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Juggilal Kamlapat Vs. Commissioner of Income-tax, West Bengal. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 47 of 1952
Reported in[1964]53ITR351(Cal)
AppellantJuggilal Kamlapat
RespondentCommissioner of Income-tax, West Bengal.
Cases ReferredG. Venkataswami Naidu & Co. v. Commissioner of Income
Excerpt:
- sinha j. - this is a reference under section 66(1) of the income-tax act. i will presently state certain facts which will show that this reference has had an amazing career. in spite of the fact that it was referred back to the appellate tribunal on two occasions by this high court, the matter is still not on a satisfactory footing. in fact, we were strongly tempted to send it back again for a third time, but we agree with the submission made on behalf of the parties that the matter has lingered long enough and further extending its life would be tantamount to a miscarriage of justice. the facts are briefly as follows : the three singhania brothers, sir padampat singhania, kamlapat singhania and lakshmipat singhania carry on business at kanpur under the name and style of messrs. juggilal.....
Judgment:

SINHA J. - This is a reference under section 66(1) of the Income-tax Act. I will presently state certain facts which will show that this reference has had an amazing career. In spite of the fact that it was referred back to the Appellate Tribunal on two occasions by this High Court, the matter is still not on a satisfactory footing. In fact, we were strongly tempted to send it back again for a third time, but we agree with the submission made on behalf of the parties that the matter has lingered long enough and further extending its life would be tantamount to a miscarriage of justice. The facts are briefly as follows : The three Singhania brothers, Sir Padampat Singhania, Kamlapat Singhania and Lakshmipat Singhania carry on business at Kanpur under the name and style of Messrs. Juggilal Kamlapat. They have branches at various places. One such branch was a partnership business in hosiery carried on by the three Singhania brothers together with one Jhabarmal Saraf, at Belur near Calcutta, under the name and style of Messrs. Juggilal Kamlapat. Jhabarmal Saraf was taken in as a partner on the 29th November, 1939. On 27th October, 1941, the three Singhania brothers created a trust known as the Kamla Town Trust, principally for the welfare of the employees of the Juggilal Kamlapat Cotton Spinning & Weaving Mills Ltd. of Kanpur. Members of the public have also been given certain rights under it. The three Singhania brothers became the first trustees. On 1st December, 1942, a deed of partnership was executed between Jhabarmal Saraf, and the three brothers as trustees of the Kamla Town Trust, by which they purported to constitute a fresh partnership, taking effect from the 27th March, 1942. On 2nd December, 1942, the three brothers executed a deed of relinquishment by which they relinquished all their right, title and interest in all the assets and properties of the partnership firm constituted on the 29th November, 1939, in favour of Jhabarmal Saraf and themselves as the three first trustees of the Kamla Town Trust. The deed purported to give a retrospective effect to the relinquishment from the 26th March, 1942. What in reality happened was as follows : Originally, the partnership was being carried on at Belur in Calcutta between the three brothers in their personal capacity and Jhabarmal Saraf. Later, it was decided that the entire income of the three brothers form this firm should be diverted to purposes for which the Kamla Town Trust was created. The way that this was sought to be effected was by creating a new partnership between the three brothers in their capacity as trustees and Jhabarmal Saraf, and the relinquishment by the three brothers of the interest in the assets and properties belonging to the original firm in favour of themselves as trustees and Jhabarmal Saraf. In short, as and from the 26th March, 1942, the three brothers in their personal capacity went out of the partnership firm and came back in their capacity as trustees. As such, they were bound to given effect to the purposes for which the Kamla Town Trust had been created. Some time in 1942, an application was made for registration of this new partnership firm under section 26A of the Indian Income-tax Act before the Income-tax Officer, North circle, Calcutta. The Income-tax Officer, by this order dated 12th March, 1948, rejected the application. The Income-tax Officer rejected the application on, inter alia, the following grounds :

1. The trust was to introduce only Rs. 50,000 as capital and the three Singhania brothers were getting 3/4 share 'for doing nothing', whereas Jhabarmal Saraf, who was to devote his whole time and attention to business was only to get a 4 annas share. Such an agreement was 'unthinkable'.

