CHADHA J. - A common question of law has been formulated in these three references under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), for the opinion of the court. The question is :
'Whether, on the facts and in the circumstances of the case found by the Tribunal, there was material to come to the conclusion that the partnership constituted by the partnership deed dated October 1, 1958, was not genuine ?'
The assessed is M/s. Young India Mining and Transport Co., Kashmere Gate, Delhi. The assessment years are 1960-61, 1961-62 and 1962-63. There was firm styled C. Didwania and Co. consisting of Shri C. Didwania and his sons, Shri D. R. Didwania and Shri G. L. Didwania. This partnership was entitled to exploit certain iron mines known as Tonda Iron Mines. That firm entrusted the work of extraction of iron ore from these mines to M/s. G. Didwania, a properitary concern of Shri G. L. Didwania, under the terms of a letter dated June 1, 1957. On October 1, 1858, a deed of partnership was entered into between Shri Shiv Shankar Aggarwal and Shri Bhagirath Bhushan on the terms and conditions mentioned therein. The partnership business was to be that of mining and transport or such other type as may be mutually agreed upon and was to be carried on under the name and style of Young India Mining and Transport Company. These two partners admitted four minor children of Shri G. L. Didwania to the benefits of partnership with effect from October 1, 1958. The share of profits and losses of the partnership was specified. Shri Shiv Shankar Aggarwal and Shri Bhagirath Bhushan were to get 4% each and the four minor children admitted to the benefits of partnership were to get 23% each. The losses, however, were to be borne by Shri Shiv Shankar Aggarwal and Shri Bhagirath Bhushan equally, i.e., 50% each. The firm entered into an agreement with M/s. C. Didwania, the mine owners, on March 28, 1959, whereby it agreed to raise the ore in the mines from April 1, 1959. The earlier contract in favor of M/s. G. Didwania was cancelled with effect from April 1, 1959.
M/s. Young India Mining and Transport Co. applied for registration under the Partnership Act and was granted a certificate of registration on February 20, 1959. The firm applied for registration under the Act for the assessment years 1960-61 and 1961-62 and was granted registration. The ITO who took up the assessment proceedings of the assessed for the assessment year 1962-63, however, expressed the opinion that no genuine partnership had come into existence on October 1, 1958, as claimed by the assessed. He came to this conclusion for the reasons recorded by him in his order passed under s. 186(1) of the Act for the assessment years 1960-61 and 1961-62, dated March 20, 1967. He also refused registration to the assessed for the assessment year 1962-63. Before taking the action, the ITO had issued a show-case notice to the assessed as to why the partnership should not be held to be non-genuine. The statement of Shri Shankar Aggarwal was recorded by the ITO in those proceedings. The assessed preferred appeals to the AAC. The AAC agreed with the finding recorded by the ITO and came to the conclusion that the partnership was not genuine. On further appeal to the Income-tax Appellate Tribunal, the Tribunal agreed with the finding recorded by the ITO as well as the AAC, but recorded its own conclusions on facts. The Tribunal, thereforee, confirmed the order of the ITO and the AAC in refusing registration to the assessed.
The Tribunal declined the application of the assessed under s. 256 for making a reference of the question of law. The assessed came to this court in Income-tax Case No. 29/70. This court directed the Tribunal to draw up a statement of case and refer for the decision of the court the question of law.
Mr. G. C. Sharma, the learned counsel for the assessed, took us though the material on record before the income-tax authorities. He invited our attention to the letter dated June 1, 1957, the deed of partnership made on October 1, 1958, the agreement made on March 28, 1959, and the statement of Shri Shiv Shankar Aggarwal recorded by the ITO. These documents and statement were extensively read in the court. The submission made is that there was no material contained in these document and the statement of Shri Shiv Shankar Aggarwal on the basis of which the Tribunal could come to the conclusion that the partnership constituted by the deed dated October 1, 1958, was a bogus partnership and not genuine.
