COMMISSIONER OF INCOME TAX Vs. MISHRA R L

JUDGEMENT

(1.) R .L. Mishra, the assessee, had secured from the Municipal Corporation at Nagpur, a contract for construction of a stadium known as Yeshwant Stadium after his tender for the work of construction of the stadium was accepted by the Corporation. The contract is dt. 7th Jan., 1969. On 15th April, 1969, a partnership firm consisting of three partners came to be formed, one of whom was the assessee. This document of partnership refers to an earlier partnership firm which came into being by a deed of partnership which was executed on 26th Oct., 1968, for carrying on the business of construction of Yeshwant Stadium under the name and style of M.S.M. Construction Company. The new partnership firm came to be formed because two partners of the earlier partnership firm had retired w.e.f. 14th April, 1969. The work of carrying out the construction work was to be done by the new partnership firm and the new partnership deed expressly recites that Shri Ram Lakhan Mishra, the party of the first part agrees that the work of Yeshwant Stadium allotted to him by the Nagpur Corporation shall be executed by the partnership firm formed hereunder". Clause 8 of the partnership deed provides that Shri R.L. Mishra, who alone was entitled to receive the payments of the bills from the Corporation authorities, agrees to collect the bills for and on behalf of the firm and payments received by him shall always be treated as the funds of the firm. It appears that there was another deed of partnership dt. 26th Nov., 1969, one of the terms of which was that the firm known as M/s R.L. Mishra, Engineers & Contractors, were to carry on the business of constructing buildings, bridges, roads and all other allied civil constructions. R.L. Mishra tried to have the contract with the Corporation which was held by him transferred in the name of the partnership firm but failed because the Corporation expressed its inability to do this retrospectively w.e.f. 1st April, 1969, and asked Mishra to make a separate application if he desired that the partnership firm should be registered in the records of the Corporation. The partnership firm constituted by the partnership deed dt. 26th Nov., 1969, was registered by the ITO under S. 185 of the IT Act, 1961, as the genuineness of the firm was not doubted.

(2.) FOR the asst. year 1970 71, the assessee filed a return showing a total income of Rs. 17,740 which included the share income of the partnership firm, M/s R.L. Mishra, Engineers and Contractors. The ITO, however, called upon the assessee to show cause why the income from the contract work of Yeshwant Stadium should not be treated as the income of the individual and not that of the partnership firm. According to the assessee, only his share of income in the income of the partnership firm could be included in his assessment, which stand was, however, rejected by the ITO who determined the entire income from the contract work as assessable in the hands of the assessee. He followed the same pattern for the asst. year 1971 72. The contention of the assessee was, however, accepted by the AAC while allotting the appeal filed by the assessee.

(3.) SHRI Joshi appearing on behalf of the Revenue has drawn our attention to the correspondence between the. assessee and the Corporation and contended that since the Corporation has refused to recognise the partnership as the contractor which was entrusted with the work of constructing the stadium, and inasmuch as so far as the Corporation was concerned, the assessee alone was recognised as the contractor, whatever monies were paid by the Corporation in pursuance of the contract must be treated as the income of the assessee alone. In other words, the criteria, according to the learned counsel, was the fact that the money was paid by the Corporation to the assessee and, therefore, the entire amount paid in pursuance of the contract of construction was the income of the assessee. Now, it is no doubt true that so far as the Corporation was concerned, it declined to substitute in its records the name of the partnership firm constituted by the assessee and the other partners in place of the name of the assessee himself w.e.f. 1st April, 1969. As we have already pointed out, the agreement between the Corporation and the assessee took place on 7th Jan., 1969, and the request of the assessee to substitute the name of the partnership in place of his name, if granted, would have meant that the Corporation had granted the original contract to the partnership itself which was not a fact as the contract was given to the assessee individually. It is, however, difficult for us to see how this fact is conclusive of the question as to whether the income derived from the work of construction which was carried on not by the assessee alone hut in partnership with other persons, was not the income of the partnership firm. The partnership itself has been found to be genuine by the Department. There is no illegality involved in the asset in the form of the construction contract being made the asset of the partnership firm and the work of construction being carried out by the partnership as such. If none of the partnership documents is vitiated by any illegality, then the agreement of partnership as between the assessee and the other members of the partnership firm will have to be given effect to. It is significant that the Tribunal has found as a fact that the work of construction was done by the partnership firm. Therefore, the mere fact that it was the assessee alone who dealt with the Corporation and as such received the payment in respect of the construction work in pursuance of the contract of construction did not in any way vitiate or adversely affect the arrangement brought about between the partners that whatever profits were made from the work of construction were to be shared by them as partners of the partnership firm in the proportion set out in the deed of partnership. If the partnership was legal and valid, the monies received by the assessee from the Corporation would be received for and on behalf of the firm in so far as the partnership firm is concerned, though, as far as the Corporation is concerned, the Corporation paid the monies to the assessee in his individual capacity. Once the amount received from the Corporation is at the very threshold of the property of the partnership firm, it is difficult for us to see how the arrangement brought about by the partnership firm can be overlooked so as to enable the ITO to treat the entire receipt or the amount of profits as the income of the assessee individually.