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S.S.A. Gangamirthammal and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 34 of 1966 (Reference No. 16 of 1966)
Judge
Reported in[1969]74ITR473(Mad)
ActsIncome Tax Act, 1922 - Sections 26A
AppellantS.S.A. Gangamirthammal and Co.
RespondentCommissioner of Income-tax
Appellant AdvocateR.M. Seshadri, Adv.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredBisseswarlal Brijlal v. Commissioner of Income
Excerpt:
- - we fail to see that the question is so cryptic as to formidably prevent us to enquire whether the tribunal's order as a whole and considered cumulatively is based on acceptable evidence. it is always open to the court to find whether the material on which the conclusion is rested 'provide evidence to support the revenue's conclusions on facts 'if we are to be trammelled by the form of the question and ignore its substance, as it would be seen presently, it would result in the failure of justice. we are not persuaded to hold in this case that the instrument of partnership is a departure from the well-known principle that in a partnership all act for each and each for all......basing its claim on a written agreement of partnership dated december 19, 1957, applied to the income-tax officer, under section 26a of the indian income-tax act, 1922, for the registration of the firm. four ladies of the age group of over 55 years constituted themselves partners to carry on business under the name and style of ' s.s.a. gangamirthammal and company' and the business was to be in the purchase and sale of arecanuts, groceries, cycles and spare parts, chicory, etc. soon thereafter, they constituted one a. rajendran and s. chandrahasan, one of whom was the son of one of the partners, as the duly constituted agents to carry on the business of the partnership. this was on february 28, 1958. the income-tax officer examined all the above four partners on oath on march 18,.....
Judgment:

Ramaprasada Rao, J.

1. The assessee, claiming to be a partnership under the Indian Partnership Act and having registered itself as such under the said Act and having intimated the banks and other authorities that such a partnership was started, basing its claim on a written agreement of partnership dated December 19, 1957, applied to the Income-tax Officer, under Section 26A of the Indian Income-tax Act, 1922, for the registration of the firm. Four ladies of the age group of over 55 years constituted themselves partners to carry on business under the name and style of ' S.S.A. Gangamirthammal and Company' and the business was to be in the purchase and sale of arecanuts, groceries, cycles and spare parts, chicory, etc. Soon thereafter, they constituted one A. Rajendran and S. Chandrahasan, one of whom was the son of one of the partners, as the duly constituted agents to carry on the business of the partnership. This was on February 28, 1958. The Income-tax Officer examined all the above four partners on oath on March 18, 1962, and came to the conclusion that the oral testimony of the partners disclosed that it was not a genuine partnership. On appeal, the Appellate Assistant Commissioner found that there was ample evidence as required in law to justify registration of the firm as a partnership and for the allowance of the application of registration of the firm under Section 26A. On a further appeal by the department, the Tribunal reversed the order of the Appellate Assistant Commissioner on a reappraisal of the testimony of the partners and it came to the conclusion that the partnership cannot be said to be genuine, and therefore refused the application for registration of the company under Section 26A of the Act. The assessee applied under Section 66(1) to the Appellate Tribunal requesting them to refer a question of law to this court for us to render an answer thereto. It is not in dispute that a question of law does arise out of the proceedings in this case and the question referred to us by the Tribunal is :

' Whether, on the facts and in the circumstances of the case, the assessee-nrm is entitled to registration under Section 26A of the Indian Income-tax Act '

2. Mr. Balasubrahmanyan, at the outset, raised a preliminary objection that the question as framed would not enable this court to consider whether the Tribunal's conclusion was reasonable or not. His submission is that, unless the question is particularised and positive, whether the conclusion of the Tribunal on the facts and circumstances is reasonable or not, the framed question does not take in its umbrage a consideration of such an aspect as, according to him, it is outside the pale of the present enquiry. The test of a question ought not in certain cases to be considered superficially, as it might lead to miscarriage of justice. Rightly, Mr. Balasubrahmanyanconcedes that a question of law is involved in this reference. If that much is not in dispute, inaptitude in the drafting of a question, in the instant reference, ought not to buttress reality, to project and sustain form. The question before us is wide enough to cover an appraisal of the aspect whether the conclusions of the Tribunal are reasonable, supportable and based on relevant considerations. We fail to see that the question is so cryptic as to formidably prevent us to enquire whether the Tribunal's order as a whole and considered cumulatively is based on acceptable evidence. It is always open to the court to find whether the material on which the conclusion is rested ' provide evidence to support the revenue's conclusions on facts '. If we are to be trammelled by the form of the question and ignore its substance, as it would be seen presently, it would result in the failure of justice. We are also of the view that the question is broad enough for us to scrutinise the propriety of the conclusions drawn by the Tribunal.

