COMMISSIONER OF INCOME TAX Vs. SWASHRAYA

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, in accordance with the directions of this Court issued under Section 256(2) of the Income Tax Act, 1961, has made these References to this Court to answer the following common question; "Whether, on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal was right in law in holding that the partnership consisting of the trustees deriving authority under the different trust deeds was genuine and valid, and whether such partnership was entitled to registration under Section 185 of the Income Tax Act, 1961 for the assessment year 1975-76, and continuation thereof for the subsequent assessment years."

(2.) The facts for proper appreciation of the References, in the nutshell, are that under a partnership deed dated 26.6.1973 as many as 7 persons created a partnership, with various objects like entering into business of money-lending, trading etc. The Partnership Deed provided that each one of the said persons was representative of a Trust which was created by a Trust Deed duly made in accordance with law. The assessee firm applied for registration for the assessment year 1975-76, the application was granted for the said year but while considering the application for renewal of registration for assessment year 1976-77, the Income Tax Officer held that there was no legal and valid partnership subsisting between the partners since the Trust Deed did not authorise the concerned trustees to join as partners or to join in any business. He observed that there was clear violation of Section 47 of the Trust Act, accordingly he refused registration for the assessment year 1976-77 and cancelled the registration earlier granted for the assessment year 1975-76.

(3.) The Commissioner of Income Tax (Appeals), for the reasons stated in his order, set aside the order of the Income Tax Officer and held that the assessee was entitled to registration. The matter came up before the Tribunal. The Accountant Member held that the assessee was entitled to registration, but the Judicial Member, on the other side, held that in view of the clear legal position the assessee was not entitled to any registration and the order passed by the Income Tax Officer was upheld. As there was a dispute amongst the Members in relation to registrability of the assessee, the matter was referred to the learned Vice President, who, by his separate order, agreed with the reasonings and findings recorded by the Accountant Member. The learned Vice President, while agreeing with the Accountant Member, observed that the trustees would not be held to have no authority and they were rightly joining a partnership and in any case if they were committing any breach of the terms of the Trust Deed, then they were answerable to the beneficiaries but in any case the partnership was valid and was entitled to registration. The Revenue made an application for Reference but the Tribunal declined to make the Reference and therefore the Revenue came to this Court under Section 256(2) and on the basis of order of this Court the Tribunal has now made these References. Notices were issued to the respondents but despite service of the notices none appears for the respondents.