Madhya Pradesh High Court
Mahadeo Biscuits And Confectionery ... vs Commissioner Of Income-Tax on 8 May, 1986
Equivalent citations: [1987]166ITR411(MP)
JUDGMENT
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee by the Income-tax Appellate Tribunal for answering the following questions :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the validity of the assessment under Section 143(3) of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the refusal of registration of the firm under Section 185 of the Income-tax Act, 1961 ?"
2. The assessee, Mahadeo Biscuits and Confectionery Works, had pleaded before the Income-tax Officer that one of the partners of the firm was Smt. Krishnabai who was the financing partner. However, Smt. Krishnabai was not produced before the Income-tax Officer in spite of opportunities being granted by the Income-tax Officer. Therefore, he refused to register the assessee under Section 185 of the Act and proceeded to make the assessment in the status of an association of persons. On appeal by the assessee against the order under Section 185, the Appellate Assistant Commissioner, on consideration that Smt. Krishnabai had given a statement before the Inspector but she was found to be ignorant about the business of the firm, held this could not lead to the conclusion that she was a bogus partner. He, therefore, held that the Income-tax Officer was not justified in refusing to register the firm. He directed the Income-tax Officer to grant registration to the firm. The Revenue filed an appeal before the Income-tax Appellate Tribunal saying that the Appellate Assistant Commissioner erred in reversing the order of the Income-tax Officer. On behalf of the assessee, a further ground was taken that one of the partners, Smt. Parmeshwaridevi, was assessed in respect of the year under consideration on her share of income from this firm under Section 143(1) of the Income-tax Act and, therefore, the Income-tax Officer could not make an assessment directly on the firm in respect of the same income. This amounted to double taxation. The Tribunal observed that it was not considering the merits of the assessment made by the Income-tax Officer under Section 143(3) of the Act in the status of an association of persons. What has to be considered was the merits of the Income-tax Officer's order under Section 185 of the Act. Regarding assessment of Smt. Parmeshwaridevi in respect of her share of income from this firm directly, this question is not available to the assessee because the Tribunal was not called upon to examine the merits of the assessment made by the Income-tax Officer under Section 143(3) of the Act in the status of an association of persons. The Tribunal is called upon to examine the merits of the order of the Appellate Assistant Commissioner, reversing the order of the Income-tax Officer under Section 185 of the Act. Under Section 185(1), it is the statutory obligation of the Income-tax Officer to enquire into the genuineness of a firm. By Krishnabai's persistent refusal to appear before the Income-tax Officer, the alleged partners of the firm have rendered it impossible for the Income-tax Officer to carry out his statutory obligations and under the circumstances, he had no option but to refuse registration to the firm. Aggrieved by this order, the assessee filed an application for making reference on the aforesaid questions.
3. After having heard the parties, we are of the opinion that no question of law arises in this case. A Full Bench of the Andhra Pradesh High Court in CIT v. G. Parthasarathy Naidu and Sons [1980] 121 ITR 97 (AP) [FB] has held that the question whether a firm is genuine or bogus or benami is a pure question of fact. Recently, the Rajasthan High Court, in Saraf Brothers v. CIT [1987] 166 ITR 414; [1980] 4 Taxman 104 (Raj), held: "Section 256(2) of the Income-tax Act, 1961--Reference--Question of law--Tribunal refused to state a case as no question of law arose from its finding that the firm was not genuine and/or business of one firm was benami of another. Whether the Tribunal was right in law--yes." Therefore, it is evident that the finding of the Income-tax Officer that the assessee firm was not genuine while deciding the application under Section 185 of the Act is a finding of fact and no question of law arises. However, learned counsel for the assessee relied on a number of decisions including that of the Supreme Court in CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95 (SC), that partners of an unregistered firm might be assessed individually or they might be assessed collectively in the status of an unregistered firm. The Income-tax Officer, however, could not seek to assess the same income twice, once in the hands of the partners and again in the hands of the unregistered firm. These cases are clearly distinguishable because they were not cases of not granting registration to the firm. They were against the orders of assessment. However, in this case, no appeal was made against the order of assessment. The challenge was only about non-registration of the firm. As such, there is no reference against the order of assessment. Therefore, whether Parmeshwaridevi was rightly assessed or not is not the subject-matter of the present reference.
4. We, therefore, refuse to answer the questions as no question of law arises. Parties to bear their own costs.