Gopal Rao Ekbote, J. -
(1.)THIS is a reference made to this court under Section 66(1) of the Indian Income-tax Act, 1922 (XI of 1922), hereinafter called the " Act ", and raises the following three questions :
" (1) Whether, in the facts and circumstances of the case, the assessee is entitled to renewal of registration for the assessment year 1961-62 ?
(2) Whether the Commissioner had jurisdiction under Section 33B of the Act to set aside the order granting registration in the facts and circumstances of the case ?
(3) Whether the assessee was afforded a reasonable opportunity by the Commissioner to present his defence ? "
(2.)THE facts out of which these questions arise may briefly be mentioned.
The assessee is a firm known as Messrs. Addepalli Nageswara Rao and Brothers, Palakole, which consists of three major partners and one minor ; Nageswara Rao and his two brothers, Kasiviswanadham and Mareswara Rao, are the major partners; and Kamaraju, son of Nageswara Rao, is a minor. The firm was constituted under an instrument of partnership dated December 4, 1959. It was registered under Section 26A of the Act for the year 1960-61. For the assessment year 1961-62, the assessee filed an application under Section 26A of the Act for renewal of registration. The Income-tax Officer having found that the firm is continuing in the same form and that the profits and losses were apportioned properly by his order dated September 12, 1961, granted the renewal of registration of the firm.
The firm registered itself with the Registrar of Firms by an application dated November 9, 1959. It was also registered under Section 12 of the Andhra Pradesh General Sales Tax Act with effect from September 7, 1959. The firm also opened a current account with the Indian Bank Ltd., Palakole, for the purpose of its business.
(3.)IT appears that, in the course of the proceedings for the assessment year 1962-63, the Income-tax Officer had some information which led him to believe that one of the partners, A. Mareswara Rao, was not in fact a partner. An inspector of income-tax seems to have visited the premises of the firm somewhere in December, 1962, and obtained a statement from Mareswara Rao. The statement indicated that Mareswara Rao was unable to explain the source of the capital which is claimed to have been contributed by him and in lieu of which he was given a six annas share in the firm. IT also states that the said partner had very vague ideas about the capital contributions and in regard to the shares of the other partners. Mareswara Rao was stated to be the managing partner of the firm which factor highlighted the suspicion which had arisen on account of this statement in the mind of the Income-tax Officer. Although, thereafter, in January, 1963, and May, 1963, Mareswara Rao made some attempts to explain and clarify the doubts, no final decision was taken on that matter and it was pending before the Income-tax Officer.
While the matter stood thus, the. Commissioner of Income-tax found, on a scrutiny of, the partnership deed, that one of the parties thereto, that is to say, Kamaraju Gupta, was a minor and that the partnership deed was signed on his behalf by his father, Nageswara Rao, who himself was one of the partners. The Commissioner was of the opinion that the minor had been sought to be made a partner in the firm which violated Section 30 of the Partnership Act. He, therefore, held the opinion that the partnership was invalid. The Commissioner, for this reason and also for the reasons that Mareswara Rao might not be a genuine partner, thought that the order of the Income-tax Officer dated September 12, 1961, be revised.