in[1977]107ITR395(Bom)
ActsIncome Tax Act, 1961 - Sections 185
AppellantDhanji Lalji
RespondentCommissioner of Income-tax, Poona
Appellant AdvocateS.J. Mhaispurkar, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
direct taxation - partnership deed - section 185 of income tax act, 1961 - assessee made a partnership firm - terms and conditions of firm was totally in favour of assessee - other three partners had no other higher status than that of dignified employees - total control of firm vested in assessee - application for registration of firm submitted - terms of partnership deed and evidences of three persons who were said to have taken as partners compelled income tax officer to declare partnership firm void in law - registration of firm refused - in such circumstances assessee entitled to entire profit of firm - assessee's income liable to be taxed. - - an application for reference requesting the tribunal to refer certain questions of law to this court having failed, the assessees.....tulzapurkar, j.1. four questions have been referred to this court by this reference under section 66(2) of the indian income-tax act, 1922, at the instance of the assessees, who are m/s. dhanji lalji, kolhapur, shri dhanji lalji, individual. the two questions concerning the assessment of the firm, m/s. dhanji lalji, are as follows : '(1) whether, on the facts and in the circumstances of the case, the several restrictions contained in the instrument of the partnership, dated a november 12, 1958, rendered the partnership void in law so as not to entitled the applicant-firm to registration under section 26a of the indian income-tax act (2) whether, on the facts and in the circumstances of the case, and upon the true construction of the partnership deed dated november 12, 1958, there was any.....
Judgment:

Tulzapurkar, J.

1. Four questions have been referred to this court by this reference under section 66(2) of the Indian Income-tax Act, 1922, at the instance of the assessees, who are M/s. Dhanji Lalji, Kolhapur, Shri Dhanji Lalji, individual. The two questions concerning the assessment of the firm, M/s. Dhanji Lalji, are as follows :

'(1) Whether, on the facts and in the circumstances of the case, the several restrictions contained in the instrument of the partnership, dated a November 12, 1958, rendered the partnership void in law so as not to entitled the applicant-firm to registration under section 26A of the Indian Income-tax Act

(2) Whether, on the facts and in the circumstances of the case, and upon the true construction of the partnership deed dated November 12, 1958, there was any evidence to support the findings of the Tribunal that :

(i) it could of the partners was no more or higher than that of the dignified employees :

(ii) it could not be taken that the agency of the partners, inter se as partners of the firm, could be said to have been established thereby ?' In the individual assessment of Shri Dhanji Lalji the following questions have been referred :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income of the firm of M/s. Dhanji Lalji was rightly assessable in the hands of the applicant

(2) Whether, on the facts and in the circumstances of the case, and upon the true construction of the partnership deed, dated November 12, 1958, it could be held that the applicant was liable to be taxed on the entire profits of M/s. Dhanji Lalji and not only on the seven annas share of profits as claimed by him ?'

2. The question with regard to granting or not grating registration to the firm of M/s Dhanji Lalji relates to the assessment year 1960-61, the corresponding accounting year being S.Y. 2015. Similarly the questions pertain in to the individual assessment of Shri Dhanji Lalji relate to the assessment year 1960-61, the relevant accounting year being S.Y. 2015. The questions arise from these facts and circumstances :

3. Admittedly, Shri Dhanji Lalji was carrying on wholesale business in grains and jaggery and also in commission agency as its sole proprietor up to S.Y. 2014, which was the accounting year relevant to the assessment year 1959-60. From the beginning of S.Y. 2015 relevant to the assessment year 1060-61, he claimed that the business had been converted into a partnership concern with four partners having shares as under :

(1) Shri Dhanji Lalji ... 0-7-0(2) Shri Govindji Lalji ... 0-3-0(3) Shri Tokersey Rawji ... 0-3-0(4) Shri Vasanji Rawji ... 0-3-0

