Somnath Iyer, J.
1. These are applications under section 66(2) of the Indian Income-tax Act, 1922.
2. On September 23, 1953, an application was presented by what purported to be a firm called Venkateswara District Motor Service providing transport facilities in Bellary for an order under section 26A of the Indian Income-tax Act, 1922. The order sought was the registration of the firm for the purposes of the Act. The assessment years in proceedings relating to which the application was disposed of by the Income-tax Officer were the years 1954-55, 1955-56 and 1956-57.
3. By an order made by the Income-tax Officer on August 31, 1955, that application was rejected and an assessment was made on the hypothesis that the income alleged to be that of the firm was really the income of a proprietary concern owned by a certain Venkata Rao. From this order, there were appeals to the Appellate Assistant Commissioner of Income-tax, B Range, Bangalore, which were dismissed by an order made by him on July 31, 1958. There were further appeals to the Income-tax Appellate Tribunal, Hyderabad Bench, and those appeals were also dismissed on September 17, 1959. On January 28, 1960, the Tribunal refused to refer to this court these questions which the appellant required the Tribunal to refer under section 66(1) of the Act. So it is that the firm which sought registration under section 26A asks us in these civil petitions to require the Tribunal under section 66(2) to state a case and to refer those questions to this court for its opinion. The firm whose application for registration was refused will be referred to as the applicant in the course of this order.
4. The undisputed facts are these : There was a transport business carried on in Bellary by a certain Venkata Rao which he commenced in the year 1924. Venkata Rao was a member of a Hindu joint family. In the year 1930, that business was being carried on by a company called Asquith and Co. Ltd., the shares of which were held by the members of that family. But, in the year 1939, that business became the separate business of Venkata Rao who continued to own it till the year 1953.
5. On May 6, 1953, and instrument of partnership was executed between Venkata Rao and his cousins who were all members of a Hindu joint family. That document stated that those four persons had entered into a partnership which commenced on April 1, 1953, and that the business carried on by Venkata Rao had vested in the firm. The name of the firm was Venkateswara District Motor Service which was also the name of the in which Venkata Rao was carrying on business. The capital contributed by each partner was stated to Rs. 5,000 and their shares in profits and losses were equal. There was a stipulation that capital in excess of Rs. 5,000 contributed by any one of the partners should be treated as a loan to the firm which was liable to pay interest thereon at six per cent. a year.
6. It was on the basis of this instrument of partnership that the application for registration under section 26A was made. The Income-tax Officer thought that the partnership was a mere make-believe designed to evade the provision of Income-tax Act and that Venkata Rao continued to be the exclusive owner of the business and of all its assets. The Appellate Assistant Commissioner by an order so carefully prepared that it evokes appreciation for its thoroughness and lucidity, concurred in the view taken by the Income-tax Officer. In the course of the very analytical marshalling of the facts he first stated what could be said to sustain the application and then enumerated the many reasons which according to him should defeat it. He ultimately reached the conclusion that there was a plan on the part of the persons who claimed to be the partners of the firm 'to put up a bogus firm'. He concluded with the following words :
'In my opinion there is circumstantial evidence to hold that the business is the proprietary concern of one of the members only, namely, of Venkata Rao.'
7. In appeal preferred to the Appellate Tribunal, after setting out the facts of the case in the first three paragraphs, the Tribunal proceeded to consider in the fourth paragraph the correctness of the conclusions of the Appellate Assistant Commissioner. That paragraph opens with the following words :
'The Income-tax Officer examined the said Venkata Rao as also one other partner, viz., V. Govindu. The Appellate Assistant Commissioner has dealt with this aspect of the matter, viz., the genuineness of the firm, at great length and, we should say, has thoroughly thrashed out the various inconsistencies and the fallacy of the claim put forward by the assessee of a firm coming into existence on the basis of which registration has been claimed.'
The Tribunal next proceeded to refer to the admissions made by Venkata Rao and another Govindu who claimed to be one of the partners, that the assets and liabilities of Venkata Rao's concern still continued to be his and that none of the other partners had any interest or concern therein and that the other partners as working partners were only entitled to their share in the profits of the firm. The Tribunal then alluded to the fact that the permits of the transport vehicles continued to be in the name of Venkata Rao and that even the transactions relating to the sales and purchases of the transport vehicles were made in his name. That there was no endeavour made to secure the transfer of those permits to the name of the firm was what was next considered. The admissions made by Venkata Rao and Govindu before the Income-tax Officer in conjunction with the other circumstances to which the Tribunal referred in its opinion made in impossible for it to differ from the view taken by the Appellate Assistant Commissioner that in truth no partnership ever came into being under the instrument of partnership. The finding of the Tribunal was that 'no genuine firm came into existence'.
