1. We have to deal with four connected petitions under section 256(2) of the Income-tax Act, 1961, which relate to the assessment years 1960-61 and 1961-62. These four references have arisen because there were two appeals by M/s. W. L. Kohli & Co. before the Tribunal and also two appeals by Shri W. L. Kohli, as an individual, for these two assessment years. The appeals were directed against an order passed in respect of M/s. W. L. Kohli & Co., for the assessment years 1960-61 and 1961-62 by the Commissioner of Income-tax, Delhi, under section 263 of the Income-tax Act.
2. The background of the case was that the Income-tax Officer had treated M/s. W. L. Kohli & Co. as a registered firm and assessed the firm to an income of Rs. 43,247 for the assessment year 1960-61 and to an income of Rs. 1,78,234 for the assessment year 1961-62. The registration was granted under section 183(b) of the Act.
3. The Commissioner of Income-tax issued a notice on the ground that the order was prejudicial to the Revenue and erroneous. After hearing the objections, the Commissioner was of the view that M/s. W. L. Kohli & Co., was not a partnership, but was a proprietary business of Shri W. L. Kohli. In the assessment year 1960-61, the Income-tax Officer had passed an order holding that Shri W. L. Kohli was the real owner of the business. This was done in the course of Shri W. L. Kohli's individual assessment. The Commissioner of Income-tax was of the view, on the facts of the case, that M/s. W. L. Kohli & Co. was not a genuine or valid partnership and, thereforee, he directed a de novo assessment.
4. As already mentioned, four appeals were filed against this order, two by Shri W. L. Kohli in his individual capacity and two by M/s. W. L. Kohli & Co., the firm.
5. The Tribunal examined the facts in great detail and came to the opposite conclusion to hold that the order of the Income-tax Officer assessing the firm as such cannot be said to be erroneous in so far as it is prejudicial to the interests of the Revenue. It was also held that the Commissioner had no jurisdiction to cancel the same under section 263 of the Act.
6. There are some important facts which have a bearing on the case before us. The case of Shri W. L. Kohli and his son was that there was a valid partnership by means of a partnership deed dated June 1, 1959, by which the proprietorship concern W. L. Kohli & Co. was converted after January 31, 1959, into a partnership firm which was dealing in Jagirdari Bonds.
7. When the Income-tax Officer dealt with this case initially for the assessment years 1960-61 and 1961-62, he came to the conclusion that there was no valid partnership and M/s. W. L. Kohli & Co. belonged to Shri Kohli, individually. An appeal was taken to the Appellate Assistant Commissioner who set aside the orders of the Income-tax Officer and remanded the case to make fresh assessments for the two years. The Income-tax Officer then went into great and came to the conclusion that there was a valid partnership. The case of W. L. Kohli was that he gifted Rs. 30,000 to his son on March 31, 1958, by transfer of certain book entries and there was a lot of other materials showing the acts of W. L. Kohli and his son. It was in these circumstances that the Income-tax Officer after remand, came to the conclusion that there was a genuine firm. He also thought that it was in the interests of the Revenue that the firm be granted registration under section 183(b) of the Act. He held that the ratio of the income between the two partners, Shri W. L. Kohli and Shri Vijay Kumar Kohli, was 60 : 40.
8. One of the points taken by the Commissioner of Income-tax was that in 1962-63, Shri W. L. Kohli had admitted that he was the proprietor of the firm and he had accepted the Department's version. This had led the Commissioner to hold that there was evidence both to show that Shri W. L. Kohli was the proprietor as well as a partner.
9. It may be mentioned here that this case has been made extremely complicated on a comparatively simple point, because the Tribunal has elaborately set out a number of other orders as part of its own order. The only point for decision was whether there was a partnership between Shri W. L. Kohli and his son, Vijay Kumar Kohli, by means of a regular partnership deed dated June 1, 1959. In support of the partnership deed, it was pointed out by the assessed that the gift made by Shri W. L. Kohli in favor of his son was assessed to gift-tax in 1959-60. Furthermore, there was nothing wrong in making a gift by means of a book entry. It was also the case of the assessed that there was no material before the Commissioner to hold that the order was erroneous is so far as it was prejudicial to the interests of the Revenue. The main point which has appealed to the Commissioner was apparently the admission made in 1962-63 by Shri W. L. Kohli that he was the owner of the firm. The circumstances why this admission had been made had been fully explained. Moreover, the assessment made by the Income-tax Officer for 1960-61 in the individual capacity had been set aside by the Appellate Assistant Commissioner.
10. The eventual conclusion of the Tribunal was as follows :
'We have given our careful consideration to the contentions of the learned representative of the parties and have gone through the records and, in our opinion, the order of the Commissioner of Income-tax under section 263 cannot be legally sustained. We have already reproduced the relevant portion of the order under section 183(b) dated June 4, 1979, passed by the Income-tax Officer and find that all the objections which were taken by the predecessor-Income-tax Officer in holding that no genuine firm existed and that the entire income actually belonged to Shri W. L. Kohli, have been fully met and discussed in the said order. It is not a case where the Income-tax Officer passed an order without applying his mind or making proper enquiries into the matter. All the relevant facts have been fully considered and it was then only that the Income-tax Officer came to the conclusion that all the legal requirements were duly fulfillled by the firm, M/s. W. L. Kohli and Co. and the said firm was entitled to registration. However, since no registration application had been filed, the Income-tax Officer in the interests of the Revenue had to grant registration to the firm by invoking the provisions of section 183(b) of the Act.'
Thus, the eventual decision of the Tribunal was that the order was neither erroneous nor prejudicial to the Revenue.
11. The Department then applied for references under section 256(1) of the Act. The Tribunal again reproduced a large number of extracts from various orders and came to the conclusion that the orders were passed on an appraisal of the entire material on record and no question of law arose. The Tribunal held 'the decision of the Tribunal is entirely based on facts and does not involve the interpretation of any legal question of law'. Hence, the references were refused.
12. Learned counsel for the Department strongly urged before us that questions of law do arise out of the order of the Tribunal. As the summary of the order of the Tribunal given above will show, the Tribunal has elaborately examined every order passed in this case and has come to the conclusion that the order is not prejudicial to the Revenue or erroneous. The requirements of section 263 of the Act are very clear. The Commissioner has power to call for and examine the record of any proceedings under the Act and if it is erroneous in so far as it is prejudicial to the interests of the Revenue, he may set it aside.
13. In this particular case, the only question for decision was whether there was a partnership between Shri W. L. Kohli and his son. This is a question which can only be answered in relation to the facts of the case. There is a partnership deed and there is a gift to the son. The requirements of entering into a partnership are not very elaborate. There is no restriction on any one taking a partner. So, the only question that requires examination was whether there was no genuine partnership. This would depend on the facts. As the Tribunal has held that the original order accepting the genuineness of the partnership is not wrong, this seems to us to be a pure conclusion on facts, though arrived at by an extremely elaborate examination of the material. A question of fact does not become a question of law only because it is elaborately examined. We have, thereforee, to hold that no question of law arises in the circumstances of the case and we reject this application and the connected applications but leave the parties to bear their own costs.