H.N. Seth, J. - (1.) AT the instance of the assessee, Messrs. Chitra Cinema, Varanasi, this court by its order dated 16th of May, 1966, called upon the Income-tax Appellate Tribunal, Allahabad, to submit a statement of the case under Section 66(2) of the Indian Income-tax Act, 1922, in respect of the following question: "Whether there was no evidence on the basis of which the Tribunal could record the finding that the partnership evidenced by the deed of partnership dated May 2, 1957, was not genuine ?"
(2.) THE assessee, Messrs. Chitra Cinema, Varanasi, claims to be a partnership concern and the relevant assessment years are 1958-59 and 1959-60. This firm was constituted under a partnership deed dated 2nd May, 1957. It consisted of three partners, namely, Sri Jyoti Bhushan Gupta, his wife, Smt. Sulabha Devi Gupta, and their son, Anil Kumar Gupta. According to the assessee, ordinarily, Sri J. B. Gupta was running the Chitra Cinema as his sole proprietary business. Smt. Sulabha Devi had advanced two sums of Rs. 20,000 and Rs. 14,000, total Rs. 34,000, to her husband, Jyoti Bhushan Gupta, on 9th February, 1952, and 23rd February, 1952, respectively. These amounts were advanced on condition that, in case Sri J. B. Gupta was unable to repay the loan, Smt. Sulabha Devi would become entitled to the profits of the cinema business with effect from Diwali of Sambat 2013. Gupta did not repay the loan. Certain differences also arose between the members of the family, with the result that Sri J. B. Gupta and Smt. Sulabha Devi for self and as guardian of her minor sons. Anil Kumar, Sushil Kumar, Chandra Shekhar and Ashok Kumar, referred their disputes to the arbitration of one Sri Radha Raman Prasad, During the course of arbitration proceedings. Anil Kumar became major and he also applied to the arbitrator that his share in the joint properties should be separated. The arbitrator made an interim award on 5th October, 1956, and directed that as from Diwali of Sambat 2013, Sulabha Devi and Anil Kumar Gupta will be entitled to a share of 0-8-0 and 0-4-0, respectively, in the profits of the business run by Sri Jyoti Bhushan Gupta, in the name of Chitra Cinema. This interim award was followed by an award dated 30th April, 1967, in which the aforementioned direction made in the interim award was affirmed. After Sri Radha Raman made his interim award, the parties entered into an agreement dated November 10, 1956, to run the Chitra Cinema in partnership with effect from Diwali of S. 2013 (November 2, 1956). After the interim award was confirmed by the final award on 30th of April, 1957, the parties executed a fresh partnership deed dated May 2, 1957, and applied for the registration of the firm for the years 1.958-59 and 1959-60 under the provisions of Section 26A of the Indian Income-tax Act, 1922. The Income-tax Officer refused registration as, in his opinion, no genuine firm ever came into existence. He, however, held that the status of the assessee was that of an association of persons and proceeded to make the assessment accordingly.
(3.) IN appeal, the Appellate Assistant Commissioner came to the conclusion that prior to November 2, 1956, Chitra Cinema was being run as proprietary business of Sri Jyoti Bhushan Gupta, On that date no change in his status took place and Sri Jyoti Bhushan Gupta continued to run the business in his capacity as an individual. IN the result the appeal filed by the assessee was dismissed, but the INcome-tax Officer was directed to assess the business carried on in the name of Chitra Cinema as belonging to the individual, Sri Jyoti Bhushan Gupta, and not as belonging to an association of persons as held by the INcome-tax Officer. 5. The assessee then filed a second appeal before the INcome-tax Appellate Tribunal. The Tribunal upheld the orders of the income-tax authorities refusing registration on the ground that the firm as constituted by the partnership deed dated May 2, 1957, was not genuine. It based its conclusion on the following findings : "(1) IN the year in which Smt. Sulabha Devi is stated to have lent Rs. 34,000 to her husband, the matter came up for consideration before the income-tax authorities and the Tribunal in connection with the assessment of Sri Jyoti Bhushan Gupta. The Tribunal ultimately held that Smt. Sulabha Devi did not lend the money to her husband and consequently included that amount in the assessment of Sri Jyoti Bhushan Gupta. IN its opinion the whole proceeding of arbitration adopted by the assessee appeared to be with the object of getting over the adverse finding regarding the said loan and to superimpose upon the Tribunal the finding of the arbitrators that Sulabha Devi had lent Rs. 34,000 to her husband. (2) According to the agreement, by which the dispute was referred to the arbitrator, the case of the parties was that they had separated and that they wanted partition of their joint family properties. The case of Sri Jyoti Bhushan Gupta throughout had been that the cinema business was his sole proprietary business and that it was not joint family business. IN the circumstances no question of partitioning that business arose. (3) The sole consideration on which the partnership was said to have been entered into was the loan of Rs. 34,000 which was disbelieved by the Tribunal in earlier proceedings and there was, therefore, absolutely no reason why the Tribunal should take a different view of the matter in these proceedings. (4) There was absolutely no evidence on the record to prove that Smt. Sulabha Devi managed the partnership business." As, in the opinion of the Tribunal, the recitals in the partnership deed, which related to the very fact of formation of partnership were false, the income-tax authorities were justified in disbelieving the existence of partnership. In the result, the appeal filed by the assessee was dismissed.;