Commissioner of Income Tax vs Sequria Associates

These three applications u/s 256(2) of the Income Tax Act, 1961, can be disposed of by a common order. Income Tax Case No. 223 of 1984 relates to the company and the other two to a firm. The question sought to be raised by the Department is whether the Tribunal was right in holding that the firm was a genuine firm and that the income returned by the firm was assessable in its hands and had to be excluded from the assessment of the company. This obvious is a question of fact (vide Ratanchand Darbarilal Vs. Commissioner of Income Tax, M.P., and Ladhu Ram Taparia Vs. Commissioner of Income Tax (Central), Calcutta, ). The present case does not fall within the ratio of the Supreme Court in the case of S.P. Gramophone Company Vs. Commissioner of Income Tax , Patiala, , relied upon by the counsel for the petitioner.

The main argument of counsel for the petitioner was that there was no ostensible object or purpose in the creation of the firm and that it had been really created with a view to divert the profits or a portion of the profits of the company. In our opinion, this is essentially a question of fact. The Tribunal has taken into consideration the fact that the firm''s genuineness had been accepted in an earlier assessment year after careful examination by the Inspecting Assistant Commissioner. The Tribunal has also found that the firm did render services and that there were also stranger partners in the firm who are not associated with the company or its directors in any way. We also find that the Commissioner of Income Tax (Appeals) had given a clear finding that the net income of the firm during all the years when it was in existence was a paltry sum and that having regard to this consideration also, it was not likely that the persons in control of the company would have floated the firm with a view to avoid tax. We are of opinion that there was material before the Tribunal on which it could come to the conclusion that the firm was genuine and that this court cannot interfere u/s 256(2) with such a finding. We, Therefore, dismiss these applications but in the circumstances of the case, we make no order as to costs.