COMMISSIONER OF INCOME TAX Vs. RAMAKRISHNA NURSING HOME

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, has stated a case and referred the following question of law to this court under Section 256(1) of the Income-tax Act, 1961, for its opinion :

(2.) ONE Dr. Sudhakar Rao, an eminent doctor of Coimbatore and his two sons, Jayakar Rao and Pradeep Rao, entered into a partnership by deed dated 1st April, 1961, and started running a nursing home under the name and style of "Sree Ramakrishna Nursing Home". Dr. Sudhakar Rao was the senior partner and his two sons, at the time when the partnership was entered into, were studying in the medical colleges, one at Udipi and the other at Pondicherry. The partnership deed constituted Dr. Sudhakar Rao as the senior partner as well as the managing partner. The deed stated that the object of the nursing home was mainly to do surgical work under the guidance of Dr. Sudhakar Rao who would also be the surgeon-in-chief of the nursing home. The deed also provided that he shall conduct all operations in the nursing home as he may choose, to have such paid assistants as and when required and the remuneration to be paid to them shall be fixed by him of his own discretion from time to time. The deed referred to the bed strength of the nursing home and also provided that 1/3rd of them shall be free of all charges and it shall be for the use of poor patients. The senior partner, namely. Dr. Sudhakar Rao, was to receive a monthly remuneration of Rs. 500. The net profits or losses of the nursing home as per the balance-sheet were to be shared by the three partners in the ratio of 4 : 3 : 3. The firm applied for registration with the Income-tax Officer for the years 1962-63, 1963-64 and 1964-65. The Income-tax Officer granted registration for the year 1962-63 and he renewed the registration of the firm for the year 1963-64. However, for the year 1964-65, when the assessee filed a declaration as required under the provisions of Section 184(7) of the Act of 1961, the Income-tax Officer took the view that there was no genuine firm in existence and that the partnership contravened certain ethical code of medical profession. According to him, a qualified medical practitioner could not, under the medical code of ethics, enter into partnership with unqualified persons. In view of this, he cancelled the registration granted by the Income-tax Officer for the preceding two years, namely, 1962-63 and 1963-64, and refused registration for the year 1964-65. The appeal preferred by the assessee to the Appellate Assistant Commissioner proved unsuccessful. However, further appeal preferred by the assessee with the Income-tax Appellate Tribunal proved successful. The Tribunal held that it was not as if Dr. Sudhakar Rao asked unqualified persons to perform any operation or to attend to patients or to treat them and only Dr. Sudhakar Rao could attend and did attend to patients for rendering professional services and other eminent doctors were also, at request, rendering professional services and even dressing and other allied works were carried on only under the immediate supervision of Ur. Sudhakar Rao. In view of this finding of the Tribunal, the Tribunal took the view that there was nothing unethical or opposed to medical code in the constitution or functioning of the partnership and, therefore, the Income-tax Officer as well as the Appellate Assistant Commissioner erred in cancelling the registration granted for the earlier two years and refusing to grant the registration for the current year. It must be mentioned that even though the Income-tax Officer and the Appellate Assistant Commissioner took the view that the partnership itself was not genuine, before the Tribunal it was conceded by the learned counsel appearing for the department that he would not be able to sustain the objection that the firm was not genuine. Consequently, the Tribunal had to consider only one question, namely, whether there was anything illegal about the partnership so as to disentitle the same to get a registration under the Act. In view of the conclusion it came to, it set aside the orders of the Income-tax Officer as well as the Appellate Assistant Commissioner and directed the restoration of the registration for the previous two years and registration for the current year. It is, therefore, at the instance of the department, the Tribunal has referred to this court the question which we mentioned earlier.

(3.) ONCE the medical council itself which was a professional body has taken this view and given the opinion, it is rather strange that the department should indirectly question that opinion by raising this question, namely, that the partnership was opposed to public policy.