8. The applicant then desired a reference of three questions to this court and those questions read :
'(1) Whether on the facts and circumstances of the case the Appellate Tribunal was justified in holding that the bus transport business run under the name and style of 'Venkateswara District Motor Service' belonged to Venkata Rao in his individual capacity and not to the partnership formed under the deed of partnership dated May 6, 1953
(2) Whether on the facts and circumstances of the case the Appellate Tribunal was justified in law in refusing registration under section 26A of the Act to the assessee constituted as a partnership under the partnership deed dated May 6, 1953
(3) Whether the assessee is not entitled to registration under section 26A of the Act for the assessment year 1954-55 ?'
This reference was refused by the Tribunal which thought that no question of law arose out of its order.
9. In these applications, we are asked to require the Tribunal to refer those questions to this court.
10. It was argued before us by Mr. V. Krishna Murthy, the learned advocate for the firm, that the question whether the partnership was a genuine partnership or not involved an investigation into the question of law and that question according to him was whether on the material which the Tribunal had before it and which it considered it was possible for it to reach the conclusion that the partnership was a mere pretence.
11. It is clear from a long line of decisions both of the Privy Council and of the Supreme Court that when a question arises whether a partnership whose registration is sought is a genuine partnership, although a finding that it is not a genuine partnership is a finding on a question of fact, the question whether there was material on which it was possible to reach that inclusion is however a question of law. That was the elucidation made in Sundar Singh's case. While in Jiyajeerao Cotton Mills Ltd. v. Commissioner of Income-tax it was explained that if there was no evidence to sustain the finding recorded by the Tribunal or its finding is a perverse finding, the finding would be open to investigation in appeal, in Krishna Flour Mills v. Commissioner of Income-tax the enunciation made was that a question of law arises out of the order of the Tribunal if its inference that there is a bogus partnership is unreasonable and not justified either by the partnership law or common human experience. That a similar consequence ensues when the conclusion is influenced by the application of wrong principles is what appears from Champaran Cane Concern v. State of Bihar.
12. The principle propounded in Dhirajlal Girdharilal v. Commissioner of Income-tax and Omar Salay Mohamed Sait v. Commissioner of Income-tax was that a decision reached by the Tribunal on irrelevant premises or on mere surmises would as such be susceptible to criticism as a conclusion impelled by 'matters of prejudice.'
13. Now, therefore, the question is whether in these cases we could say that a question of law arises out of the Tribunal's order, and the question has to be answered with the assistant of the principles emerging from these decisions. What is very clear from these pronouncements is that the question whether the material on which rests the finding that a partnership is a pretence can sustain that finding is always a question of law and that a question of law also arises out of a Tribunal's order whose conclusion is either unreasonable or repugnant to firmly established principles of partnership law or rests irrelevant material. It is thus plain that while the facts found by the Tribunal, on the basis of which it constructs its finding that the partnership is a make-believe, are not open to discussion since they are pure questions of fact and are not questions of law the ultimate finding that the partnership is a sham may involve a question of law in conceivable cases.
14. The exact ambit of the enquiry to be made by the High Court when exercising jurisdiction under section 66 in cases where a finding on a question of fact flows from another set of facts is now made clear from the recent pronouncement of the Supreme Court in Commissioner of Income-tax v. Jadavji Narsidas & Co. in which it was pointed out that the investigation to be made in such a case is limited to question whether there is no evidence at all to support the finding of the Tribunal and does not extend to the assessment of the sufficiency of the evidence on which the finding rests. So, when a matter is before the High Court under section 66(1) or after the Tribunal makes a reference when it is required to do so under section 66(2), what the High Court, in a case like this, has to consider is not whether there was sufficient material before the Tribunal in support of the conclusion reached by it but whether there was no material at all on which that conclusion could ever be reached.
[His Lordship referred to the evidence and its appraisal by the Tribunal and the Appellate Assistant Commissioner and proceeded as follows :]
15. It is of course, not possible to say that the materials on which the Tribunal actually founded its conclusion was either irrelevant or immaterial. Nor could it be said that the inference drawn from those materials is unreasonable or opposed to any acceptable legal principle.
16. It was however said that there was no independent consideration of the other materials by the Tribunal and that it abdicated its jurisdiction in expressing general agreement with the process of reasoning employed by the Appellate Assistant Commissioner.
