High Court Of Punjab & Haryana
CIT vs. Ganga Ram Jati Ram
Section 256(1)
Asst. Year 1972-73, 1973-74
G.S. Singhvi & Tapen Sen, JJ.
IT Ref. Nos. 46 to 48 of 1990
2nd December, 2004
Counsel Appeared :
Rajesh Bindal, for the Revenue : None, for the Assessee
JUDGMENT
G.S. Singhvi, J. :
The Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, ‘the Tribunal’), has referred the following question for the opinion of this Court : “Whether, on the facts and in the circumstances of the cases, the Tribunal was legally right in confirming the cancellation of penalty orders passed under s. 271(1)(c) of the IT Act, 1961 ?”
2. The assessee is a partnership firm. In 1972, the partners of the assessee-firm constituted another partnership firm under the name and style of M/s Gupta Rice & General Mills. The assessee filed returns of income for the years 1972-73 and 1973-74 disclosing an income of Rs. 25,650 and Rs. 35,550, respectively. ITO, Kaithal (for short, ‘the AO’), completed the assessment for the two years at Rs. 27,770 and Rs. 38,370, respectively. Two separate returns for the years in question declaring income of Rs. 60,450 and Rs. 45,525, respectively, were filed in the name of M/s Gupta Rice & General Mills for which a separate registration was claimed. The returns of the assessee as well as M/s Gupta Rice & General Mills were signed by Shri Des Raj, who was partner in both the firms. Along with the application for registration of M/s Gupta Rice & General Mills, a partnership deed executed on 15th March, 1972, was filed. The firm was stated to have eight partners. The AO granted registration to M/s Gupta Rice & General Mills and continued the same in the next year. Later on, vide order dt. 16th Oct., 1978, he cancelled the registration of M/s Gupta Rice & General Mills by observing that it was not a genuine firm and was only a branch of the assessee and that the same was created with a view to evade the tax liability of the assessee. The order passed by the AO was upheld by the AAC and also by the Tribunal. Thereafter, the assessment of the assessee was reopened and amounts of Rs. 54,900 and Rs. 47,780 were added to the income of the assessee. The AO also issued penalty notices to the assessee under s. 271(1)(c) of the IT Act, 1961 (for short, ‘the Act’). In the reply filed on behalf of the assessee, it was claimed that M/s Gupta Rice & General Mills was an independent entity and its income was not liable to be added to the income of the assessee. The allegation of evasion of tax was also denied. The AO did not agree with the assessee and imposed penalties amounting to Rs. 65,000 and Rs. 58,000 on account of the alleged concealment of income for the years 1972-73 and 1973-74. The CIT(A) allowed the appeals filed by the assessee and set aside the orders of penalty. The Tribunal dismissed the appeal of the Revenue and held as under : “We are in agree with the reasons given by the ITO in not accepting the contentions made before him and sustained by the AAC. Since the facts mentioned by the ITO in his order under s. 186(1) remain uncontroverted, we have no hesitation in coming to the conclusion that the firm constituted by the deed of partnership dt. 15th March, 1972, consisting of 8 partners was not a genuine firm. We also agree with the ITO that it was a branch of the main firm, Ganga Ram Jati Ram. It was, therefore, not entitled to registration under s. 185(1)(a). The ITO has, therefore, rightly cancelled the registration under s. 186(1). The AAC also rightly sustained his order. We do not find any justification to interfere in his order. The same is, therefore, upheld.”
In the applications filed by the Revenue under s. 256(1) of the Act, the Tribunal, after making a thread-bare analysis of the facts and law on the subject, referred the aforementioned question to this Court.
