Krishna Rao, J.
(1) This is a reference under Section 66(1) of the Indian Income-tax Act (XI of 1922) and arises out of an application made under Section 26-A of that Act by the respondent, M/s. Narayanalal Darak, hereinafter called the assessee firm, to the Income Tax Officer, Special Survey Circle, Hyderabad. The question referred is 'whether the assessee firm is entitled to registration for the assessment year 1958-59?'.
(2) The assessee firm was constituted under a deed of partnership dated 6-12-1956 to do business in kapas, cotton, cotton seed etc., and was duly registered with the registered of firms on 10-6-1957. The document states the names of the partners, their initial contributions of the capital and their shares of the profits and losses as follows:-
1. Shir Narayanlal Darak, Rs. 35,000-00. 0-6-0.2. Smt. Godavari Devi. 10,000-00. 0-3-0.3. Smt. Shanta Devi. 1,500-00. 0-1-6.4. Smt. Leela Devi. 1,500-00. 0-1-65. Smt. Padma Devi. 1,500-00. 0-1-6.6. Shri Baburao Narayanarao Phatak.(working partner) Nil 0-1-6
On 8-10-1957 an application was made to the Income-Tax Officer under Section 26-A for registration of the firm for the assessment year 1958-59. On 16-3-1959 the Income Tax Officer granted the registration as the application was in time and in order. But the Commissioner of Income-Tax, Hyderabad, felt that the Income-tax Officer's order was erroneous in so far as it is prejudicial to the interests of the revenue and took proceedings under Section 33-B of the Act. On 15-3-1961, he made an order under Section 33-B cancelling the registration granted by the Income-tax Officer. His findings were that only the working partner, Baburao Narayanarao Phatak, is a genuine partner having a share of 0-2-6, that the remaining interest of 0-13-6 in the business is held by one Jagannath Darak in the names of the other five partners, that the facts stated in the instrument of partnership dated 6-12-1956 are not wholly correct and true and that consequently the instrument of partnership could not form the basis for granting the benefits of registration to the alleged firm. He reached this conclusion on the basis of the following facts determined by him from the material before him (1). The capital purporting to have been contributed by Narayanlal Darak, Godavari Devi, Shanta Devi. Leela Devi and Padma Devi belonged to one Jagannath Darak to whom they were closely related as his brother's son, wife, a brother's married daughter, another brother's married daughter and own married daughter respectively. (2) Narayanlal Darak alone was empowered to operate on the firm's bank account.
(3) There were no drawings from their account for their personal needs by any of the first mentioned five partners although Narayanlal Darak's only source of income was claimed to be his share in the assessee firm and the business of the husbands of the three married daughters were said to be not very prosperous. (4) Narayanlal Darak did not present himself before the Commissioner, nor appear before the Income-tax Officer in proceedings for the subsequent year. Godavari Devi's replies in another proceedings revealed her ignorance of the essential features of the assessee firm. (5) There was tell-tale corrections of the dates of a few entries in the assessee firm's account books indicating that they were ante-dated. (6) The monopoly right for the purchase of cotton within the area concerned, which formed the basis of the business of the assessee firm, had been originally obtained on 25-11-1956 in the name of Goverdhanlal Gopaldas Darak, a firm in which a number of members of the family of Jagannath Darak and his brothers were claimed to be the partners; and was later on transferred to the assessee firm without any quid pro quo. (7) Jagannath Darak was financing the assessee firm and stood as a guarantor for loans advanced by banks. (8) Jagannath Darak introduced Narayanlal Darak to the State Bank of Hyderabad and the account of the assessee firm stood only in Narayanlal Darak's name without disclosing that it belonged to a firm. (9) There were certain transactions of a fixed deposits which indicated that Jagannath Darak played a vital role in the affairs of the assessee firm: & (10) copy of letter dated 30-6-1958 addressed to the assessee by one of its constituents, Mahabub Shah Gulbarga Mills Company, was endorsed to Jagannath Darak.