2. The Singhania brothers retired from this reputed firm without any consideration which sounds 'absurd'.

3. The relinquishment by the three brothers of their right to the entire goodwill of the firm without any consideration was a 'rare' thing in the business world.

4. The goodwill of the firm exceeded several lakhs of rupees in value and the total income for the accounting year of the partnership firm exceeded Rs. 2,00,000. 'It cannot be imagined' that 3/4th share of this profit should be acquired by the trustees merely by introducing a sum of Rs. 50, 000 bearing a high rate of interest.

From these surmises, the Income-tax Officer came to the conclusion that the trust was merely a 'camouflage', and that the real owners of the 12 annas share in the business were the three Singhania brothers. Against this order, an appeal was taken to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner rightly found the decision of the Income-tax Officer to be a strange one. He did not find any defect in the trust, nor did he find it surprising that Jhabarmal Saraf should be content with taking a 4 annas share. In view of the entire body of facts, namely, the constitution of the Kamla Town Trust and the object with which this new partnership came into existence, the Appellate Assistant Commissioner rightly thought that the whole approach of the Income-tax Officer was unwarranted. He stated as follows :

'It would therefore appear that the Income-tax Officer having misconstrued the facts and circumstances of the case and also the law wrongly, refused the application under section 26A and that on a proper consideration of the facts of the case and construction of the relevant documents the Income-tax Officer should have held that the partnership was a genuine partnership and valid in law and should have registered the firm as constituted in the partnership deed dated December 1, 1942, and the order under section 26A is against the weight of evidence and not sustainable in law.'

Although the Appellate Assistant Commissioner came to this finding, he in his turn came to an astonishing conclusion. He held that a trust could not enter into a partnership and, therefore, the firm was nothing but an association of persons and therefore could not be registered under section 26A. He upheld the refusal of registration. The matter thereupon went up to the Income-tax Appellate Tribunal, Bombay. The Tribunal consisted of two members, Mr. Gupta, Judicial Member, and Mr. Chatrath, the Accountant Member. Mr. Gupta, inter alia, said as follows :

'I would have liked the Appellate Assistant Commissioner to have discussed the defects of the Income-tax Officer instead of brushing them aside and merely stating that apart from those defects mentioned by the Income-tax Officer the other defect found by him was sufficient to refuse registration. The defect pointed out by the Appellate Assistant Commissioner certainly does not appeal to me. The trust is a separate legal entity and if it is a valid trust, we do not see how a trust cannot be a partner with another person. The share of the trust is specified. In the circumstances I had to go into details of this case to find out whether there was any defect which would entitled the Income-tax Officer not to register this firm. I have gone through the defects of the Income-tax Officer. The defects found out by the Income-tax Officer are, in my opinion, more or less inferences drawn by him and none of the defects taken separately or jointly would clinch the issue.'

Having found this, he came to a peculiar decision. He discovered that the deed of relinquishment had not been registered, the ownership in the immovable properties had not been transferred to the newly constituted firm. From this he came to the further conclusion that no new partnership had been lawfully constituted and, therefore, the registration under section 26A had been rightly refused. The Accountant Member agreed with this view and also noticed that the partnership deed had not been registered under the Partnership Act until May, I946. These are the grounds on which he came to the conclusion that the registration was rightly refused. He, however, said as follows :

'Further, the Tribunal asked the appellant to produce any other evidence to support of the existence of the new firm. The appellant was asked whether the alleged change in the constitution of the old firm had been intimated to any of the banks in which the accounts of the old firm were kept. It appears that the old firm had been running bank accounts with held a dozen different banks. For this purposes, the appellant was allowed special time. But he could not produce any evidence or letter from any of the banks to the effect that the old firm ceased to exist as from March 26, 1942, or that there was any change in the constitution of the old firm as from March 26, 1942 or December 2, 1942. It is therefore clear that the bank accounts of the old firms were continued by the alleged new firm without any intimation of any change in the constitution of the old firm. This point, in my opinion, is dead against the appellants claim that a new firm came into existence either from December 2, 1942 or from March 26, 1942.'