17. The complaint that there was no independent consideration by the Tribunal of the other materials and that there was an abdication of jurisdiction by the Tribunal which generally concurred in the process of reasoning employed by the Appellate Assistant Commissioner cannot, in my opinion, bring into being a question of law. That that is what we should say is clear from the decision in Commissioner of Income-tax v. Jadavji Narsidas & Co. in which it was pointed out that although it is desirable that the Tribunal should make an independent discussion of the materials before it and state its own conclusions, the minimum that is required of the Tribunal is a general approval of the reasons given by an inferior tribunal or such of them as are acceptable. This is what Hidayatullah J. observed at page 255 of the report :
'Even if the reasons given by an inferior tribunal are not re-stated at least a general approval of them, or such of them as are acceptable, should appear....... We would, however, have preferred if the order of the Tribunal in the appeal filed by the assessee firm had even briefly expressed their approval of those reasons and not left them to be mentioned in the statement of the case.'
18. The learned judge proceeded to observe :
'In such an inquiry the court looks not to the sufficiency of the evidence but whether any evidence exists at all. Even if there be slight evidence which was believed by the Tribunal and on which the conclusion can be rested, such question must be answered in the affirmative. But the finding must not proceed upon conjecture, suspicion or surmise. If there is not a scintilla of evidence, the finding cannot be sustained because the proved facts would not then support the inference.'
While, therefore, I do not find it possible to say that there was a mechanical adoption by the Tribunal of the reasoning of the Appellate Assistant Commissioner, the order of the Tribunal read as a whole makes it clear that it bestowed its thought on all the material aspects of the matter and did not consider it necessary to re-state every one of the reasons which influenced the Appellate Assistant Commissioner's decision. It concentrated its attention on the cardinal question whether there was really a transfer of the business of Venkata Rao to the firm in which event alone the partnership could be considered genuine. The admissions of Venkata Rao and Govindu constituted the main foundation of the conclusion reached by it that there was no such transfer or of the assets and liabilities of the old concern. The enunciation of the law in Commissioner of Income-tax v. Jadavji Narsidas & Co. makes it impossible for us to enquire into the sufficiency of the material on which the Tribunal founded its conclusion.
19. What we are called upon in these cases to do even at this stage is to examine whether there was no evidence at all to support the finding of the Tribunal, and, if we had found it possible to say so a question of law would have arisen out of the order of the Tribunal. But, in contradistinction to the case decided by the Supreme Court, in the case before us there was a general approval by the Tribunal of all the reasons given by the Appellate Assistant Commissioner supplemented by its own discussion of what is considered to be the really material feature of the case, and it can hardly be disputed that what it considered was a question whether the entries in the books of account according to which there was a transfer of the assets and liabilities of the old concern to the new were artificial entries. It found no difficulty in concluding that they were since the admissions of Venkata Rao and Govindu made any other conclusion impossible. If the story was that the partnership was created for the acquisition of the business of Venkata Rao and that the assets of that business stood transferred to the partnership, and that was what was recorded in the books of account, and that record is admittedly false, what the Tribunal thought was that the partnership was a mere blind. If, in addition, it concurred in the other findings of the Appellate Assistant Commissioner, one of which was that even the other entries in the books of account recording the contribution of capital and distribution of profits were equally fictitious, it becomes apparent that the contention that on the materials before the Tribunal such conclusion was not possible become unavailable. The argument which was at one stage maintained in this court that the continuance of the ownership of Venkata Rao of the assets of the old concern does not in law preclude the creation of a partnership can have little relevance since that submission again contradicts the entries in the books of account and only reinforces the conclusion of the Tribunal that the partnership to which the instrument of partnership and the entries in the books of account alluded does not exist.
20. We were, however, asked to say that since the principle of Sundar Singh's case is that the question whether there was material before the Tribunal to support its finding is a question of law and the contention of the applicant is that there was no material before the Tribunal from which it could infer that there was no real partnership, there is before us a question of law arising out of the Tribunal's order.
21. The acceptance of this proposition would lead to the result that in every case all that is necessary for anyone to secure an order under section 66(2) is to stand up and say that there is no material to support the Tribunal's conclusion. If in an application under section 66(2) it is asserted that the conclusion reached by the Tribunal does not properly flow from the material on which it depended, it would be the duty of the High Court to decide whether what is asserted is prima facie supportable. It is only then that a question of law can arise. If the court, however, discovers the assertion to be groundless, an order under section 66(2) merely on the basis of the assertion would be unmeaning and there will be no case in which an order under section 66(2) can be refused.
22. On an examination of the matter such as we are bound to make in these applications without depending entirely upon the assertion to the contrary, I do not find it possible to say, having regard to the damaging admissions made by Venkata Rao and Govindu on which the Tribunal mainly depended and the entries in the books of account which were pronounced fictitious and the many other features of the case, that any question of law arises out of the order of the Tribunal.
23. I am not, therefore, disposed to think that these are cases in which we should require the Tribunal to make a reference to this court. These applications have to be and are accordingly dismissed.
There will be no order as to costs.
Govinda Bhat, J.
24. I agree.
25. Petition dismissed.