SUHAS CHANDRA SEN, J. - (1.) AS no one was appearing on behalf of the assessee in this case, at our request Mr. R. N. Dutt appeared as amicus curiae. We are grateful for the assistance rendered by Mr. Dutt to the court in this case.
(2.) THIS reference application arises out of a consolidated order of the Tribunal disposing of the two appeals filed on behalf of the assessee -firm, N. Ch. R. Row & Co., against the order passed by the AAC in the appeal filed by the said firm against the assessment for the asst. year 1963 -64. One appeal (ITA. No. 2092 (Cal.) of 1969 -70) was filed by one partner, Sri P. Jagannathan, and the other appeal (ITA. No. 7205 (Cal.) of 1969 -70), was filed by Sri P. Bhaskara Rao claiming to be partner of the said firm. It is necessary to mention here how two different appeals came to be filed on behalf of the assessee -firm against the same order of the AAC. The assessee -firm was registered under the IT Act and was carrying on business at Calcutta. The partners of the firm, according to the partnership deed, were N. Ch. R. Rao and P. Jagannathan. The return of the income of the firm for the asst. year 1963 -64 was filed on 18th Dec., 1963, by N. Ch. R. Rao as a partner. In the return N. Ch. R. Rao and P. Jagannathan were shown as the two partners of the assessee -firm. The application for registration was also signed by these two persons. The assessment for the asst. year 1963 -64 was completed by the ITO on a total income of Rs. 1,03,106. By an order dt. 22nd Feb., 1968, under s.. 158 of the IT Act, the ITO allocated the assessed income in equal shares between the two partners, N. Ch.R. Rao and P. Jagannathan. The total income on which the assessee -firm was assessed to tax was inclusive of Rs. 50,000 added as income from undisclosed source on the basis of peak credit and Rs. 26,829 being the interest on the hundi loans, deduction on which was claimed by the assessee -firm but disallowed by the ITO. It was on the basis of a disclosure petition filed by the partners of the assessee -firm before the CIT, West Bengal, on 15th Nov., 1965, that the aforementioned sum of Rs. 50,000 was treated by the ITO as assessee's income from undisclosed source and added in the assessment under the head "Other sources". The additions in respect of hundi loans and interest made by the ITO in the assessment order was challenged in appeal filed by the assessee. The AAC, however, sustained the addition made by the ITO.
(3.) BEING aggrieved by the order of the AAC, P. Jagannathan as partner of the assessee -firm, filed an appeal before the Tribunal (ITA. No. 2092 (Cal) of 1969 -70). During the pendency of the appeal both the partners, N. Ch. R. Rao and P. jagannathan, died. Their legal representatives did not respond to the notices issued to them and P. Bhaskara Rao claiming to be a partner of the assessee -firm, filed an application seeking to intervene in the appeal (ITA. No. 2092 (Cal) of 1969 - 70), filed by P. Jagannathan on behalf of the assessee -firm. He also filed a separate appeal (ITA. No. 7205 (Cal)/1969 -70) as a partner of the assessee -firm against the order of the AAC. The reasons given by Sri Bhaskara Rao in support of his prayer to be brought on record as a party to the proceeding were that P. Bhaskara Rao was the real partner and N. Ch. R. Rao was merely a benamidar of P. Bhaskara Rao. It was argued that the business in Calcutta, was being conducted by Sri P. Jagannathan and Sri N. Ch. R. Rao under the name and style of N. Ch. Row & Co. In the year 1955, those two persons approached Sri Bhaskara Rao for finance and for bank guarantee. Accordingly, Sri P. Bhaskara Rao stood guarantee to the banks and also contributed a capital of Rs. 45,000 from out of the amount realised by him by the sale of the closing stocks of his business in Vizianagaram. Sri Bhaskara Rao was given a share of 85 per cent in the firm in consideration of the capital contributed by him and in consideration of his standing guarantee to the banks. It was, however, understood among the partners that the name of P. Bhaskara Rao should not appear on record as a partner. In the partnership deed Sri N. Ch. R. Rao and Sri P. Jagannathan only were shown as the partners, each having 50 per cent share. But Sri N. Ch. R. Rao was merely the benamidar of Sri P. Bhaskara Rao and the entire 50 per cent share of N. Ch. R. Rao belonged to P. Bhaskara Rao. Out of the remaining 50 per cent share only 15 per cent belonged to P. Jagannathan and the remaining 35 per cent belonged to P. Bhaskara Rao. The former was also a benamidar of P. Bhaskara Rao to the extent of 35 per cent. Later, there was a change in the profit sharing ratio. Between 1st April, 1961, and 31st March, 1963, the share of P. Bhaskara Rao was 75 per cent and between 1st April, 1964, and 31st March, 1965, he held 9/16ths share in the above firm. P. Bhaskara Rao had no share in the assessee's firm w.e.f. 1st April, 1965. The amount due to him as on 31st March, 1965, from the firm was worked out at Rs. 2,40,000. This amount due to Bhaskara Rao was arrived at without treating the hundi loans recorded in the accounts as profits of the firm. All these facts were set out in the agreement executed by N. Ch. R. Rao, Sri P. Jagannathan and Sri P. Bhaskara Rao jointly on 29th May, 1965. P. Jagannathan and N. Ch. R. Rao thereafter filed a disclosure petition under s.. 271(4A) before the Commissioner, West Bengal on 19th Nov., 1965, admitting that certain hundi credits appearing in the firm's accounts represented the firm's undisclosed income and offering to be assessed on peak credit basis with some spread over during the asst. yrs. 1961 -62 to 1964 -65. This petition was filed by those two persons behind the back of P. Bhaskara Rao. The disclosure petition was not bona fide. Sri N. Ch. R. Rao and Sri P. Jagannathan filed the disclosure petition owing to the strained relations between themselves and Sri P. Bhaskara Rao. P. Bhaskara Rao himself filed a disclosure petition on 19th Jan., 1966, before the CIT, Hyderabad, disclosing his beneficial interest in the assessee -firm. He was directed by the CIT, Hyderabad, to file the necessary returns before the ITO, Vizianagaram. While allocating the assessed income of the firm for the asst. year 1963 -64 between N. Ch. R. Rao and P. Jagannathan half and half, the ITO," H" Ward, Hundi Circle, Calcutta, forwarded a copy of his allocation order under s.. 158 to the ITO, Vizianagaram. Accordingly, in the individual assessment of P. Bhaskara Rao for the asst. year 1963 -64, the ITO, Vizianagaram, included Rs. 1,28,043 being 75 per cent of the total income on which the assessee -firm was assessed to tax by the ITO at Calcutta for the same assessment year. The IT Dept. thus recognised P. Bhaskara Rao as a partner of the assessee -firm having a share of 75 per cent in the profits of that firm.;