In respect of the order of the Appellate Tribunal a reference was made under the provisions of section 66(1) of the Income-tax Act to the High Court of the following question :

'Whether, in the above facts and in the circumstances of this case, the partnership as evidenced by the deed of 1st of December 1942, legally came into existence and as such should be registered ?'

In the statement of case forwarded by the Tribunal it was stated as follows :

'6. An application for registration of this new partnership was made under section 26A of the Indian Income-tax Act. This claim for registration was negatived by the Tribunal principally on the following grounds :

(1) That the relinquishment deed dated 2nd of December, 1942, being an unregistered document, could not legally transfer rights and title to the immovables owned by the firm in favour of the Kamla Town Trust.

(2) That the transfer of the immovable properties being thus legally ineffective and they being not separable from the other business assets, the entire business was not legally transferred in favour of the Kamla Town Trust.

(3) That the constitution of the new firm was not notified to any of the banks with which the old firm was dealing.

(4) That the new partnership was not got registered with the Registrar of Firms till May, 1946.

7. On the above facts the Tribunal came to the conclusion that a genuine partnership as evidenced by the deed of 1st of December, 1942, did not come into existence. This order of the Tribunal is annexed herewith and forms part of the statement of the case and is marked annexure D...'

The matter having come up for hearing before a Bench presided over by Das J., the matter was remitted to the Tribunal under section 66(4) of the Act. The way it was done is as follows : Mr. Atul Gupta who appeared for the assessee argued that the first two reasons stated above were not valid in law. In other words, he argued that the relinquishment of an interest in a partnership does not necessarily require registration and, further, simply because certain immovable properties had not been transferred to a partnership could not affect its formation as a legal entity. As regards the other two reasons he said that those were questions of fact. He argued however that the name of the partnership firm and remained the same and an omission to notify the banks of the constitution of the new partnership was not a legal bar to the constitution of a new firm. Lastly, he argued that non-registration of a partnership firm under the Partnership Act merely precluded it from bringing a legal action in cases specified in section 69 thereof, but in law it did not affect the constitution of the firm. Following this argument Mr. Meyer, counsel for the Commissioner of Income-tax, made certain concessions. This appears in the judgment of Das J. :

'Mr. Meyer, learned counsel for the income-tax department, did not seriously dispute the correctness of the proposition of law submitted by Mr. Gupta but pressed us to hold that the Appellate Tribunal came to a finding of fact that the partnership was not genuine, viz., that it was a mere pretence. He has accordingly submitted that no question of law arises and the reference was unnecessary. He has referred us to paragraph (7) of the statement of the case, which says that on the facts the Tribunal came to the conclusion that a genuine partnership as evidenced by the deed of 1st of December, 1942, did not come into existence......'

The learned judge was of the opinion that Mr. Gupta, the Judicial Member of the Tribunal, did not hold that the new firm was a mere pretence. But he was not equally sure about the findings of Mr. Chatrath. Therefore, the learned judge came to the conclusion that it was not correct to say that the Appellate Tribunal had come to a categorical finding of fact that the new partnership as evidenced by the partnership deed, dated December 1, 1942, was a mere pretence and not genuine. Das J. concluded as follows :

'The question framed by the Appellate Tribunal proceeds on the view that the new partnership is genuine and that its legality is the question to be answered by this court.

An affirmative answer would involve an implied finding as to the genuineness of the new partnership. I have already pointed out that there is no such finding by the Appellate Tribunal. This would prejudice the income-tax department.

Similarly a negative answer would involve a finding as to the unreality of the new partnership. This would similarly prejudice the assessee.

In these circumstances, the question framed by the Income-tax Tribunal has to be reframed.

Section 66(4) of the Income-tax Act empowers the High Court to refer the case back to the Appellate Tribunal if the High Court is not satisfied that the statements in a case referred are sufficient to enable it to determine the question raised thereby. Thus if the Tribunal has not stated its conclusions and findings on the material facts of the case the High Court may remit the case to the Tribunal to fill up the lacuna and complete the statement of the case (Sundar Singh Majithia v. Commissioner of Income-tax).

I am therefore of opinion that this case must be remitted to the Income-tax Appellate Tribunal to fill up the lacuna in the findings reached by it and to dispose of the case according to law.'

