1. The facts found and/or admitted in this reference are, inter alia, as follows :
M/s. Sangam, Calcutta, the assessee, was constituted by a deed on the 30th January, 1961. One Laxmi Devi and one Naraindas Lakhumal were described in the said deed as partners. Business in piece-goods as also cotton and silk goods were carried on under the said deed in Stall No. G-13, Block 'G' in Sir Stuart Hogg Market, Calcutta.
2. On the 21st February, 1966, a fresh deed was executed by the parties incorporating the terms and conditions, modified from the earlier deed. The relevant terms are as follows:
'(a) That the parties hereto would carry on the business in copartnership under the name and style of Sangam in the Stall No. G-13, S.S. Hogg. Market, Calcutta, for further term of 10 years commencing from the 1st day of February, 1966.
(b) The entire capital of the business required from time to time for the purpose of carrying on the business would be advanced by the said Naraindas Lakhumul and the said Laxmi Devi would have no concern therewith.
(c) The respective shares of the parties in the partnership businesswould be as follows:
Laxmi Devi--Three-fourths part or share thereof.
Naraindas Lakhumal--One-fourth part or share thereof.
(d) Subject to the terms and of these presents, Naraindas Lakhumal would advance to Laxmi Devi a sum of Rs. 1,000 per month irrespective of the amount of profit and loss in the business and Laxmi Devi would have no further claim of profit excepting the said sum of Rs. 1,000 in respect of her three-fourth share in the business. The balance of the profit of the business will be appropriated by Naraindas Lakhumal whatever the amount may be. Laxmi Devi would not be liable for any loss if incurred in the business.
(e) Only in case it is found that the business sustains loss continuously or intermittently for one year, Laxmi Devi would be liable to contribute to such loss to the extent of Rs. 500 in all for the total duration of the partnership. But such liability would not operate to exonerate Naraindas Lakhumal from his liability to pay to Laxmi Devi the aforesaid sum of Rs. 1,000 every month.
(f) Laxmi Devi would have no interest in the stock-in-trade and assets of the business which might be brought in by Naraindas Lakhumal and not also in the goodwill of the firm name. '
3. Under the aforesaid deeds Rs. 7,500 and Rs. 12,000 were paid to the said Laxmi Devi during the assessment years 1966-67 and 1967-68, respectively, and were shown as payments on account of her fixed share of profits in the books of the assessee.
4. In the relevant assessment years, the ITO held the said amounts to be fixed salary paid to Laxmi Devi and added the same back to the income. On appeal before the AAC, it was contended on behalf of the assessee that the deeds were not acted upon, and that in fact the said stall had been taken on lease by Naraindas Lakhumal from the said Laxmi Devi and the amounts paid to Laxmi Devi were on account of monthly rent. The AAC accepted the contentions of the assessee and found that no genuine partnership had come into existence and the deeds were in the nature of a lease. He held further that Laxmi Devi should be considered to be the owner of the shop and payments made to her by way of rent should be allowed as business expenditure of the assessee whose status would be as that of an individual. He deleted the additions of the said sums of Rs. 7,500 and Rs. 12,000 and allowed the appeals.
5. From this order, further appeals were preferred by the revenue to the Tribunal. It was contended in the appeals on behalf of the revenue that as the assessee had itself submitted returns showing its statuts as an unregistered firm and had not preferred any appeal on the question of status, the AAC ought not to have gone into that question. The documents clearly established that a partnership had been created and in the balance-sheet of the assessee, payments to Laxmi Devi were shown as being- made on account of her share of profits. It was contended on behalf of theassessee that the correct legal effect of the documents and not mere nomenclature should determine the matter.
6. The Tribunal after considering the rival submissions held that the order of the AAC was beyond the latter's jurisdiction and must be set aside. The Tribunal proceeded to consider the question, viz., whether the amounts paid to Laxmi Devi should be added back to the income or not, and found that there was no evidence on record to support the plea of the assessee that the payments were made on account of rent for the stall. Following the decision of the Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala : 91ITR18(SC) , the Tribunal held that the statements in the accounts of the assessee amounted to admissions which were not controverted. The Tribunal held from them that the amounts paid to Laxmi Devi were her share of profits and had been rightly added back. Accordingly, the Tribunal set aside the order of the AAC and restored the order of the ITO.