4. The instrument of partnership in connection with the aforesaid firm was executed on November 12, 1958. Accordingly, for the assessment year 1960-61, two separate returns were filed, one in the name of the firm of M/s. Dhanji Lalji and another in the name of Shri Dhanji Lalji. In the individual return of Shri Dhanji Lalji his share of 7 annas in the profit was only shown as the income on which he was liable to pay tax. A regular application to register the above firm was duly submitted to the Income-tax Officer on April 30, 1959. After going into the question and after examining the terms of the partnership deed as also taking evidence of three persons who were said to have been taken in as partners, the Income-tax Officer came to the conclusion that the firm was not genuine, that the other three persons had no higher status than that of dignified employees and, therefore, he refused registration under section 26A of the Act. In arriving at that conclusion he particularly commented upon clauses 12 and 14 of the deed under which the entire control and power appeared to vest of Shri Dhanji Lalji alone and the other three persons appeared to be only dummies. He also took into account the circumstances which emerged as a result of the three persons which he recorded. His final conclusion was that Shri Dhanji Lalji, who was the former proprietor of the business, had continued to be so and the partnership was sham. He therefore, taxed the entire profit of the business in the assessment individually made on Shri Dhanji Lalji. The order refusing registration was separately passed and the order pertaining to the individual assessment of Shri Dhanji Lalji was also separately passed by the Income-tax Officer the latter being consequential upon the refusal of registration of the firm.

5. Two separate appeals were filed, one by the firm and the other by the individual before the Appellate Assistant Commissioner, the firm claiming registration and the individual objecting to the inclusion of profits of the business in excess of his 7 annas share therein. The Appellate Assistant Commissioner passed two separate orders and in the case of appeal preferred by the firm he took a contrary view and held that the firm was entitled to registration and, consequently, in the case of individual assessment he held that only 7 annas share of profit in the business was liable to be included in his assessment. He principally took the view that it was for Dhanji Lalji to convert his business into partnership, it was for him to select his partners and the fact that one of the partners was his brother who did not have adequate experience in grains business was not a bar to his being taken up as a partner. He also took the view that the instrument of partnership specified the respective shares of each of the partners in clear terms. its registration with the Registrar of Firms, the allocation of profits in the books of accounts and its subsequent appropriation had also the character of the creation of a legally valid partnership. He also took the view that the operation of the bank account by only one of the partners - Shri Dhanji Lalji - in accordance with the terms of the deed was proper and there was nothing illegal about it. He, accordingly, granted the application for registration. He also passed an appropriate order in the individual assessment of Shri Dhanji Lalji. Feeling aggrieved by the aforesaid decision of the Appellate Assistant Commissioner of the Income-tax Officer filed two separate appeals before the Tribunal, one against the decision granting registration and the other against the order made in respect of the individual assessment of Shri Dhanji Lalji. Both the appeals were consolidated by the Tribunal as the facts to be considered were the same, whether the firm was entitled to registration under section 26A of the Act and whether, accordingly, the individual, Shri Dhanji Lalji, was liable to be assessed only in respect of his 7 annas share of profit from the firm as held by the Appellate Assistant Commissioner. On a consideration of all the facts and material that was available on record. The Tribunal was inclined to accept the finding given by the Income-tax Officer that the firm was not genuine and that, therefore, in spite of the formalities, viz., the execution of a partnership deed on November 12, 1958, intimation being given to be sales tax authorities about the constitution of the partnership on June 11, 1959, and registering the particulars of the partnership under the Indian Partnership Act on November 13, 1959, the firm was not entitled to registration under section 26A of the Act. The Tribunal, therefore, reversed the orders of the Appellate Assistant Commissioner and restored those of the Income-tax Officer. In doing so, the Tribunal, in the first instance considered the evidence that has been furnished by the said three partners before the Income-tax Officer pursuant to the notice issued to them by the Income-tax Officer and after considering the various circumstances and factors which emerged from that evidence came to the conclusion that the examination of the three alleged working partners alone showed that they were not genuine partners but were dummies in the business. The Tribunal then went on to examine the terms of the partnership deed with reference to some of which the Income-tax Officer had made his comments leading to the conclusion that in reality no firm had been brought into existence as claimed under the said deed. On an examination of some of the terms of the deed the Tribunal came to the conclusion that the inference which they had draw from an examination of the three alleged working partners got confirmed and, therefore, the Tribunal held that the firm was not entitled to registration under section 26A of the Act and the individual, Shri Dhanji Lalji, was held to be liable to be taxed in respect of the entire profits of the business. An application for reference requesting the Tribunal to refer certain questions of law to this court having failed, the assessees preferred two applications to this court, being I.T. Application No. 33 of 1964 (in the matter of M/s. Dhanji Lalji) and I.T. Application No. 35 of 1964 (in the matter of the individual, Dhanji Lalji) and it was by reason of directions by this court under section 66(2) of the Act that the Tribunal has submitted the statement of case to this court and referred the question set out at the commencement of the judgment for our opinion.