As I understand the law, and as it has been expounded by the Supreme Court in G. Venkataswami Naidu & Co. v. Commissioner of Income-tax the scope of section 66(4) of the Income-tax Act is somewhat limited. The court must accept the findings of fact of the Appellate Tribunal unless it can come to the conclusion that it is based on no evidence or that the inference of fact cannot reasonably arise or that the findings are capricious. But apart from that, it is not within the scope of section 66(4) to direct a fresh hearing or to ask the Tribunal to come to a fresh finding of facts. All that it can do is to ask the Tribunal to state further facts from the re orders if has been asked to answer. The court can reframe a question under section 66(2). In this case, although the court proposed to reframe the question it did not do so and directed the Appellate Tribunal to come to a fresh finding of fact although it was of the opinion that on the question of genuineness of the partnership the Tribunal had not come to any categorical finding. Upon this remand, however, the Tribunal became confused and proceeded to do something which was not warranted in law. Since the court wanted the question to be reframed, the Tribunal reframed the question as follows :

'1. Whether, in the facts and circumstances of this case, can the non-registration of relinquishment deed invalidate the transfer of the business assets to the new partnership

2. Can the registration application be rejected merely on the ground that the business assets were not legally transferred to the new partnership ?'

The Tribunal in its supplementary statement of the case dated 29th February, 1954, re-stated the four reasons which had been set out in the order of the Tribunal set out above. It then went on to state that in the meanwhile Mr. Gupta, the Judicial Member, had retired and only Mr. Chatrath was available. In fact, Mr. Chatrath was himself a signatory to the supplementary statement of the case. The following appears in the said statement :

'In the absence of the Judicial Member who was a party to the order under section 33(4) it is only the Accountant Member who can say with some certainty as to whether the Tribunal intended to decide the point against the assessee on questions of fact independently of the legal question. Mr. S. M. Chatrath is of the opinion that the application was rejected primarily on a point of law...... It would therefore seem that if the assessee succeeds on the question of law, the matter will have to come back to the Tribunal to decide the issue on points of fact.'

The matter then came up for hearing before a Division Bench presided over by Lahiri J. (as he then was). The learned judge pointed out that section 66(4) did not entitle the Tribunal to submit new questions. They were asked to make certain additions to its findings. According to the learned judge, the Tribunal did not apply its mind to the questions asked, and that the matter had to be remanded once more. He said as follows :

'In these circumstances we have no other alternative but to remit it for the second time to the Appellate Tribunal under section 66(4) of the Income-tax Act for the purpose of enabling it to come to a clear finding upon the materials on the record on the question whether the partnership evidenced by the deed dated the 1st December, 1942, was intended by the parties to have real effect as governing the rights and liabilities, inter se, in relation to the business or whether it was a mere pretence.'

This time, even Mr. Chatrath was not available, and the matter was dealt with by the Tribunal, the members of which had nothing to do with the previous proceedings. They immediately proceeded to ask the assessee to adduce further evidence to show that the 'new firm was acting as such with the new constitution and whether the banking accounts as referred to by the Accountant Member were operated upon by the partners of the new firm'. As far as I can see, the only new evidence that was brought to their attention were two letters, one from the Netherlands Bank and another from the Hind Bank, dated 27th March and 28th March, 1951, respectively, copies of which appear at pages 9-1O of the supplementary paper-book containing the statement of case, dated 25th April, 1958. In these letters it has been stated that there were accounts in the books of the bank in the name of Messrs. Juggilal Kamlapat which were operated by Jhabarmal saraf, by virtue of a proxy issued in his favour by the Singhania brothers authorising him to act for them and in the name of the firm. It also contained the information that the bank had been apprised of the fact that Messrs. Padampat Singhania, Kamlapat Singhania and Lakshmipat Singhania were the trustees for the Kamla Town Trust, Kanpur. The supplementary statement of the case clearly shows that the members of the Tribunal perused the order of Mr. Chatrath and found that he had stressed the point that in respect of the constitution of the new firm, no information was given to the banks of the change in the constitution of the firm. In the opinion on the Tribunal, since no new matter was brought to their notice, they, in their turn, proceeded to decide the question of fact referred to them based on this one fact, namely, that the information had not been given to the banks. This was what was stated :

