Kasliwal, J. -
(1.)BOTH the above cases are disposed of by one single order as they arise out of the same order of the Income-tax Appellate Tribunal dated September 22,1973.
(2.)BRIEF facts as set out in the statement of the case are that M/s. Narnauli Jewel Corporation, Jaipur (hereinafter referred to as "the assessee"), filed its return of income in respect of the assessment year 1968-69 declaring its status as a firm on July 2, 1968. According to the partnership deed which was filed along with the application for registration under section 185 of the Income-tax Act, 1961, the firm was constituted on November 14, 1967. The following persons were declared in the said deed as partners :
(i) Smt Gyan Devi--Mother--share 30%
(ii) BalKrishanAgrawal--Son--share 35%
(iii) Chandra Mohan--Son--share 35%
The aforesaid partnership deed was registered with the Registrar of Firms on December 2, 1967, and an account of the firm was opened with the Bank of Baroda, M.I. Road, Jaipur, on November 23, 1967. All the three partners were authorised to operate the said bank account. Smt. Gyan Devi, mother of the other two partners, had brought in as per the books of the firm, a capital of Rs. 22,631. She remained a partner in the firm up to March 31, 1970. Capital in her account in the books of the firm in respect of previous years ended on March 31, 1968, March 31, 1969, and on March 31, 1970, showed no withdrawals meant to cover her household expenses. Withdrawals were, however, made to make a gift of Rs. 9,950 to her son, Shri Kaushal Kishore, and another sum of Rs. 10,000 was similarly gifted. The income-tax payable on her share was also debited to her capital account. The credit balance in the capital account of Smt. Gyan Devi when she left the assessee firm on March 31, 1970, was Rs. 33,425. This credit balance in her account continued in the books of the firm for some time and interest was credited thereon. Ultimately, the entire credit balance was withdrawn and such withdrawals were invested in the purchase of a plot of land.
The assessee-firm submitted on application to the Income-tax Officer in Form No. 11 on December 26, 1967, for granting registration under Section 184 of the Act. The application was accompanied by the original partnership deed and was found technically complete in all respects.
During the course of assessment proceedings, the Income-tax Officer wanted to ascertain the genuineness of the firm. In the course of his inquiry in this regard, he directed an Inspector to contact Smt Gyan Devi and to elicit from her the information with regard to her being a partner in the said firm. The Inspector contacted Smt. Gyan Devi and recorded her statement on August 24, 1971.
The Income-tax Officer found the aforesaid statement of Gyan Devi as unsatisfactory. As such, he wrote a letter to the assessee on October 27, 1971, wherein he indicated that the personal attendance of Smt. Gyan Devi, partner, was very necessary for verification of the genuineness of the firm. The Income-tax Officer pointed out in the letter that "Inspector, who was sent to contact the above lady has reported that the lady had not replied to his queries properly". The Income-tax Officer, therefore, required the firm to produce Smt. Gyan Devi in his office on November 17, 1971. It was also mentioned at the end of the letter that if the lady was not produced on the date, it would be presumed that she was not a genuine partner and the claim for registration will be liable to be refused. In response to the aforesaid letter, an application for adjournment was moved on the ground that all the partners were busy with the marriage of one of their partners which was to be held on November 21, 1971. The Income-tax Officer acceded to the request of the assessee and fixed December 6, 1971, for examination of Smt. Gyan Devi. On this date, the representative of the assessee appeared before the Income-tax Officer and informed that it was not possible to produce the lady in the office. No reasons for the aforesaid stand was given to the Income-tax Officer. The Income-tax Officer in these circumstances came to the conclusion that the assessee has deliberately withheld the production of Smt. Gyan Devi, partner, before him. He, therefore, drew an adverse inference and refused registration to the firm treating it as not genuine because, in his opinion, Smt Gyan Devi did not appear to be a genuine partner. After refusing registration to the firm, he accorded the assessee the status of association of persons and completed the assessment in that status.
(3.)THE assessee, aggrieved against the order of the Income-tax Officer, filed an appeal before the Appellate Assistant Commissioner. THE assessee took the plea before Appellate Assistant Commissioner that Smt. Gyan Devi, whose statement was recorded on oath on August 24, 1971, was mentally ill and as such could not give proper answer to the Inspector and such fact was also made known to the Inspector at the time of recording the statement of Smt. Gyan Devi, It was further pleaded that Smt, Gyan Devi could not be produced before the Income-tax Officer as she was mentally ill. THE assessee also filed a certificate of a vaidya and an affidavit of the husband of Smt. Gyan Devi before the Appellate Assistant Commissioner on April 7, 1972. THE Appellate Assistant Commissioner discarded the above submissions of the assessee and also placed no reliance on the certificate of the vaidya as he found discrepancy in the dates in the certificate. It was pointed out that this certificate was dated August 20, 1971, and yet it was certified that the lady was under the treatment of the vaidya with effect from August 10, 1972. THE Appellate Assistant Commissioner thus dismissed the appeal by his order dated April 14, 1972.
The assessee then filed an appeal before the Tribunal and raised several contentions regarding the genuineness of the firm as mentioned in para 10 of the statement of the case. Contentions were also raised that there was no legal basis for the examination of Smt. Gyan Devi by the Inspector. Such statement recorded by the Inspector had no evidentiary value. It was also argued on behalf of the assessee that the partners of the firm had already been assessed on their share of income from the firm and as such with regard to firm's income, the appellant, i.e., the assessee-firm, could not have been assessed in the status of an association of persons. The Tribunal did not find favour with the arguments of the assessee and dismissed the appeal by order dated September 22, 1973.
The assessee then moved an application to refer the following six questions for the opinion of this court:
"1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was correct in holding that Smt. Gyan Devi was not a partner in the appellant firm and no firm came into being as a result of deed dated 14th November, 1967 ?
2. Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in refusing to grant registration and according status of association of persons to the appellant firm?
3. Whether the learned Tribunal had material and evidence on record to hold that Smt Gyan Devi did not consent under Section 13 of the Contract Act to become a partner and the appellant firm did not exist under Section 6 of the Indian Partnership Act ?
4. Whether in view of the individual assessment of Smt. Gyan Devi, S. V. S. Chandra Mohan and Bal Krishan, the learned Tribunal was correct in holding that the appellant could be subsequently assessed as association of persons ?
5. Whether there was any evidence on the basis of which the learned Tribunal could record the finding that Smt. Gyan Devi was not a partner and the partnership evidenced by the deed dated November 14, 1967, did not exist and was not genuine ?
6. Whether the learned Tribunal was correct in law in considering and basing their decision on the statements recorded by the Inspector ?"