6. From what has been stated above it will appear clear that two questions which have been raised in the assessment concerning the individual, Shri Dhanji Lalji in I.T. Application No. 33 of 1964. We shall, therefore, deals first with the two questions which have been raised in I.T. Application No. 33 of 1964.

7. In substance both the questions raised really turn upon the aspect as to whether registration to the firm of M/s. Dhanji Lalji has been rightly refused by the Tribunal or not and it is while considering this principal question that the aspect covered by the two respective questions will have to be considered. Mr. Mhaispurkar appearing for the assessees has contended that the Tribunal's finding that the partnership firm was not a genuine firm but a sham one is erroneous, inasmuch as, while arriving at the said finding, the Tribunal has taken into account certain irrelevant material or irrelevant aspects. He has also contended that each one of the factors by itself which has been made the basis of its finding cannot lead to a conclusion that the partnership firm was a sham one and not a genuine one. He has also contended that the Tribunal has laid more emphasis on some of the terms of the partnership deed which according to the Tribunal lead to an inference that the partnership was not genuine, but, according to him, those terms are not such which could lead to such conclusion. We are not impressed by any of these contentions urged by Mr. Mhaispurkar but we shall deal with each one of these submissions presently.

8. In the first place, it would not be correct to say that in arising at its own conclusion the Tribunal has laid great emphasis upon some of the terms which are to be found in he deed of partnership and it is on the basis of some of these terms that the Tribunal has recorded its finding that the firm is not genuine. In fact, the Tribunal, after setting out the preliminary facts, has gone on to consider the statement of each one of he three partners in great detail and has considered the circumstances or factors that have emerged from such evidence and it is a result of examination of this evidence of the three other partners that the Tribunal has in para. 8 of its order dated March 3, 1963, recorded its finding in these terms :

'In our opinion, therefore, the examination of the three alleged working partners alone shows that they were not genuine partners, but were mere dummies in the business.' It is after arriving at such a conclusion on the oral evidence that has been recorded of the three witnesses by the Income-tax Officer that the Tribunal has then proceeded to consider the terms of the deed of partnership and even these two terms, on which some reliance was placed by the Income-tax Officer for coming to his own conclusion, have been regarded by the Tribunal as not leading to that conclusion, but the Tribunal has refereed to a couple of other terms which, in its opinion, added strength to the conclusion which it has recorded as a result of examination of oral evidence that was led before the Income-tax Officer. The Tribunal's finding in this behalf may be quoted in its own words :

'We do not, however, think that merely because the bank account continued in the same individual name of Dhanji Lalji and he alone was to operate the account and also he alone was to be the owner of the goodwill, the relevant terms could be said to militate against the genuineness of the firm. But there are two other terms of the partnership deed which though not by themselves but taken in conjunction with other facts already found, would indicate that the status of the alleged partners was no more or higher than that of dignified employees. According to clause 12 of the partnership deed, Dhanji Lalji alone had the power to employ, remove or dismiss any persons and the other partners had not only no say in the matter but the partners shall not raise any objection regarding the same. Then, clause 14 stipulated as under :

9. 'In case of dispute or difference of opinion between the partners hereto the same shall be settled by Shri Sha Dhanji Lalji, partner No. 1, and his decision shall be binding on all the partners hereto.'

