GOVERDHANDAS RADHEY LAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, Messrs. Goverdhandas Radhey Lal, is a partnership firm consisting of two partners, Babu Ram and Lallu Mal, holding shares in the proportion of 12 annas and 4 annas respectively. THE assessee carried on wholesale and retail cloth business at three different places, under the name of Goverdhandas Radhey Lal at Colonelganj, Ram Lakhan Rewati Raman at Baharaich and Babu Ram Goverdhandas at Bharwari. For the chargeable accounting periods ending July 6, 1940, June 25, 1941, and July 14, 1942, the income from all these three businesses was assessed in the hands of the assessee under the Excess Profit Tax Act. In passing, it might be mentioned that in the course of the assessment proceedings for the chargeable accounting period ending June 25, 1941, the assessee claimed that the business carried on under the name of Ram Lakhan Rewati Raman at Bahraich did not belong to the assessee but was owned by a separate firm consisting of Babu Ram, Lallu Mal and one Raghubir Prasad. Upon investigation, the Excess Profits Tax Officer found that Raghubir Prasad was in fact not a partner of the firm and that the business belonged solely to the assessee. Accordingly, he made an order under section 10 of the Act and included the profits of the business in the assessment of the assessees. An order imposing penalty was also made under section 10(2).

(2.) THE assessee appealed against these orders under section 10A to the Income-tax Appellate Tribunal, contending that the main purpose of admitting Srichand as a partner was not the avoidance or reduction of the excess profits tax liability. This contention was rejected by the Tribunal which took into regard the enormous advantage derived by the assessee by the reduction of the excess profits tax liability upon payment of a small part of the profits of the Bharwari business to Srichand, and found that it was not as a result of the introduction of Srichand in the business that the volume of turnover had been greatly increased. From a comparison of the figures in respect of all the three businesses it was clear that each one of them had enjoyed an appreciable increase in the volume of business and this was due to prevailing market conditions. THE Tribunal observed that the two partners of the assessee were aware of the flourishing conditions of the cloth business during this period, and held that it was not necessary to introduce Srichand as partner in the Bharwari business in order to enjoy larger profits. It also had regard to the earlier attempt on the part of the assessee to exclude the profits of the Bahraich business from its assessment. From all these circumstances it came to the conclusion that the main purpose for introducing Srichand as a partner was the avoidance or reduction of the excess profits tax liability. It, therefore, dismissed the appeals.

(3.) THE first and second question referred by the Income-tax Appellate Tribunal must, therefore, be answered in the affirmative.