1. By this reference under Section 256(1)of the I.T. Act, 1961, hereinafter called ' the Act ', the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion:
'Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the firm was not entitled to registration for the assessment year in question '
2. The material facts giving rise to this reference briefly are as follows I The assessee is a firm and the assessment year in question is 1976-77. For the assessment year 1975-76, the assessee was registered as a firm consisting of the partners, Smt. Gangabai and Rameshchandra. Subsequently Smt. Indrabai, wife of Shri Rawaldas, brother of Rameshchandra and son of Smt. Gangabai, partners of the firm, was also introduced as a partner in pursuance of a deed of partnership executed on 21st November, 1974, and registration was sought for this firm. One of tha clauses of the deed of partnership required contribution of Capital by all the partners and in pursuance of this clause, Smt, Indrabai was alleged to have contributed a sum of Rs. 11,000 as capital on the first day of the accounting period. According to the assessee-firm, this amount was taken by Smt; Indrabai as loan from one Jehangir. The ITO examined Jehangir and Smt. Indrabai and came to the conclusion that the amount alleged to have been invested by Smt. Indrabai actually belonged to her husband, Rawaldas, and that Indrabai was only a benamidar of Rawaldas, who was looking after the business of the firm. The ITO further held that the other partners knew or had reason to believe that Indrabai was a benamidar of Rawaldas and that as the partners had not communicated their knowledge or belief to the ITO, the firm could not be held to be genuine by virtue of the Explanation to Section 185(1) of the Act and hence he refused registration to the firm. On appeal, the AAC held that there was not sufficient material for holding that a genuine firm was not in existence. The AAC, therefore, allowed the appeal filed by the assessee. Aggrieved by that order, the Department preferred an appeal before the Tribunal, The Tribunal found after appreciating the material on record, that Indrabai was a benamidar of her husband and that the other partners of the firm knew or had reason to believe that Indrabai was a benamidar of Rawaldas, in view of the relationship of Rawaldas with the other partners. The Tribunal further held that the other partners of the firm had not communicated their belief or knowledge to the ITO and hence, in view of the Explanation to Section 185(1) of the Act, the firm could not be held to be genuine. In this view of the matter, the Tribunal set aside the order passed by the AAC and restored the order passed by the ITO. Aggrieved by the order passed by the Tribunal, the assessee submitted an application for making a reference to this court and it is at the instance of the assessee that the aforesaid question of law has been referred to this court for its opinion.
3. Learned counsel for the assessee contended that the Tribunal had given contradictory findings and that the finding about the benami character of Indrabai given by the Tribunal was based on no evidence. It was further contended that the Tribunal had dealt with the matter very superficially and it was a fit case where the matter should be remitted to the Tribunal for deciding it afresh.
4. Before we proceed to appreciate the contentions advanced on behalf of the assessee, we have to bear in mind the scope of the reference. The question as to whether there was any material before the Tribunal for arriving at the findings that Indrabai was a benamidar of her husband and that the other partners knew or had reason to believe that fact has not been referred to this court. The only question that has been referred is whether, on the facts found, the Tribunal was justified in holding that the firm-was not entitled to registration.
5. Now, registration can be refused if a genuine firm is not in existence. The Explanation to Section 185(1) of the Act provides that a firm shall not be regarded as a genuine firm if the Explanation is attracted. The Explanation reads as under
'Explanation.--For the purposes of this section and section 186, a firm shall not be regarded as a genuine firm if any partner of the firm was, in relation to the whole or any part of his share in the income or property of the firm, at any time during the previous year, a benamidar-
(a) of any other partner to whom the first-mentioned partner does not stand in the relationship of a spouse or minor child, or
(b) of any person, not being a partner of the firm, and any of the other partners knew or had reason to believe that the first-mentioned partner was such benamidar and such knowledge or belief had not been communicated by such other partner to the Income-tax Officer in the prescribed manner.'
6. The aforesaid provision is attracted in the instant case in view of the findings of the Tribunal that Indrabai, a partner of the firm, was a benamidar of her husband, who was not' a partner of the firm, and that the other partners, namely, the brother and the mother of Indrabai's husband, knew or had reason to believe that Indrabai was benatnidar of her husband and that they had not communicated that fact to the ITO. In view of these findings, the Tribunal rightly held that by virtue of the provisions of the Explanation to Section 185(1) of the Act, the firm could not be held to be a genuine firm. The contention that the findings given by the Tribunal are contradictory is not well founded and the contention that there was no evidence before the Tribunal for arriving at its findings falls outside the scope of this reference.
7. For all these reasons, our answer to the question referred to this court is in the affirmative and against the assessee. In the circumstances of the, case, parties shall bear their own costs of this reference.