10. Although, late on, in clause 16 it is provided 'all the provision of the Indian Partnership Act, 1932, shall govern the constitution of the firm', we do not think by merely agreeing to such terms it can be taken that the agency of the partners, inter se as partners of the firm, can be said to have been established thereby'.

11. It will thus appear clear that it is not as if that by relying upon some of the terms of the deed the Tribunal has come to the conclusion that the partnership was not genuine. It then examined the oral evidence that was available on record - examination of the three witnesses which has been recorded by the Income-tax Officer - and as a result of examination of that evidence the Tribunal first came to the conclusion that the evidence of the three alleged working partners alone showed that they were not genuine evidences but were dummies in the partnership. The terms of the deed were examined by the Tribunal with a view to see whether it could find some support therefrom to the aforesaid conclusion. Even here the Tribunal has clearly stated that the terms under which the bank account continued in the name of Dhanji Lalji, that he alone was to operate the account and that Dhanji Lalji was alone to be the owner of the goodwill were not the terms which militated against the genuineness of the firm. According to the Tribunal, terms Nos. 12 and 14 clearly suggested that the status of the alleged workers was no higher than that of dignified employees. There is, therefore, no substance in the contention of Mr. Mhaispurkar that the Tribunal has merely relied upon some terms for coming to the conclusion that the partnership firm was not genuine. In our view, though the inference that has to be drawn from the material on record would unquestionably be a question of law, the inference drawn by the Tribunal is based upon certain facts which are available on record and it would be difficult for us to come to a conclusion that the material which the Tribunal found on record was such that no such inference about non-genuineness of the partnership could a all be drawn by it. From this point of view, if some of the answers given by the three witnesses which were examined by the Income-tax Officer are taken into account, it will appear clear that there was no other material on record on the basis of which the Tribunal could come to the conclusion that the three alleged working partners were not genuine partners but were dummies in the partnership. In the first place, there is a recital in the deed of partnership which suggest the reason why Dhanji Lalji converted his proprietary business into a partnership business and the reason suggested in that Dhanji Lalji found it difficult to manage such a large volume of business or rather difficult to be done singly and, therefore, he decided to take three persons mentioned in the deed as his partners; one was his younger brother, Govindji Lalji, and the other two were his erstwhile employees in the business and were his brothers-in-law (being his wife's brothers). The manner in which all the three persons have given evidence before the Income-tax Officer clearly shows that this recital containing the reason for taking them as partners was not correct. So far as Govindji Lalji is concerned, it is clear from his evidence that for the last 7-8 years he had been doing speculation business in Bombay and had started a grain shop at Dhootpapeshwar Building, Girgaon, since S.Y. 2015, in which year he also joined as a partner in the firm. As regards his experience in the type of business which Dhanji Lalji was doing as a proprietary concern, he admitted he had worked in Government godown for about 2 years during 1942-44 where his work was that of a godown keeper which consisted of storing of food-grains and its delivery to merchants. He was specifically asked as to whether there was any similarity between the work as godown-keeper in Government godown and the work which he allegedly did in M/s. Dhanji Lalji, and his answer was that the two types of work had no similarity. Since Govindji Lalji had his partnership place of business in Bombay and the assessee-firm was carrying on its business at Kolhapur, he was asked as to from where he was working for the firm to which his answer was that he was working for the firm both from Bombay and Kolhapur, that from Bombay he collected date regarding the ruling market price of food-grains and he did similar work at Kolhapur. He further claimed that he was responsible for the purchase of 10,000 bags of food-grains like rice and jowar, but stated that the purchases were actually effected by Dhanji Lalji and he merely used to supply to him the addresses of suppliers, which latter answer also was given a go-by when he stated that what he had stated about supplying dealers' addresses was not correct, with the result that the only work which he claimed he was doing in the firm was that of informing the market rates but he was not able to mention what the market rate of rice or jowar at Bombay was when he left Bombay for Kolhapur for the purpose of giving evidence nor was he aware of the rate prevailing a day or two earlier. He was specifically asked as to what work he had done in the firm for the last two months, that is, two months prior to his giving evidence and he stated that he had done nothing for the firm during those two months. He also admitted that though his share of profit amounted to Rs. 12,000 he had not withdrawn any amount in S.Y. 2015 but in the next year he had withdrawn Rs. 6,000. He admitted his relationship with Dhanji Lalji, viz., that he was his younger brother. To a pointed question as to whether he could say that the services rendered by him to the firm were such as to entitle him to as partnership share or that he had been admitted as a partner out of consideration of relationship with Dhanji Lalji, he stated that he had become a partner both on account of the work as well as on account of his relationship. So far as the other two witnesses are concerned it became clear from their evidence that the change in their status had not given them any more power not brought about additional work or responsibility to them. Whatever work the two were doing in the proprietary firm of Dhanji Lalji was continued by them in the same manner of S.Y. 2015, though Tokersey Rawji in his evidence claimed that he had after becoming a partner full powers in respect of purchases and sales which he did not enjoy before becoming a partner. To one of the earlier questions he categorically asserted that as an employee he used to look after purchases for which he used to go to Latur and Barsi and on return to the shop he used to look to the sales and preparation of bills and that as a partner he continued to do the same work. This would go to show that even after becoming a partner there was neither increase in his powers not any addition to his responsibilities or work. The other aspect which emerges from their evidence is whereas in their capacity as employees in the proprietary business each one of them was earning salary of about Rs. 100 per month or roughly each one of them was earning about Rs. 1,000 or Rs. 1,200 per annum, in their capacity as partners each one got a share of profit to the tune of over Rs. 12,000 for the year under consideration and all this for doing the same type of work which they were doing with no addition of responsibilities or work not any increase in the powers to either of them. Both of them were put questions on the aspect as to whether they could employ servants or employees or dismiss them and, if any dispute arose between the partners, to whom the dispute was referred, and when these questions were answered by them in a manner which ran counter to the provisions of deed, the was correct. It was having regard to this type of evidence that was given by these three witnesses that the Tribunal came to the conclusion that these alleged working partners were nothing more than dummies in the business. Admittedly, none of them had contributed and capital to the partnership except Tokersey Rawji who claimed that he had deposited an amount of Rs. 3,000 in the proprietary business of the firm in S.Y. 2013. It is a bit surprising and unbelievable that though he became an employee of the proprietary firm in S.Y. 2014 he should have deposited the sum of Rs. 3,000 in S.Y. 2013. He has admitted that he was carrying on agricultural operations in Cutch before he joined the service of the proprietary business in S.Y. 2014. All this evidence shows that one of the three other alleged partners was the younger brother of Dhanji Lalji and the other two were his employees and also related to them, being his brothers-in-law. None of them has contributed any capital to the firm. This entire evidence clearly runs counter to the reason which has been incorporated in the deed of partnership as to why Dhanji Lalji thought of having these three persons as his partners. It is on appreciation of the entire evidence that the Tribunal came to the conclusion that the other three partners were dummies in the partnership. It is impossible to take the view that for this finding there was no material or no evidence whatever available on record. In fact, the material was such that such an inference could legitimately be drawn.

