K.C. Agrawal, C.J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961, arising out of the order of the Tribunal dated April 10, 1986 : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified legally in upholding the decision of the Appellate Assistant Commissioner who directed to treat the firm as a registered firm, even though he was not satisfied about the genuineness of the firm and a partner was held to be benami of the other?"
(2.) BRIEF facts of the case are that an application for registration of the firm was submitted to the Income-tax Officer and he has refused registration on the ground that Smt. Shanti Devi, one of the partners of the firm, was benamidar of her son, Shri Chandra Shekhar. An appeal was preferred to the Appellate Assistant Commissioner who agreed with the finding of the Income-tax Officer that the assessee has failed to prove the genuineness of the firm, but allowed the claim of registration on the ground that the assessment of Smt. Shanti Devi has been completed by the Income-tax Officer on October 20, 1984, and her share from the firm has been taxed. The order of the Appellate Assistant Commissioner was confirmed by the Income-tax Appellate Tribunal. This court in Narnauli Jewel Corporation v. CIT [19871 163 ITR 293, has held that once a partner of a firm has been assessed individually, the firm's income cannot be assessed treating the firm as an association of persons. The Income-tax Appellate Tribunal on the basis of this judgment came to the conclusion that once the share of the firm in the hands of the partner has been assessed before making the assessment of the firm, then the firm has to be treated as a registered one. In these circumstances, the Income-tax Appellate Tribunal came to the conclusion that the firm has to be treated as a registered one. In the aforesaid case, there were three partners and one of them retired. The statements of the retired partners were recorded from which an adverse inference was drawn. The firm was registered xvith the Registrar of Firms and the registration was granted under Section 185 for the subsequent years. The refusal of registration for 1968-69 was held not justified in these circumstances. In the present matter, the finding which has been recorded by the Income-tax Appellate Tribunal was that Smt. Shanti Devi, whose statements were recorded, had stated that she does not look after the business and is not an educated lady and can simply sign or write her name and with regard to the investment, contrary to the fact, it was stated by her that money was kept by her till it was deposited in the firm. The Tribunal came to the conclusion that the capital account shown in her name is unexplained and it does not belong to her. This actually belongs to Shri Chandra Shekhar, son of the lady, in whose books these amounts were credited. Smt. Shanti Devi was held to be the benamidar of Chandra Shekhar. An Explanation was added to Sub-section (1) of Section 185 by the Taxation Laws (Amendment) Act, 1975, which was as under : "For the purposes of this section and Section 186, a firm shall not be regarded as a genuine firm if any partner of the firm was, in relation to the whole or any part of his share in the income or property of the firm, at any time during the previous year, a benamidar- (a) of any other partner to whom the first-mentioned partner does not stand in the relationship of a spouse or minor child, or (b) of any person, not being a partner of the firm, and any of the other partners knew or had reason to believe that the first-mentioned partner was such benamidar and such knowledge or belief had not been communicated by such other partner to the Assessing Officer in the prescribed manner." From a reading of the above Explanation, it is evident that, in a case where the alleged partner was not a spouse or a minor child and was a benamidar, then the firm cannot be regarded as a genuine firm. The registration to a firm can be granted by the Income-tax Officer only when the firm is a genuine firm. This mandatory provision has been lost sight of by the Income-tax Appellate Tribunal. From the finding, which has been recorded by the Income-tax Appellate Tribunal, it would be evident that a partnership was tried to be shown in form but not in reality and the lady partner was only a dummy of her son. She had not taken any part in the management nor was she aware even about her capital account in the books of the firm and thus the finding which was given that she was benamidar of her son, was perfectly justified in the facts and circumstances of the case. If the partnership has been entered into between two persons of whom one is a benamidar of the other, then the net result would be that there is no relation of partnership between at least two persons since the benamidar is on account of the other real owner, namely, the son and he being the only person, the firm cannot be registered as a partnership firm. In these circumstances, we are of the view that the Income-tax Appellate Tribunal was not justified in granting registration when the genuineness of the firm was not established and one of the partners was held to be the benamidar of the other and there remained only one person who cannot constitute a firm.
(3.) ACCORDINGLY, the reference is answered in favour of the Revenue and against the assessee. No order as to costs.;