'These letters indicate that the three brothers opened the accounts and authorised Mr. Jhabarmal Saraf to operate upon the accounts. The same position was followed even after the change in the constitution. So far as the banks were concerned, the assessee did not intimate to these banks that there was a change in the constitution and the firm constituted of new partners. There is no other fact on record to show that the new partners, i.e., Kamla Town Trust and Jhabarmal Saraf, acted as partners excepting the introduction of capital in the account books. Upon the facts on record, we held as has been done by the Accountant Member, Mr. Chatrath, that there is no evidence for the assessee to show that a new firm consisting of Kamla Town Trust and Jhabarmal Saraf came into existence. Therefore, in our opinion, the same old firm continued as such, and there was no change in the constitution of the firm.'

The matter has now come up before us and we have to answer the question upon these various statements of case before us.

I do not think that the position in law can be doubted. The parties agree that the two new questions framed by the Appellate Tribunal were entirely without jurisdiction and that the question that has really to be answered is the 'original question'. Coming, therefore, to the question as framed in the original statement of case dated March 13, 1952, it is obvious that four reasons have been stated and a question has been asked whether upon them, it can be said that the partnership as evidenced by the deed of 1st December, 1942, 'legally' came into existence, and as such could be registered. When the matter came up before Das J., it was conceded that all the four questions, considered as points of law, were in favour of the assessee.

Mr. Meyer, however, argued that Mr. Chatrath in his order had decided the case upon a completely different footing, namely, that he had come to a finding of fact that quite apart from the legal question, the partnership deed was a sham transaction and the parties had no intention of forming a new partnership. I do not think that the proposition can be disputed that a mere deed of partnership is not decisive on the question as to whether a partnership had come into existence. It may be that the deed is merely a device to evade taxation. From this point of view, it would have to be found as a fact that the partners of original firm had no intention of forming a new partnership, the object of which was to benefit the Kamla Town Trust, but it was a mere device to avoid taxation. To put it more succinctly, it would have to be found that the three Singhania brothers never really wanted to act as trustees and it was never intended to apply the income from the Calcutta firm to the purposes of the trust. What they really intended was to avoid taxation by falsely bringing into the picture the trust, and to evade taxation by claiming exemption on that score. One can understand if the case really proceeded upon this footing and there were findings in this behalf. Upon a consideration of the record, it appears that nothing of the sort happened. Das J. had held that Mr. Gupta had not dealt with this aspect of the question but he appears to have been doubtful as to what Mr. Chatrath had done. When the matter went back, Mr. Chatrath was still there and he has categorically stated that he had not considered the matter from the point of view of the facts. He had only considered it from the point of view of the legal aspect and particularly the point that the since the properties had not been legally transferred there can be no new partnership. This point taken as a point of law is of course unsustainable and was given up at the earliest possible opportunity by learned counsel. Mr. Pal has strenuously argued that the statements of Mr. Chatrath cannot be correct and that he did deal with the facts. In my opinion, it would be strange to hold that Mr. Chatrath did deal with something which he himself disowns. Coming now to the supplementary statement of case dated 25th April, 1958, I am not at all surprised that the Tribunal was extremely confused. The way that the proceedings had run left them uncertain as to what they were called upon to do. To start with, they called for 'further' evidence, which they were not entitled to do. They stated that there was 'no evidence' at all to show that the new firm had come into existence. They ignored, or did not realise, the evidence that was already on record. They also failed to consider the implications of the two letters that were brought to their notice. A fair reading of their statement of the case makes it clear that they drew the inference that the firm had not come into existence, from only one fact, namely, that the new partnership did not inform the banks of its new constitution. They did not purport to do anything new but professed to do what Mr. Chatrath had done. Mr. Chatrath, however, stated that he considered the case from the legal angle and not upon facts which he proposed to consider later. How he proposed to do it later is difficult to say, because the finding of a Tribunal is final under section 33(4). Be that as it may, it is necessary to consider as to whether and to what extent this finding of fact, which is really an inference drawn from one single fact, is binding on us. If it amounts to this that the Appellate Tribunal has come to the finding that the new partnership firm was really a sham transaction and that there was no intention of forming a new partnership, then we would be bound by such finding, and there is nothing left for us but to automatically hold that in law it did not exist and cannot be registered. I do not think that our hands are tied to that extent. We are really left with the finding of law and facts in the original order of the Appellate Tribunal dated 2nd August, 1951. In fact, the supplementary statement of the case has told us nothing new. The Tribunal drew an inference of facts on record which is itself erroneous. Also it has failed to draw the proper inference from the materials before it. Under those circumstances I do not consider this finding to be binding upon us to the extent that we must automatically proceed to answer the question in the negative. I shall now mention some facts which are already on the record although the Appellate Tribunal says that there are no such materials. On the question as to whether a new partnership firm with trustees really came into existence, the following facts are on record, about not considered by the Tribunal :