12. Turning to the deed of partnership, there are four terms which are material. Under clause 10 it is provided that the bank account shall be in the name of Shah Dhanji Lalji and he alone has been given the power to draw, accept or endorse the bills or cheques in the name of the partnership in the usual course of partnership; under clause 12 it has been provided that it is Shah Dhanji Lalji alone who shall employ such persons in the employment of the concern as he thinks necessary for carrying on the partnership concern and shall have the power to remove or dismiss any person or persons so employed if he thinks it necessary and the other three partners shall not raise any objection regarding the same; under clause 13 it has been provided that the other three partners have no right in the goodwill of the firm and clause 14 provides that in case of dispute or difference of opinion between the partners the same shall be settled by Dhanji Lalji and his decision shall be binding on all partners thereto. It is true that any one of these terms taken by itself cannot go to show or cannot militate against the genuineness of the partnership business. Actually, the Tribunal has recorded the view that clauses 10 and 13 (clauses dealing with bank account and goodwill) do not militate against the genuineness of the firm but clauses 12 and 14 (clauses dealing with employment and dismissal of servant - and the decision of Dhanji Lalji in case of dispute or deference of opinion being final) do, of some extent, militate against the genuineness of the partnership firm and that too when these two clauses are regarded in the background of other circumstances and factors which has emerged from the oral evidence given by the three witnesses.