(4) The assessee firm appealed to the Appellate Tribunal against the order of the Commissioner of Income-tax. The Tribunal, considered every one of the aforesaid facts which weighted the Commissioner. With regard to fact (1), the Tribunal was of the view that the capital contribution having emanated from jagannath Darak did not justify a refusal of registration. It relied on Sunder Singh v. I. T. Commr. for the position that the question in proceedings under Section 26-A is 'Whether the instrument (of partnership) is intended by the parties to have a real effect as governing their liabilities and rights inter se in relation to the business or whether it has been executed by way of pretense in order to escape liability for tax without intention that its provisions should in truth have effect as defining the rights of the parties as between themselves?'. With regard to the remaining facts, the Tribunal held that they were neutral and did not militate against the genuineness of the partnership. As to fact, (2) the Tribunal held that it was open to the partners to agree among themselves that one or more alone could operate the bank account. With regard to fact (3) the Tribunal was inclined to accept the two-fold submission made on behalf of the assessee, firstly that the parties were in affluent circumstances and had no need to draw moneys for meeting their expenses; and secondly, they wished to build up a sizable working capital, before drawing their shares of profits. It held that there was no warrant for an interference that Jagannath Darak prevented them from making any drawings. As to fact (4) it is inclined to accept the submission on behalf of the assessee firm that Narayanalal Dark's non-appearance was due to his having been away on business during the period. The discrepancies in the evidence of Godavari Devi were of a minor character and on a perusal of the evidence of all the ladies, the Tribunal felt no doubt that they were genuine partners. As to fact (5) the Tribunal regarded it as irrelevant. The Tribunal considered facts (6), (7) and (8) to be of no consequence, as Jagannath Darak was a close relative and interest was charged for his loans and the name of the assessee firm itself was Narayanlal Darak. With regard to fact (9), the Tribunal accepted the explanations on behalf of the assessee firm that Jagannath Darak was indebted to it at the relevant time and the amounts were withdrawn from his account in order to earn interests as fixed deposits. Similarly as to fact (1) the Tribunal, accepted the explanation on behalf of the assessee firm that the reason was that the earlier letter 13-6-1958 on the same subject was inadvertently addressed to the firm of M/s. goverdhanlal Gopal Das Darak. After looking at all the facts and circumstances, both separately and cumulatively, the Tribunal came to the conclusion that the first named five partners were not mere dummies for Jagannath Darak, that instrument of partnership set forth the true position and that the partnership was genuine. It accordingly allowed the appeal of the assessee firm. Upon the application of the Commissioner of Income-tax, it made the reference.
(5) In R. C. Mitter and Sons v. Commr. of Income-tax, : 36ITR194(SC) the Supreme Court considered the relevant provisions of the Act relating to registration of firms and speaking through Sinha, J. (as he then was) said:
'So read, it is reasonably clear that the following essential conditions must be fulfilled in order that a firm may be held entitled to registration:
1. That the firm should be constituted under an instrument of partnership specifying the individual shares of the partners;
2. That an application on behalf of, and signed by all the partners, containing all the particulars as set out in the Rules, has been made;
3. That the application has been made before the assessment of the income of the firm, made under section 23 of the Act (omitting the words not necessary for our present purpose), for the particular year;
4. That the profits (or loans, if any) o the business relating to the previous year that is to say the relevant accounting year, should have been divided or credited, as to case may be in accordance with the terms of the instrument, and lastly;
5. That the partnership must have been genuine, and must actually have existed in conformity with the terms and conditions of the instrument.'
(6) The same view was in substance expressed in Commissioner of Income-tax v. Sivakasi Match Exporting Co. : 53ITR204(SC) where his Lordship Subbarao, J. said:
The jurisdiction of the Income-tax Officer is therefore, confined to the ascertaining of two facts, namely (1) whether the application for registration is in conformity with the rules made under the Act, and (2) whether the firm shown in the document presented for registration is a bogus one or has no legal existence.'
In the present case, it is common ground that the first four conditions enunciated in : 36ITR194(SC) have been satisfied. The only dispute raised by Sri C. Kondaiah, the learned counsel for the Income Tax Department is with regard to the genuineness of the partnership. This is a question of fact and the Appellate Tribunal which is the final Court of fact has found the partnership to be genuine. Hence there is a considerable force in the submission of Sri. Y. V. Anjaneyulu, the learned counsel for the assessee firm, that no question of law really arises for our determination.