We would do well in reproducing the material which was considered by the Tribunal out of the material available on the record though the ITO and the AAC had dealt with additional material in more detail. In paragraph 10 of the order of the Tribunal, the Tribunal notices this material :
'.......... From this statement, it is seen that in 1953 he started service with Didwania Bros. Pvt. Ltd., on a salary of Rs. 80 as a clerk to write up the accounts. Didwania Bros. Pvt. Ltd. is admittedly a concern in which shares are held by G. L. Didwania and his wife. This company was assembling service station equipment since 1954 and had its factory at Okhla Industrial Estate which is at a distance of about ten miles from Kashmere Gate, Delhi. His work was to see that the factory was working properly, that orders were executed in time and also to attend to the supervision of factory. He also became an employee of G. L. Didwania in M/s. G. Didwania and got a sum of Rs. 570 per month as salary for looking after the mining work. But examined a little more closely, he was unable to say what exactly was the mining work he attended to except that he was guiding the accountants in writing the accounts and looking after the production of the mines from the statements and extracts received. He stated that he became a partner in the assessed-firm from April 1, 1959. The firms office was situated in the same premises as those of Didwania Bros. Pvt. Ltd., M/s. G. Didwania and of M/s. G. Didwania and of M/s. C.Didwania. Asked how the transport business was carried on, he said that it was with one truck. He did not remember the name of the truck and he did not remember the name of the party from whom it was purchased. He was then asked how the weight of iron ore per ton was ascertained and who used to look after the work of transport at the site. The answer was that the weight was estimated by spreading the iron ore and finding out its measurement in cubic feet (till about 1960 when a weigh bridge was set up), and that engineers who were previously the employees of M/s. C. Didwania became the firms employees and used to look after the transport business at the sites. But when this point was pursued further, he was unable to say what the weight of iron ore was in terms of cubic feet. He stated that the actual verification was done by his partner, Shri Bhagirath Bhushan, who was sent to the site for the purpose. It was admitted that Bhagirath Bhushan had no qualifications, but was a practical engineer. It was explained that the labour arrangements for extracting the iron ore were made through petty contractors and that there was an engineer on a salary of Rs. 350 per month who was employed at the mines. The deponent, however, was unable to state the name of the petty contractors who were employed by the concern in 1964 (he was being examined in 1965). The deponent was unable to state the full name of the engineer who was employed by the firm as well as the full name of the gentleman who was in charge of weighment and payments to the contractors. It was stated that there was an accountant at the site named Basant Lal and another employee named R. D. Malik, but the deponent was unable to state the salary paid to these persons even in 1964. A little later it was admitted by the deponent that he did not write the account books, but was merely supervising them. It was stated that the books for the period ending September 30, 1964, had not been finalised on the date of the deposition, but the accounts for the period ending September 30, 1963, had been finalised. The deponent, however, did not remember his share, but though there was some profit to his share. Shown the cash book of the firm, he admitted that there was no evidence in the cash book and ledger which would indicate that he had ever seen or supervised these books. The deponent had a bank account, but it was more or less a dead account. The deponent was earning a salary of Rs. 500 from M/s. G. L. Didwania and a similar salary from M/s. Didwania Bros. Pvt. Ltd. for the work done as their employee. He, however, stated that he was a partner in the appellant-firm and that he entered into the partnership on such terms since the contract of raising and transporting the iron ore was given to the firm by M/s. C. Didwania only on the condition that the minors were admitted to the benefits of partnership and were to be given 23% share of the profits. He agreed to bear 50% of the losses because in this business there was almost no chance of any loss'
After referring to this statement and the fact and circumstances of the case and particularly the deposition of Shri Aggarwal, the Tribunal records these findings :
'..... If the firm had been genirely constitued, we would find Aggarwal and Bhagirath Bhushan activity engaged in the business of the firm and also acting as a partner of the firm in reality. But the statement of Shri Aggarwal makes it clear that he continued to be an emp oyee of the enterprise of Shri Didwania ......'
'......... It appears from this statement that while Bhagirath Bhushan appears to have made a few sporadic visits, the visits of Aggarwal were few and far between ......'
'..... The complete ignorance of Shri Aggarwal regarding the affairs of the concern such as the manner of its working, the details regarding the purchases of truck, the details regarding the weighment of iron ore, the details regarding its alleged employees are all very revealing ......'
'.... The duties of Shri Aggarwal with the enterprises of Shri Didwania left very little time for attending to the affairs of the partnership.'
