Per Shri H. S. Ahluwalia, Judicial Member - The dispute in these appeals related to the assessees claim for registration. In the first year, the ITO noticed that the assessee-firm was constituting 5 male partners and 4 lady partners. He recorded the statements of the lady partners and found several defects therein. Ultimately, he concluded that the lady partners were merely name-lenders and were not genuine partners. He, therefore, came to the conclusion that the firm was not genuinely Constituted and refused registration to the assessee. In the second year, he further noticed that a new lady partner Smt. Maina Devi had been introduced. After examining her, he again came to the conclusion that Smt. Maina Devi appeared to be not a genuine partner of the assessee-firm and, accordingly, he refused to grant registration to the firm on this score. Qua the first year, the assessee went in appeal to the AAC and then came up before the Tribunal, vide its order dated 28-2-1983. The Tribunal noticed that Smt. Daya Devi had been given a gift of Rs. 5,000 by her father-in-law which she deposited in the firm on 14-8-1978. Her father-in-law admitted that he had made a gift of Rs. 5,000 to Smt, Daya Devi on 14-8-1978. But before the ITO, Smt. Daya Devi deposed that the gift had been made to her at the time of her marriage. Due to this discrepancy, she was held to be a non-genuine partner. The Bench, however, noticed letter at page 6 of the paper book, in which Smt. Daya Devi had stated that she was confused as she had appeared before the ITO for the first time to give this statement.
The Bench was, therefore, of the opinion that this letter required consideration. So far as other ladies were concerned, the Bench was of the opinion that they did not find any serious discrepancy in their statements and they had fully explained all their investments in the firm. He, therefore, set aside the order of the AAC and directed him to consider the contents of the letter of Smt. Daya Devi dated 12-6-1981.
The AAC reheard the matter and also gave an opportunity to the ITO concerned. He noticed that Smt. Daya Devi had on 4-10-1980 deposed that the investment had been made out of the gifts of Rs. 5,000 made to her by the father-in-law. Her father-in-law also denied having made any other gift to this lady except the one about 2 1/2 years ago. The capital of Smt. Daya Devi, therefore, stood fully explained from the cash gift received from her father-in-law, who had withdrawn this amount from his personal account in the books of this very concern.
According to the AAC, Smt, Daya Devi got confused and could not state the facts clearly. Therefore, later she filed a letter about this confusion which was accompanied by documentary evidence in the shape of copy of account in Kisan Tractors. In any case, he was of the opinion that Smt. Daya Devi had clearly stated before the ITO that she was a partner with eight others in the business of Kisan Tractors having 10 Np. share, she had affirmed about the receipt of her share of profit and signing of papers of her own. Therefore, her ignorance of certain details relating to the firm was not fatal to the assessees claim for registration. He accordingly granted registration.
2. In the second year, the AAC thoroughly scrutinized the statement of Smt. Maina Devi and noticed that she had clearly deposed about her joining the firm, share of profits, and it had been shown that she had withdrawn Rs. 12,000 from her savings bank account with the Union Bank of India and had deposited a similar amount a few days later. The ITOs only contention was that the whole amount had been spent on the marriage of her daughters but the same as not correct because the lady had also withdrawn several other amounts from her account in the bank and at any rate of contribution of capital was not essential as has been held by the Tribunal in ITO v. Prakash Sales Agency [IT Appeal No.1649 (Jp.) of 1979]. Similar were decisions in Madhya Pradesh High Court and the Madras High Court in United Patel Construction Co. v. CIT  59 ITR 424 and S. S. A. Gangamirthammal & Co. v. CIT  74 ITR 473. He ultimately concluded that the lady had been introduced as a genuine partner and allowed registration to the assessee. Qua both these matters, the department has come up in second appeal before us.
3. We have heard the representatives of the parties at length in this appeal. So far as the facts are concerned, we are not very much inclined to endorse the conclusion of the AAC in respect of the source of investment explained by the two ladies. In this behalf, we may reproduce the relevant portion of the statement of Smt. Daya Devi recorded on oath by the ITO on 4-10-1980 as under : "Question 4 : Where did you get the amount of Rs. 5,000 which you invested to become a partner Answer : These were given to me by my father-in-law at the time of my marriage which was performed in 1964.