We have heard Shri Rajesh Bindal, learned counsel for the Revenue, and perused the record. A reading of order dt. 22nd Sept., 1989, shows that while making the reference, the Tribunal did not feel convinced that a pure question of law arises for determination by the High Court. This is clearly borne out from para 11 of the impugned order, the relevant extract of which is reproduced below : While dealing with the issue relating to registration of M/s Gupta Rice & General Mills and penalty imposed by the AO, the Tribunal observed as under : “In the light of the facts contained in the preceding paragraphs, we are satisfied that a referable mixed question of fact and law arises from the consolidated order of the Tribunal.” “In this behalf, it needs be noted that the original firm, Ganga Ram Jati Ram, was only firm of commission agents. Prior to the disputed agreement dt. 15th March, 1972, there was another undisputed deed of partnership executed between the four partners who were partners in the present assessee-firm but had decided to form another firm in the name of Gupta Rice & General Mills, the business whereof was to deal in rice-shelling and any other business mutually agreed upon. Ganga Ram Jati Ram, the assessee-firm, was not carrying on business of rice-shelling at all. So, by the partnership deed dt. 1st Jan., 1981, a new partnership had certainly come into existence. It is correct that the partners of this new firm were again the same which constituted the assessee-firm. But, it has been held in the case of R.N. Oswal Hosiery & Mahabir Woollen Mills vs. CIT (1968) 70 ITR 843 (P&H) that though two separate businesses may have been carried on by two different firms having common partners and identical shares but even then, as a matter of law, two different assessable units do come into existence and it is a matter essentially one of the fact for the Tribunal to determine whether there is interlacing or interlocking between the two firms so as to treat them as one unit. The creation of this new partnership is further proved beyond doubt by registration thereof with the Registrar of Firms, Haryana, on 20th March, 1971, under s. 53(1) of the Indian Partnership Act. ….. …… ……
In other words, what had been at best established in the present case is that there was no oral agreement between the eight partners of the new firm on 1st April, 1971, as was alleged by the new firm, Gupta Rice & General Mills. But even if that is true, the fact remains that Gupta Rice & General Mills had come into existence as early as 1st Jan., 1971, and between that firm and the assessee-firm there was no interlacing or interlocking of the firms. The reason for describing the new firm, Gupta Rice & General Mills, as branch of the assessee-firm to the sales-tax authorities has been explained in the affidavit of Shri Des Raj dt. 17th Dec., 1983, and appears to be quite plausible. At best, all that can be said is that all the partners of both the firms remained common till 15th March, 1972. It is not the case of the Department that subsequently also the two firms were identical. Gupta Rice & General Mills had a separate sales-tax number; it carried on separate business and maintained separate accounts. There was some reason for adding more partners inasmuch as Muni Devi was the owner of the land where Gupta Rice & General Mills carried on its business and no rent was charged in consideration of the share of partnership given to her. She had also executed the mortgage deed of the property to the Haryana Financial Corporation as a comortgagor. The only thing proved was that there was not enough of evidence to prove the oral agreement of adding four more partners between 1st April, 1971 to 15th March, 1972. But, this does not follow that Gupta Rice & General Mills never existed. In fact, it existed with even the new constitution before the close of the accounting year and it exists now. And the addition of the remaining four partners was not altogether a bogus transaction. The assessee might have made some mistake in describing that firm as a branch of the assessee-firm, to get some loan or some sales-tax licence but the intention of the assessee all through was to treat the two firms separately. ………………. ………. But still there is some evidence to suggest that the two firms were actually carrying on different businesses and the intention of the parties appears to constitute two separate firms though originally it may be with the same constitution and profit sharing ratio. In these circumstances, while the act of the assessee in claiming two separate assessments may not be correct in law, it could not be said to be concealment straightaway because there was nothing concealed. Both the incomes were declared and what that the assessee wanted was that they should be assessed separately. Probably, the assessee had some justification for that claim, may be that it was not found in order. But this by itself would not be sufficient to levy the penalty.”
5. In our opinion, the finding recorded by the Tribunal that the assessee had not concealed the income or made mis-statement about its income is based on a correct appreciation of evidence and no question of law arises from the order passed by it which requires consideration by this Court. Therefore, by applying the ratio of the judgment of the Supreme Court in CIT vs. Smt. Anusuya Devi (1968) 68 ITR 750 (SC), wherein it was held that the High
Court is not bound to answer a question merely because it is raised and referred and in appropriate case, it may decline to answer a question of fact or even a question of law which is purely academic, we decline to answer the question referred by the Tribunal because it is not a question of law.
The reference is disposed of in the manner indicated above.
[Citation : 279 ITR 556]
