LAWS(ORI)-1970-3-4

SIMHADRI NARASINGH PRUSTY Vs. COMMISSIONER OF INCOME TAX

Decided On March 05, 1970
SIMHADRI NARASINGH PRUSTY Appellant
V/S
COMMISSIONER OF INCOME-TAX Respondents

JUDGEMENT

(1.) THE question referred to this court by the Income-tax Appellate Tribunal, under Section 256(1) of the Income-tax Act, 1961, runs thus:

(2.) IN the reference order, the Tribunal has clearly stated the facts out of which the reference arises. Those facts may be stated, in order to appreciate the point in issue. Simhadri Narasingh Prusty and Chinnam Judhistir Patro constituted a partnership business. They carried on business from 1948-49 onwards. It had been granted registration under the INdian INcome-tax Act, 1922, up to and including the assessment year 1959-60 Judhistir Patro was a partner in this firm representing a Hindu undivided family consisting of himself and his sons. On January 6, 1959, there was a partition in the family and the share of Judhistir Patro in the firm was allotted to his minor son, Budhibaman Patro. The partition was effected by a registered deed and was given effect to under Section 25A of the INdian INcome-tax Act, 1922. From January 6, 1959, Budhibaman Patro was shown as a partner in the books of the firm and the capital standing to the credit of his father was credited in his name. Subsequently, it was realised that the partnership with the minor was contrary to law and as such Judhistir desired to constitute a fresh partnership with Simhadri Narasingh Prusty. Accordingly, a fresh partnership deed was executed and registered on October 1, 1959. IN the partnership there was a recital that the second party's (Chinnam Judhistir Patro's) accounts, as they stood in the books on September 30, 1959, were brought in as capital into the firm. The assets and liabilities of the firm consisting of the minor partner and the first partner (Simhadri Narasingh Prusty) were taken over by this firm. No reference was made to the impugned promissory note dated September 30, 1959, in the partnership deed. After the new partnership came into existence an application was filed before the INcome-tax Officer under Section 26A for registration of the firm for the period October 1, 1959, to March 31, 1960. A part of the previous accounting year was excluded, as during that period the minor was the partner of the firm. The INcome-tax Officer made an enquiry into the matter and asked the petitioner for proof of transfer of assets of the minor in his favour. IN his cross examination, the petitioner admitted that the impugned promissory note was executed not on September 30, 1959 --the date which it purports to bear--but on a subsequent date after he was called upon to establish that he had paid the capital of the partnership to the tune of Rs. 5,000. The INcome-tax Officer having come to the conclusion that the promissory note was ante-dated and was not in existence on September 30, 1959, held that the entire arrangement creating a new partnership was a subterfuge for evasion of tax. The petitioner carried the matter in appeal before the Appellate Assistant Commissioner of INcome-tax who confirmed the finding of the INcome-tax Officer. The matter then came up before the INcome-tax Appellate Tribunal at the instance of the petitioner.