1. The deed of trust dated 27th October, 1941, by which the Kamla Town Trust was formed and the three Singhania brothers became the first trustees. This is annexure 'A' to the statement of case dated 13th March, 1952, and is at page 5 of the paper-book. The trust deed recites the charitable purposes for which it came into existence.

2. The resolution passed by the board of trustees of the Kamla Town Trust dated 20th December, 1941, directing the trustees to enter into a partnership with Mr. Jhabarmal Saraf. This has been referred to in the order of the Income-tax Officer being exhibit 'E' to the statement of case dated 13th March, 1952, which is at page 39 of the paper-book. It is also recited in the new partnership deed itself dated 1st December, 1942, being annexure 'C' to the statement of case appearing at page 28 of the paper-book. The deed of relinquishment, which is annexure 'B' to the statement of case appearing at page 24 of the paper-book, recites these facts and clearly states that the parties were carrying on business in terms and conditions of the deed of partnership dated 1st December, 1942.

3. It has been found as a fact that the trust introduced Rs. 50,000 as capital after the formation of the new partnership. This payment was made under the terms of the partnership deed dated December 1, 1942, being term No. 4 in annexure 'C' to the said statement of case appearing at pages 28-29 of the paper-book. The Income-tax Officer has noticed this, as will appear from his order dated 12th March, 1948, appearing at pages 40-41 of the said paper-book. The fact of such payment was also noticed by the Appellate Assistant Commissioner in his order dated 7th December, 1949, and appears at page 44 of the said paper-book, where he says that 3/4th share of the profits of the business 'was acquired' by the trust 'by introducing merely a sum of Rs. 50,000'. Finally, the Appellate Tribunal in its second supplementary statement of the case dated 25th April, 1948, notes that the said capital was in fact introduced in the account book of the partnership.

4. The income-tax authorities have proceeded on the footing that the new firm came into existence and functioned. Otherwise the finding of the Income-tax Officer in his order dated 12th March, 1948, that the goodwill of the firm was estimated to exceed a few lakhs of rupees and that its total income for the accounting year exceeded Rs. 2,14,000 cannot be explained. We were careful to ask both the parties as to whether this goodwill or the income refers to the old firm or the firm and both the parties agreed that the reference was to the new firm and could not be a reference to the old firm. It is obvious that if the goodwill could be valued as well as the total income, the balance-sheet of the new firm as well as the books of account must have been available to the Income-tax Officer.

5. The deed of relinquishment dated 2nd December, 1942, which was executed by the three Singhania brothers and which recites all the above facts. By the deed, the three Singhania brothers renounced their rights and claims in all the properties and assets in their individual capacity. Since it was admitted that this document does not require registration it should have been considered as a strong evidence in support of the probability of the constitution of a valid firm.

6. The partnership deed dated 1st December, 1942 : Although the partnership deed is not by itself conclusive on the point, it is strong evidence of the coming into existence of a new partnership taken together with the other facts mentioned above. As stated above it contained a term that the Singhanias would bring in a capital of Rs. 50,000 and they in fact did so.

7. This reference relates to the proceedings in respect of the refusal of registration under section 26A of the Income-tax Act. After such refusal, the assessment proceeding went on and against the assessment order there were appeals as also a reference. This is Income-tax Reference No. 62 of 1952, which is now pending in this court. Our attention was drawn to page 13, line 13, of the said paper-book, which contains a statement by the Appellate Tribunal that they were not satisfied that the document of partnership dated 1st December, 1942, was not meant to be acted upon. I am merely referring to this important document for the purpose of showing, how the Appellate Tribunal dealt with this point in the assessment proceedings, where apparently there were more materials to decide the same.