'The only work of the partnership which Shri Aggarwal claimed to have attended to personally was said to be the supervising of the accounts, but he himself denied having written the account books, and there is no evidence in the cash book or the ledger that he even looked into these documents much less supervised them.'
'The circumstances that the address of the alleged firm is the same as that of the business premises of the other Didwania concerns, and that no rent for the use of the business premises was paid by the firm during the assessment years 1960-61 and 1961-62, also go to support the conclusion of the Income-tax Officer ...'
Whether a partnership firm is genuine or not is ordinarily a question of fact. But the question whether in the facts and circumstances found by the Tribunal, there was material to conclude that the firm was not genuine is a question of law. It is for this reason that this court directed the Tribunal to draw up a statement of case and refer the question for the decision of this court. We have read the order of the Tribunal as a whole with a view to find out whether the whole of the material on the record, for and against the assessed, has been considered fairly and with due care and attention. We have referred to the evidence noticed by the Tribunal in its order and the findings recorded by it with a view to show that the Tribunal had addressed itself to the relevant and germane question as to whether the two persons, namely, Shri Shiv Shankar Aggarwal and Shri Bhagirath Bhushan, were carrying on the business of the partnership. One of the essential conditions of a partnership is that the business must be carried by all the partners or by any one of them acting for all. The Tribunal came to the conclusion that the above said two persons could not be said to carry on in law the business of the partnership. We are not required in these proceedings to examine the order of the Tribunal sentence by sentence to discover a minor lapse or slight infirmity in the opinion. The Tribunal considered the probabilities arising from facts established on record to come to its conclusion that a sham partnership has been put forward as having conducted a business and as consisting of partners who are clearly not the partner s of the business except in form. This finding of the Tribunal is clearly supported by the material on record. Whether that material is sufficient or insufficient is not open to be considered in these proceedings under s. 256 of the Act. If there was some material before the Tribunal on the basis of which the Tribunal could come to that finding, or in other words, if a reasonable persons acting reasonably could come to a finding as the Tribunal did in this case, then that finding cannot be termed as perverse or as one not based on material. It is not the function of this court in a reference to reappraise the entire material or to review the entire evidence with a view to come to a different finding, for, this court is not acting as a court of appeal.
Reliance by Mr. Sharma on K. D. Kamath & Co. v. CIT : 82ITR680(SC) , is misplaced. The Supreme Court considered that there are two essential conditions to be satisfied before a partnership could be termed as legally constituted. The first condition is that there should be an agreement to share profits and losses of the business of the firm and, secondly, that the business must be carried on by all the partners or any of them acting for all. The question arose there as one of the partners under the agreement had the exclusive power and control was carrying on the partnership business. It was found as a fact that partner who had the exclusive power and control was carrying on the business of partnership and was acting for all the partners. In the case before us, the Tribunal on facts found that the aforesaid two partners were not carrying on the business. We fail to understand how the ratio of that case would apply to the facts of this case. In S.S. A. Gangamirthammal & Co. v. CIT  74 ITR 437 , the question considered was about the genuineness of the partnership firm for the purpose of registration under s. 26A of the 1922 Act. In that case, all the partners, who were ladies of he age group of over 55 years, were examined. They gave out material particulars regarding the business and its activities and without hesitation mentioned and furnished details on the normal working of the partnership. It was in those circumstances that the Madras High Court held that the firm was entitled to registration. That is not the case before us as the statement of Shri Shiv Shankar Aggarwal reveals that he is blissfully ignorant of the business and the activities of the partnership. Umacharan Shaw & Bros. v. CIT : 37ITR271(SC) , relied upon by the counsel for the assessed, is again on the facts peculiar to that case. It was found as a fact in that case that there was no material on which the Commissioner or the Tribunal could come to the conclusion that the firm was not genuine. In that case, the Supreme Court found that there were many surmises and conjectures as the conclusion was the result of suspicion which could not take the place of proof.
Taking into consideration the letter dated June 1, 1957, the deed of partnership dated October 1, 1958, the agreement dated March 28, 1959, coupled with the statement of Shri Shiv Shankar Aggarwal, we are of the opinion that there was material before the Tribunal to come to the conclusion that the partnership constituted by the partnership deed dated October 1, 1958, was not genuine. the reference is answered against the assessed but, on the facts and circumstances of the case, we make no order as to costs.