Question 5. Where were you keeping these amounts till 1977 when you made investment from 1964 and onwards Question 6 : When did your father-in-law give the amount of Rs. 5,000 to you whether it was before your marriage or on the date of your marriage or after the date of your marriage Answer : These were given to me after the marriage when I came to their house after my marriage.
Question 7 : Were these amounts given to you in cash by Shri Rameshwar Das Question 8 : You have stated that you got these rupees in cash in 1964 then why you did not invest this amount in a bank or in a post office and why did you keep with you for a period of 14 years Answer : This was may wish and when my brother-in-law started some business, I requested him to take the money and make me a partner".
In answer to the questions asked by the assessees representative, the lady gave the details of her investment, profit and the names of the other partners in the firm which show that she was perfectly balanced at that time. Therefore, her later version given in the form of a letter on 3-7-1981 that she had made a wrong statement through mistake is an afterthought. What we conclude is that probably she had not been properly tutored about the source of her investment, because at that time the assessees representative was concerned with the genuineness of the existence of the partnership and the respective partners. The answers which she gave and are reproduced above, were on cross-examination by the ITO and since she had stated like that the stuck to those very facts in her statement in re-examination by the assessees authorised representative probably she gave the answers of her own accord without having been told anything by the assessees representative in this behalf. We are certainly convinced that except for telling her that she was being made a partner in the business, nothing else was explained to her by the other other partners in the business, nothing else was explained to her by the other partners of the assessee as to wherefrom the money that was being invested by her had come from. Similarly, so far as Smt. Maina Devi is concerned, by the departmental representative from which it would follow that she did not even known as to whether her money was kept in a post office or a bank. In her statement, she stated that it was in the post office but the pass book produced relates to a bank. She could not tell what was the amount deposited by her in the bank. She conceded that the became a partner at the instance of Atmaram s/o her husbands brother. To most of the questions relating to the working of the firm, her simple answer was she did not know anything. The details of her deposits and withdrawals could not be given by her initially but were only given after seeing the bank pass book and as the departmental representative rightly suggested the assessee may have taken benefit of the withdrawal by this lady of a sum of Rs. 12,000 on 20-9-1979 to show that she had made some investment on the first day of October whereas she performed the marriage of her children in which she used the money withdrawn from the bank both earlier and later than this date from which it can be inferred that the money withdrawn on 20th September could also be used by her for further marriage of the children.
4. All these facts, however, do not detract from the factum of existence of a genuine partnership firm. In United Patel Construction Co.s case (supra) it was held that a partnership cold comprise of some member known as dormant or sleeping partner who was not generally interested in the conduct of the business and could not be expected to be aware of details. In Addl. CIT v. Rahmat Khan Faizukhan  152 ITR 676, the Rajasthan High Court laid down the conditions essential for registration and held that even if the partnership deed was not entered into on the date from which the partnership business was stated to have been started that was not a ground for refusing registration.
Still later in Narnauli Jewel Corpn. v. CIT  45 CTR (Raj.) 30, the lady partner has made a wholly unsatisfactory statement before the Inspector and the assessee did not produce her before the ITO. It was held that the genuineness of the partnership deed and the books of account not being in doubt, the ITO was not justified in refusing to grant registration. Refusal of registration because of unsatisfactory statement by the lady partners was also held to be improper by the Madras High Court in S. S. A. Gangamirthammal & Co.s case (supra). So far as the authorities quoted on behalf of the department are concerned in S. P. Gramophone Co. v. CIT  97 ITR 532 (Punj. & Har.), the bank from which overdraft has been taken informed of the reconstitution. In the account books, there were accounts of only 3 of the partners, although the firm had six partners. There was no material to prove that the profits or losses had been divided in the ratio specified in the instrument of partnership. That case has, therefore, no bearing on the present issue. Similarly, in Young India Mining & Transport Co. v. CIT  149 ITR 226 (Delhi), a partnership firm had been constituted between A and B who were employees of D and Ds minor children were admitted to the benefits of partnership. The Tribunal had found that neither A not B were engaged in the business of the firm and did not act as partners of the firm in reality. They were employees of D who was earlier running the business as a proprietary concern.
Nothing of this kind is there in the present case in which registration has been refused only because the ladies could not properly explain their source of capital. In these circumstances, the utmost that the ITO could have done was to add the unexplained investment in the income of these ladies. We, therefore, are of the opinion that the assessee was rightly entitled to registration as held by the Commissioner (Appeals). We accordingly dismiss these appeals.