13. Having regard to the aforesaid discussion we are clearly of the view that it cannot be said that the Tribunal's finding about the non-genuineness of the firm is based upon no material or no evidence whatsoever and in fact the material on record, particularly the evidence given by the three witnesses, provides ample warrant for the inference drawn by the Tribunal.

14. Mr. Mhaispurkar strenuously contended before us that none of the factors which have been mentioned by the taken by itself could be regarded as sufficient to draw an inference that the partnership was not genuine and in support of his said contention a number of authorities were referred to by him in the course of his argument. It is true that each one of the circumstances taken by itself cannot be sufficient to lead to such an inference about non-genuineness of the firm but that does not mean that taking all the circumstances and factors cumulatively such an inference can never be drawn. In fact, we are clearly of the view that having regard to several factors and circumstances which have emerged from the oral evidence given by the three witnesses read along with some of the terms of the partnership deed they clearly lead to an inference that the partnership was not genuine and that is exactly what the Tribunal has done and, therefore, it is not possible to come to a contrary conclusion than what has been arrived at by the Tribunal. In this view of the matter, we would only make a brief reference to some of the decisions to which our attention was drawn by Mr. Mhaispurkar.

15. He first referred us to the case of Krishna Flour Mills v. M of Income-tax : [1962]44ITR501(SC) . He pointed out that in this case the Supreme Court has categorically laid down a proposition that whether a firm is genuine or not is normally a question of fact; but whether in the facts and circumstances found by the Tribunal there was material to come to the conclusion that the partnership firm constituted by a certain deed of partnership was not genuine is a question of law. There is no dispute with regard to this proposition enunciated by the Supreme Court in the above case. He further pointed out that in that case the facts were that a person entered into a partnership with his wife and brother-in-law who had contributed their own share in the capital;it was not suggested that there were no good reasons for taking the wife and brother-in-law as partners and the books of account were not shown to be false; there was also nothing in the conduct of the parties inter se to indicate that the partnership was not genuine; the Tribunal, however, assuming that a partnership consisting of the wife and brother-in-law must be necessarily suspect, held that the firm was not genuine. This view of the was negatived by the Supreme Court. It was held that on the materials on record the inference of the Tribunal was unreasonable and not justified either by partnership law or common human experience. The only thing that emerges from this authority is that simply because the person taken as a partner is a relation, may be close or other wise, that by itself is not justification for rejecting that the partnership firm had come into existence. In the instant case before us, neither the Income-tax Officer nor the Tribunal has come to the conclusion about non-genuineness of the firm merely on the ground that the other so called partners were close relations of Dhanji Lalji. Had the conclusion rested only on this aspect of the matter, then perhaps the contention of Mr. Mhaispurkar would have been correct but there are other several factors, particularly the manner in which the three witnesses gave evidence on which reliance was placed by the Income-tax Officer as well as by the Tribunal in coming to the conclusion that there was no genuineness of the partnership. Moreover, unlike the case in the Supreme Court none of the three partners in the instant case had contributed any capital to the firm. This case, therefore, is of no assistance to Mr. Mhaispurkar.

16. The next case referred to by him is the decision of the Madhya Pradesh High Court in the case of United Patel construction Co. v. Commissioner of Income-tax : [1966]59ITR424(MP) . This decision was relied upon by Mr. Mhaispurkar for contradicting the view taken by the Income-tax Officer as well as the Tribunal that Govindji Lalji could not be regarded as a partner of the firm because he had been an inexperienced man in the line and was actually doing very little or no work to the firm. What was urged by him was hat these deficiencies of Govindji could not lead to an inference that he was merely a dummy an not a partner of the firm. In supporting this contention reliance was placed by him upon the decision in United Patel Construction Co.'s case : [1966]59ITR424(MP) . But, as we shall point out, the facts obtaining in that case are entirely different from the one which are obtaining in the instant case before us. The first part of the head-note runs thus :

'A partnership may comprise some member known as a dormant or sleeping partner, who is not generally interested in the conduct of the business and who could not be expected to be aware do the details of the partnership business, but it cannot be reasonably inferred from his ignorance about the details that the partnership was not genuine.'