3. Now, let us survey the process adopted by the Income-tax Officer, who was the first authority to exercise his discretion in refusing the application for registration. He cross-examined the ladies fully and, in our view, could get nothing substantial which would prompt a reasonable and a prudent man to come to a conclusion that the four women did not associate themselves with the intention of forming a partnership in the eye of law for the purpose of carrying on business. The application for registration was pending when the inquisition was undertaken by the Income-tax Officer which was practically in the nature of an impeachment of the witnesses examined by him. Besides lending the impression that the questionnaire administered by him in the course of such examination is obviously in the nature of an impeachment and not in the bona fide exercise of his power to determine whether the partnership is genuine or sham, the revenue was delving deep into the subterranean regions of this partnership to find willy nilly some ground to reject the application. As an instance, we can refer to some of the questions which the Income-tax Officer asked the partners examined by him :

' Did you pay your employees any bonus Did you pay Deepawali bonus What are the salaries of your employees Who is paid the highest salary and such other similar questions. '

4. On an overall impassionate scrutiny of the evidence recorded by the Income-tax Officer, one is bound to come to the conclusion, as the Appellate Assistant Commissioner did, that there is nothing suspicious about the document which was drawn up on the requisite stamp paper and which was acted upon by the partners by obtaining a registration of the same from the Registrar of Firms, by opening an account in banks the names of which were disclosed by them and by conducting the businessthrough the powers-of-attorney whose names were disclosed in the course of their testimony. It is not disputed that the conditions of registration, which are essential for an applicant to secure such registration under the Act, were observed in this case. There is an instrument of partnership ; the instrument specifies the individual shares of partners; it was applied in proper and due form. It is highly uncharitable of the revenue to characterise this association as a figment of imagination and therefore non-genuine. On the other hand, all the partners who were examined gave out material particulars concerning the business and its activities. They did not hesitate to mention and furnish details on the normal working of the partnership. It should not be forgotten that all the persons examined were women who were considerably aged. Much has been made about the intervention of one of the partners when one other was being examined. This obviously is due to the faulty procedure adopted by the Income-tax Officer himself. If he wanted that he should get individual statements without the knowledge of the other, he ought to have examined them in the absence of the other three. After all, human nature being what it is, one old woman interferes with another when, due to lapse of memory, the other witness is, according to the person intercepted, stating a fact which is incorrect. In our view, it is impossible to draw any inference from the mere fact of such interception in the course of the examination of a co-partner and particularly for the purpose of correcting the witness in a material particular. As already stated, we have read the evidence in full and we are not impressed with the conclusion arrived at either by the Income-tax Officer or the Tribunal that the testimony can lead and leads only to one conclusion that the document is non-genuine and the enterprise is a myth. Such cannot be a conclusion which a reasonable and prudent person can draw in the circumstances of this case and in our view there is no evidence to support such a conclusion. We do not find any basis at all for the Appellate Tribunal to find that the partners were tutored before they allowed themselves to be examined. One lapse on the part of one deponent to the effect that Rajendran and Chandrahasan were partners in the business, is again made the foundation for the conclusion. The Tribunal however forgets that even Sivagami Ammal, who deposed that Rajendran and Chandrahasan were partners in the business, at the end corrected herself to a specific question as follows :

' Q. Who were partners in the business

A. Gangamirtham, Chellammal, Avadai Thangammal and Sivagami. '

5. Therefore, it cannot be said that, a lapse in the course of a searchingexamination by the Income-tax Officer of an old lady should be made thebasis for an unreasonable conclusion that what all the witness has saidbefore the Income-tax Officer appears to be unreal. The Appellate Tribunalexpects a lady indulging in business to know the state of affairs of the bank account and whether an overdraft has been granted by the bank or not. There is however evidence on record to show that such overdraft was granted and who the bankers were. But the Tribunal taking portions of the testimony out of their context, comes to the conclusion that the absence of knowledge of what a bank account and what an overdraft account mean, is an indicia of the non-genuineness of a partnership. This appears to be a conclusion or an opinion which cannot bear scrutiny in the region of reality and reason. We are not persuaded to hold in this case that the instrument of partnership is a departure from the well-known principle that in a partnership all act for each and each for all.

6. No doubt, as Rankin C.J. said in Bisseswarlal Brijlal v. Commissioner of Income-tax, [1930] 4 I.T.C. 365, an instrument of partnership is not a magical talisman to protect its executants. The Supreme Court, in fact, has recognised, in Commissioner of Income-tax v. Abdul Rahim and Company, : [1965]55ITR651(SC) that a partner can serve a partnership in a representative capacity and share the profits with outsiders. Such being the march of law, we are firmly of the view that the Tribunal refused registration of the firm on irrelevant material and ignoring the concrete details available on record.

7. As in this case it is not disputed that a question of law has arisen and as such the question is found merged in the details found on record, we have scrutinised the same to come to the present conclusion. It is not a case in which it could be said that there is some evidence to support the finding of the Tribunal. On the other hand, we are bound to comment that the decision of the Tribunal is based on pure conjectures, suspicions and irrelevant material. We therefore answer the question referred in favour of the assessee with costs. Counsel's fee Rs. 250.


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