Commissioner of Income Tax vs Agarwalla and Co.

R.N. Misra, J.—These are two applications u/s 256(2) of the Income Tax Act of 1961 (hereinafter referred to as "the Act") at the instance of the revenue for a direction to the Income Tax Appellate/Tribunal to state a case and refer the following question said to be of law for determination of this court:

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing registration to the firm ? "

The short facts relevant for appreciating the point raised are these : One, Sri Jugal Kishore Ram was carrying on business in timber as its sole proprietor in the name and style of " M/s. Agarwalla & Co." With a view to converting the proprietary concern into a partnership business, one Shri Raghunath Agarwalla was admitted into the business and by a deed of partnership dated April 1, 1964, the partnership was constituted. An application for registration of the firm as provided u/s 185 of the Act was made. The Income Tax Officer rejected the same and the rejection was upheld by the Appellate Assistant Commissioner, but, on further appeal by the assessee, the firm was directed to be registered.

The main ground for rejection was that clause 4 of the partnership deed had not been fully and completely complied with by the partners. Clause 4 provided :

" ... ...the initial capital of the firm shall consist of the amount already invested by the partners as shall be reflected in the books of the firm, that is, the book balance in the shape of cash in hand and stock-in-trade and ether assets of the business styled " M/s. Agarwalla & Co." running previously by Sri Jugal Kishore Ram, as shall appear on the 31st of March, 1964, shall be treated as capital invested by Sri Jugal Kishore Ram, party of the first part, and as regards Sri Raghunath Agarwalla, the party of the second part, who has also invested certain capital, it will be found in his personal account of the ledger,"

The Income Tax Officer found that some of the assets of the proprietary concern had been retained by Jugal Kishore and subsequently disposed of and the sale proceeds had been appropriated by him. In reality, the business, therefore, continued to be a proprietary concern. The Tribunal as a fact found that what had been agreed to be transferred from proprietary status to partnership status was the timber business and not the entire assets of the going business. A resolution-dated April 2, 1964, was utilised to support this conclusion of fact. Even if the original term was that all the assets would be transferred, it was open to the partners to modify the same and the resolution must be taken to be one of modification. The modification is not one of the essential terms of the partnership and the Tribunal having taken an overall picture of the matter has come to hold that the firm was a genuine one and was entitled to registration. Learned standing counsel contended that construction of a document was a question of law and, therefore, the statement should be called for. We do not dispute the correctness of the proposition advanced, but in the facts of the case, we find that the Tribunal has taken an overall picture of the matter and has come to a conclusion on a question of fact. We do not agree that any question of law arises for adjudication by this court. Accordingly, the applications are rejected. There shall be no order as to costs.

B.K. Ray, J.

I agree.