7. Thereafter, the assessee initiated the present reference and under Section 256(1) of the I.T. Act, 1961, the following questions have been referred:
'1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the Appellate Assistant Commissioner has acted beyond his jurisdiction in deciding the question of status in an appeal on quantum ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the amount paid to Smt. Laxmi Devi was the share of profit and was rightly added back by the Income-tax Officer '
8. Learned counsel for the assessee has contended before us that by its letter dated the 22nd September, 1960, issued prior to the order of assessment, the assessee called upon the ITO to treat it as an individual. Thereafter, the assessee also sought to raise two additional grounds of appeal before the AAC and communicated the said grounds by its letter dated 3rd March, 1972, before the appeal was disposed of. One of the said grounds was that the status of the appellant should be that of an individual.
9. These letters have not been made as part of the statement of case, asdrawn up, nor have they been adverted to either in the orders of assessmentor in the order passed by the AAC. These letters were not even brought onrecord in the appeal before the Tribunal nor in the reference proceedingsinitiated thereafter. Therefore, we cannot, at this stage, allow the assesseeto rely on the same.
10. Learned counsel for the assessee next contended that, in any event, the AAC was entitled to go into the question of status inasmuch as thatquestion had been specifically raised on behalf of the assessee. In support of his contention, he drew our attention to the Explanation to Section 251 of the I.T. Act, 1961, which reads as follows:
'Explanation.--In disposing of an appeal, the Appellate Assistant Commissioner may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Appellate Assistant Commissioner by the appellant. '
11. He submitted that it was apparent from the deeds that a valid partnership did not come into existence thereby. Laxmi Devi had no right to the profits of the business except as to the fixed monthly amounts and she was not responsible for any loss. She had also no power to manage nor interfere with the business in any way.
12. Mr. A. Sengupta, learned counsel for the revenue, contended on the other hand that irrespective of the question whether a partnership was duly constituted or not, the direction of the ITO in adding back the amounts credited to Laxmi Devi cannot be assailed. The assessee claimed deduction of the said amounts as business expenditure on the ground that the same had been paid by way of rent. The Tribunal has specifically found that there was no evidence that the amounts were paid as rent. This finding of the Tribunal remains unchallenged. Relying on the books of the assessee, the Tribunal has further held that the amounts were paid on account of share of profit of Laxmi Devi. This finding also remains unchallenged.
13. Even if we assume that the deed dated the 9th February, 1966, did not constitute any partnership, it cannot be disputed that under the said deed, two persons, namely, Naraindas Lakhumal and Laxmi Devi, were carrying on a joint venture. There is no reason why they should not be treated as an association of persons or a body of individuals.
14. Learned counsel for the assessee fairly admitted before us that the deed in the present case cannot be said to be an agreement between a landlord and a tenant and, therefore, the payment to Laxmi Devi in any event cannot be considered as payment on account of rent. The assessee has failed to establish any other ground on which the amounts paid to Laxmi Devi should be deducted from the gross income of the assessee. Therefore, in our opinion, the amounts paid pursuant to this deed, whatever be their character, have been rightly added back to the income of the assessee.
15. For the reasons stated above, the Tribunal was justified in holding that the amounts paid to Laxmi Devi were not deductible and were rightly added back by the ITO. We answer the second part of the question No. 2 in the affirmative and in favour of the revenue. The first part of the saidquestion, i.e., whether the said amounts were the shares of profit of Laxmi Devi becomes academic and we do not answer the same.
16. Question No. 1 also appears to us to be academic as the assessee has not raised the consequential question whether the order of the Tribunal in setting aside the order of the AAC on this ground was erroneous. In view of our answer to question No. 2, which goes to the merits, we do not answer question No. 1.
17. We dispose of the reference accordingly. In the facts and circumstances of the case, there will be no order as to costs.
C.K. Banerji, J.
18. I agree.