(7) The contentions of Sri C.Kondaiah are (1) that the Appellate Tribunal has not differed from the Commissioner's finding that the entire capital emanated from Jagannath Darak and therefore the first five partners are merely be namidars for Jagannath Darak; and (2) that the Appellate Tribunal's finding of fact that the partnership is genuine is not supported by any evidence and is at any rate perverse.
(8) The first contention has no force in view of the recent decision of the Supreme Court in Commr. of Income-tax v. Abdul Rahim and Co. : 55ITR651(SC) . There one of the three partners of a genuine partnership gave away a two anna share out of his nine annas hare to his nephew and a new partnership was formed between the four persons. The question arose whether the new partnership could be refused registration on the ground that the nephew was a benamidar for his uncle. His Lordship Subbarao J., after reviewing the authorities summarized the legal position thus:
'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.'
(9) It follows here that if the partnership is genuine the mere fact that five of the six partners are benamidars for Jagannath Darak would not be legal impediment to the registration of the firm.
(10) The second contention is equally without substance. The truth of the deed of partnership was not disputed throughout the proceedings. It surely constitutes evidence in support of the Appellate Tribunal's finding that a genuine partnership was formed unless it is found that the first named five partners were dummies or name lenders for Jagannath Darak to the knowledge of the 6th partner, Baburao Narayanarao Phatak. The gist of Sri C. Kondaiah's submissions is that the Appellate Tribunal's finding that the first named five partners are not dummies in perverse, because it accepted the explanations given on behalf of the assessee firm and disregarded the cumulative effect of all the facts and the circumstances. According to him, the Tribunal did not approach the issue, bearing in mind correct principles of law.
(11) In this connection we may usefully refer to the principles laid down in G. Venkataswami Naidu and Co. v. Commr. of Income Tax 0065/1958 : 35ITR594(SC) . His Lordship Gajendaragadkar, J. (as he then was) said:
'It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence; or that the impugned conclusion drawn from the relevant facts is not rationally possible; and if such a plea is established, the Court may consider whether the conclusion in question is not perverse and should not, therefore, be set aside. It is within these narrow limits that the conclusions of fact recorded by the Tribunal can be challenged under Section 66(1). Such conclusions can never be challenged on the ground that they are based on misappreciation of evidence.'
Again, in Omar Salay Mohamed Sait v. Commr. of Income Tax : 37ITR151(SC) Bhagwati, J. said:-
'We are aware that the Income Tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this Court will not interfere. It is necessary however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the question which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusion reached by the Tribunal should not be coloured by any irrelevant consideration or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises and if it does anything of the sort its findings, even though on questions of fact, will be liable to be set aside by this Court.'
(12) The weight to be attached to the explanations given on behalf of the assessee merely a matter of appreciation of the evidence. All the relevant evidence has been carefully considered by the Appellate Tribunal and it cannot possibly be said that no reasonable person would reach the same conclusion. On the other hand, it appears to us that the Commissioner, in drawing his conclusions from the circumstances, overlooked the danger of conjecture or suspicion taking the place of legal evidence which was expressed in R. v. Hodge, (1838) 2 Lewin 227 : 168 ER 1136 by Baron Alderson in the following terms:
'The mind was apt to take a pleasure in adopting circumstances to one another, and even in straining them a little, if need be, to force them to form parts of one connected whole; and the more ingenious the mind of the individual, the more likely was it, considering such matters, to overreach and mislead itself, to supply some little link that is wanting, to take for granted some fact consistent with its previous theories and necessary to render them complete.'
(13) We have no hesitation in holding that the impugned conclusion of the Appellate Tribunal is rationally possible. Indeed it arrived at a reasonable conclusion upon the materials on record.
(14) The answer to the question referred to us must be in the affirmative and in favour of the assessee. The respondent firm will be entitled to its cots which we fix at Rs. 500 (Rupees five hundred only).
(15) Answered in affirmative.