B.L. Chhibber, A.M. - (1.) THE only effective ground raised in this appeal by the Revenue reads as under "On the facts and in the circumstances of the case, the CIT(A) Nashik erred in directing the AO to grant registration to the firm by holding the assessee's plea that there was a genuine and valid registered firm during the previous year."
(2.) The business under the name and style of M/s Vinod Trading Company at Nashik was being carried on under a deed of partnership executed by four partners in their individual capacities on 25th January, 1980. One of the partners Shri Rajanikant B. Kothari, who was a partner in the capacity of an individual, retired from the firm and he was admitted to the partnership as Karta of the HUF of Shri Rajanikant B. Kothari and a new partnership deed was drawn on 1st March, 1984, and executed on 10th August, 1984, and was made effective from the first day of the accounting period relevant to the asst. yr. 1985-86, i.e. 5th November, 1983. The AO noted that Shri Rajanikant B. Kothari was admitted as a partner in the HUF capacity with effect from the last day of the accounting year i.e. 24th October, 1984, by Hawala entry of Rs. 20,000 from the capital account of Smt. Kamalabai Babulal Kothari to the account of Rajanikant Babulal Kothari HUF. The AO called upon the assessee to explain as to why the firm should not be treated as non-genuine, as the HUF did not exist in the entire accounting year. The assessee contended before the AO that there was an HUF of Shri Rajanikant B. Kothari consisting of himself, his wife and two sons. According to the assessee, it was not necessary for every HUF to have property to constitute HUF as a Hindu gets a joint family status by birth and joint property is only an adjunct of joint family. It was further submitted that in the partnership deed, there was no stipulation as to investment of capital by any of the partners. It was further stated that as the existence of the HUF is not at all questionable according to law and the essential conditions for registration were fulfilled by the assessee-firm, the assessee-firm was entitled to the benefits of registration. The AO did not agree with the above arguments. He observed that the assessee could not produce any evidence to the existence of any HUF of Rajanikant B. Kothari during the period under consideration. The AO further observed that an HUF is a narrower body than the joint family unit, which includes only those persons who acquire by birth an interest in the joint or coparcenary property. The position of a nucleous of joint family was neither admitted nor proved. The AO referred to the case of V. D. Dhanwatey vs. CIT (1968) 68 ITR 365 (SC) and observed that the family of Rajanikant B. Kothari had no nucleous fund with the help of which income was alleged to have been earned by Rajanikant B. Kothari, as partner in representative capacity. He accordingly refused the benefit of registration to the assessee-firm. On appeal, the CIT(A) held that the HUF of Rajanikant B. Kothari was already there at the time of entering into partnership, because at the relevant time the Karta was married and was having sons and daughters for quite a long time. He could represent the family. Relying upon the judgment of Calcutta High Court in Askaran Kissen Lal vs. CIT (1969) 73 1TR 522 (Cal), Supreme Court judgment in CIT vs. Abdul Rahim & Co. (1965) 55 ITR 651 (SC) and CIT vs. Bhagyalakshmi & Co. (1965) 55 ITR 660 (SC), the learned CIT(A) held that the firm was validly constituted and hence was entitled to the benefits of registration. He accordingly directed the AO to allow registration to the assessee-firm.
(3.) SHRI Hari Krishan, the learned Departmental Representative, strongly supported the order of the AO. He submitted that at the time of constituting the firm, there existed no HUF of SHRI Rajanikant B. Kothari and the position of a nucleous of joint family was neither admitted nor proved and that the so called HUF and nothing to contribute as capital and hence, the action of the AO was fully justified.;