17. Relying upon the aforesaid aspect which has been brought about by the aforesaid decision it was sought to be urged by Mr. Mhaispurkar that simply because Govindji Lalji was an inexperienced person and was not doing anything worthwhile for the partnership firm it cannot be inferred that he was not a genuine partner of the firm. Now, the proposition enunciated by the Madhya Pradesh High Court is entirely different. The proposition is in connection with how a dormant partner is not expected to render any service to the partnership. In the instant case the recital in the deed suggests that Dhanji Lalji had admitted Govindji for getting assistance from him as a working partner. Even then, as a working partner, he has been found to be rendering no service to the firm, and what is more, he had hardly any experience in the line, which was to be run by the partnership firm. The case, therefore, relied upon by him cannot assist him in support of his contention. The other aspect for which this decision was relied upon was that the Madhya Pradesh High Court has taken the view that even the fact that one of the partners had not withdrawn his share of the profits and allowed them to accumulate would also be no ground for inferring that the partnership was not genuine. Relying upon this aspect of this decision it was urged by Mr. Mhaispurkar that in the instant case also Govindji Lalji had not withdrawn anything from the share of profit and had allowed it to be accumulated an the other two had withdrawn smaller amounts like Rs. 2,800 by Tokersey and Rs. 525 by Vasanji Rawji an had allowed the balance t be accumulated in their account and, therefore, from this circumstance an inference could not be drawn that they were not partners. Here again, it is not because of this aspect alone that these three persons have not been regarded as genuine partners. There are other circumstances to which we have already referred which have been taken into account by the Tribunal for coming to the conclusion that these three persons are dummies in the business. It is unnecessary to refer to the other cases to which out attention was drawn by Mr. Mhaispurkar, as, in our view, each one of them laid certain propositions which were appropriate to the facts of each case. If in the instant case the conclusion that the three alleged partners were dummies in the business and that the firm was not a genuine firm had been arrived at merely by relying upon only one or other such circumstance, perhaps some force could have been found in the contention of Mr. Mhaispurkar, but as we have indicated earlier, it is the cumulative effect of all the circumstances which are available on record which have been taken into account by the Tribunal for arriving at the particular conclusion. It is, therefore, not possible to take a different view from the one taken by the Tribunal because of any of the decisions on which reliance was placed by Mr. Mhaispurkar. It is not possible to accept Mr. Mhaispurkar's contention that the circumstances or factors which have been taken into account by the Tribunal could be said to be irrelevant material or irrelevant factors. All that he could really urge was that one or the other of such factors by itself was not sufficient to lead to that inference with which proposition there could be no quarrel.

18. Having regard to the above discussion, therefore, out answers to the two questions in I.T. Application No. 33 of 1964 would be as follows, respectively :

(1) Several restrictions contained in the instrument of partnership dated November 12, 1958, by themselves had not rendered the partnership void in law but the said restrictions taken along with several facts and circumstances that emerged on record are sufficient to come the conclusion that the partnership was not a genuine partnership.

(2) There was sufficient evidence on record to support the finding of the Tribunal that the status of the partners was not more or higher than dignified employees and for a further finding that the agency of the partners inter se had not been established.

19. Answer to the two questions having gone in favour of the department, the remaining two questions in I.T. Application No. 35 of 1964 are answered thus :

(1) In the affirmative in favour of the department.

(2) In the affirmative, that is to say, individual, Shri Dhanji Lalji, was liable to be taxed on the entire profits of M/s. Dhanji Lalji.

20. Assessees will pay the costs of the reference.


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