- (1.) THIS is an application filed by the CIT, Jaipur under S. 256(2) of the IT Act (hereinafter referred to as the 'Act') for directing the Tribunal to refer the following question to this Court for decision : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee firm was entitled to registration under the IT Act, 1961."
(2.) THE briefly stated facts giving rise to this application are as under : The assessee, M/s Rajesh Corporation, had applied for registration in Form No. 11. It was stated that there were three partners in the firm, which came into existence w.e.f. 1st Feb., 1979. The ITO, however, held that the partnership was not genuine and the two lady partners Smt. Bhanwar Devi and Smt. Vimla Patni are not genuine partners, but are benamidars of the male partners, Shri Sirehmal Chopra. He further held that the execution of the instrument of partnership was only a make belief document. He, therefore, refused the registration of the firm and the assessment has been made in the status of an unregistered firm. The ITO had found that Shri Sirehmal Chopra was doing the business of precious stones and at the time of constitution of the firm on 1st Feb., 1979 he brought in some precious stones valued at Rs. 40,990 as his capital in the firm. Shri Sirehmal Chopra was the son of Smt. Bhanwar Devi and brother of Smt. Vimla Patni, who joined as partners of the firm. The ITO found that the two lady partners had not brought in any capital except for a small amount of Rs. 1,000 brought in by Smt. Bhanwar Devi. He also held that Smt. Bhanwar Devi had no experience or skill in this business. She was examined by the ITO and from her statement he inferred that she did not known much about the business and about the profit received by her. She had admitted that Shri Sirehmal Chopra was carrying on her business and sometimes she was only signing the cheques. It was found by the ITO that the deposit made in the year relevant for the assessment year i.e., 1981 82 was only Rs. 5,800 and the partner was shown to have earned a profit of Rs. 16,091 as a result of the business of the firm. From the absence of withdrawals he inferred that the money was being fully used by Shri Sirehmal Chopra. As regards Smt. Vimla Patni also, the ITO opined that she had no experience of carrying on business and in her account also there was no withdrawal except for the payment of insurance and income tax. Thus, according to the ITO, no part of profit has gone to the ladies and it has also remained under the control of the male partner Shri Sirehmal Chopra. It was also noted by the ITO that the male partner had a share of 40% whereas the two ladies have been given a share of 35% and 25% respectively which was quite out of proportion considering that they had not made investment. From the facts stated above the ITO inferred that the partnership was an attempt to divert the income and was a result of collusion between the persons concerned, thus holding the two ladies to be benamidars of the male partners. The AAC upheld the order of the ITO. The assessee feeling aggrieved against the order of the AAC preferred an appeal before the Tribunal. The members of the Tribunal differed as there was a difference of opinion between the Judicial Member and the Accountant Member. The Judicial Member held that the registration could not be granted to the assessee firm whereas the Accountant Member held that the firm was genuine and the registration could not be refused. Since, there was a difference of opinion between the members, the reference was made to the President under S. 255(4) raising the following question : "Whether, on the facts and law of the case, the authorities below are justified in non granting of registration to the firm on the ground that the firm is non genuine and the partnership is a sham on account of the lady partners, the benamidar of male partner, Shri Sirehmal Chopra."
(3.) The Vice President agreed with the view taken by the learned Accountant Member to the effect that the material brought on record by the Revenue authorities is not sufficient to hold that the ladies are the benamidars of the male partners and the matter was sent back to the Bench for passing an order in accordance with the decision of the majority. Thereupon, the CIT filed an application under s. 256(1) of the Act for referring the question stated above, but the said application was rejected by the Tribunal. Thereupon, the petitioner has come to this Court in the instant application. We have heard Mr. G.S. Bapna, learned counsel for the CIT and Mr. J.K. Ranka, learned counsel for the assessee. The learned counsel for the Revenue contended that the Tribunal was not justified in rejecting the application under S. 256(1) and the question raised by the Department is a question of law which does arise out of the order passed by the Tribunal and as such the Tribunal may be directed to state the case and to refer the question mentioned in the application filed by the Revenue. In support of his contention he placed reliance on the judgment of Madhya Pradesh High Court : in Doshi Vastralaya vs. CIT (1988) 73 CTR (MP) 100 : (1989) 175 ITR 309 (MP). In the aforesaid case the profit had not been distributed between the two partners in view of the partnership deed, but the facts of the present case are entirely distinguishable from the aforesaid case and in our opinion it does not support the contention of the learned counsel for the Revenue. ;