The result is that it is impossible to accept the opinion of the Appellate Tribunal in its second supplementary statement of the case dated 25th April, 1958. It is clear to me that the finding is not based on evidence, but it is the result of a sense of compulsion created by the repeated remands made by this court with direction to file a fresh statement of the case. It is apparent from the statement that the inference that the same old firm continued as such and there was no change in the constitution of the firm was merely based on one reason, namely, that according to the Tribunal the partners of the new firm did not intimate to the banks about the new partnership. This fact alone cannot possibly give rise to such an inference. After all, the name of the firm continued to be the same. The banking accounts were already existing and it was Jhabarmal Saraf who always operated the same. The Tribunal failed to consider a very important aspect of the matter. After the disclosure of the two letters dated 27th March, 1951, and 28th March, 1951, it failed to appreciate the important fact that the banks had been informed of the fact that the three Singhania brothers had become trustees. It is true that in the letters no such specific allegation has been made. But then it is reasonable to assume that the information was given to the bank for some purpose. Originally, the banking accounts were in the name of the three brothers in their personal capacity. As soon as the information was given that they were trustees, the banks would naturally enquiry as to why this information was given and how it affected the banking accounts. It is well known that as soon as banks are informed of the existence of a trust, they are always careful to enquiry into the legal effect of the same and how it affected themselves. For example, after the banks were informed that these three Singhania brothers were now trustees, the banks must have satisfied themselves that Jhabarmal Saraf had the authority of the trustees to operate the accounts. Not only did the Tribunal fail to consider the proper significance of these letters but in saying that there was no evidence to show that a new firm came into existence, they fell into an error. They themselves mention one of the important items of evidence, namely, the introduction by the trust of capital to the tune of Rs. 50,000 into the account books of the new partnership.

Therefore, the position in brief is that the Tribunal failed to notice the evidence which established that a new firm had come into existence, and, ignoring the same, came to the conclusion that there was no new firm, simply on the basis of the alleged fact that no information was given, of the formation of the new partnership, to the banks. This again was not strictly correct because it is inconsistent with the two letters of the banks dated 27th March, 1951, and 28th March, 1951.

I do not say that if all the information is sifted carefully, if may still emerge that there was no intention of creating a new firm. But the most important evidence that would have established this has been completely ignored. The new firm came into existence in 1943. The supplementary statement of the case is in 1958, that is to say, about 16 years later. The matter would have been beyond controversy if the income-tax authorities investigated the question as to whether, during this long period, the appropriate share of the income from the alleged new partnership had been diverted to the Kamla Town Trust. That would have placed the matter beyond doubt. The income-tax authorities had the account books and the balance-sheet before them, but they put a blind eye to this aspect of the matter before us. I suggested at one stage that, for the purpose of doing justice, the income-tax authorities might still agree to look into this evidence. In a reference proceeding, however, we could not direct this to be done except by consent of the parties. The assessee was fully ready with all the materials, and even offered to show them in court. But unfortunately Mr. Pal on behalf of the Commissioner of Income-tax was unable to accept the suggestion because, as he said, the Commissioner of Income-tax was away in the Andamans, and owing to the present disturbed condition, could not come back to Calcutta within a reasonable time. However, there the matter ended.

In my opinion, it was not possible for the Tribunal to come to any such conclusion upon the evidence mentioned above, and the answer to the question ought to be in this form :

'Regard being had to the admissions made on behalf of the department, the facts and circumstances mentioned in paragraph 6 of the statement of case dated 13th March, 1952, do not show that there was any legal flaw in the constitution of the partnership firm as evidenced by the deed of 1st December, 1942. Upon such evidence, it must be concluded that it did come into existence and there is no impediment to its registration under section 26A of the Income-tax Act.' It is made clear that the question itself postulates the facts and circumstances and, therefore, the conclusion is based upon them. In view of the facts in this case there will be no order as to costs.

DATTA J. - I agree.


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