RATTAN CLOTH HOUSE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) SARWAN Singh was carrying on cloth business under the name and style of Rattan Cloth House and he was assessed as an individual up to the assessment year 1957-58. On 4th of April, 1957, accordingly to him, he divided his entire capital amongest himself and his there sons, namely, Ranjit Singh Dalip Singh and Gurcharan Singh in equal shares. Thereafter, on 8th of April, 1957, a partnership deed was executed and the business was covered into a partnership business with effect from 5th of April, 1957. At the close of the financial year 1957-58, profits according from the business were credit to the individual accounts of partners in proportion to their respective shares. On September 12, 1957, an application for the registration of this firm under section 26A of the Indian Income-tax Officer. On 1st of April, 1958, Dalip Singh let the partnership, as he had gone to Bombay to join service with the result that the new partnership deed was drawn up by the remaining partners on 23rd of July, 1958. Registration of this changed firm also was claimed for the assessment year 1959-60 for which an application was filed on September 22, 1958. By means of two separate order dated November 14, 1959, the Income-tax Officer refused to register these firms. He was of the view that the division of the capital and the commencement of the partnership concern was all a made-up affair and it had been done to get the benefit of registration. In case SARWAN Singh had made up his mind to distribute the capital amongest himself and his sons, he should have done so by exacting a regular deed and the signatures of some withness should have been obtained thereon and not merely by a writing on one of the page of the bahi which belonged to him. According to the Income-tax officer, the sons of SARWAN Singh were joint with him and no actual division of the assets had taken place. When the matter came before the Appellate Assistant Commissioner, he, by means of a consolidated order dated July 26, 1960, allowed the appeals and directed that the firms be registered for both the assessment year. With regard to the assessment year 1958-59, he found that the firm was registered with the Registrar of Firms on October 17, 1957, and towards the end of the year, there was also a division of the profits amongst the partners. He did not agree with the Income-tax Officer that the division of assets by the father should have been effected by a regular deed. He also found that the individual expenses of all the partners had been debited to their personal accounts. As regards the assessment year 1959-60, he observed that the partnership was also registered with the Registrar of firms and Dalip Singh, the outgoing partners, had been paid his dues up to January 26, 1960. Against the order of the Appellate Assistant commissioner, the Income-tax Officer went in appeal before the Appellate Tribunal which set aside the decision of the Appellate Assistant Commissioner and restored that of the Income-tax Officer by means of its order to his sons, the so-called partner from the partnership and utilised the same for the repair and reconstruction of his own not genuine and, therefore, the book of accounts and held that the firm was not genuine and, therefore, the registration had been rightly disallowed by the Income-tax Officer. Thereafter, application under section 66 (1) were made before the Appellate Tribunal on March 31, 1962, respecting it to draw up a statement of the case and refer certain questions of law arising out of its order dated January 9, 1962, to this court of decision. The Tribunal dismissed these applications, vide its order dated August 21, 1962. Two applications under section 66 (2) of the Income-tax Act were then filed in this court for a mandamus directing the Tribunal to refer the said questions of law to this court. These application were accepted on July 13, 1965, by Bench of this court and they directed the appellate Tribunal to state the case and refer to the following question of law for the decision of this court :

(2.) WHETHER, on the facts and in the circumstances of the case, the partnership should been registered by the income-tax authorities under section 26A of the Income-tax Act ?

(3.) SO far as the first consideration is concerned, it would be seen that the tribunal had not side anywhere that the promissory notes were faked. All that not said to air they betrayed the assessees case. It is not made clear in what manner they did so. It is not early understandable as to what was in the mind of the Tribunal when they used this expression. If it was their feeling that these promissory notes were all made up in order to give to collate of guanines to the entire transaction, then they have given no reason whatever for drawing this. Similarly, under the third consideration, no definite finding has been given that the accounts books were false. What is mentioned is that their perusal showed that the firm was not genuine. Even if it be assumed that the Tribunal was of the view that tall the accounts were fabricated, no reason have been given by them for coming to this conclusion. It is not said which particular entry or entries were not believed by them and which, according, to them showed that the whole thing was not genuine In my opinion, it was not enough for the Tribunal simply to say that after going through the accounts they came to the conclusion that they were all false or for that matter that the firm was not genuine. It is necessary for a judicial tribunal or even for a quasi-judicial tribunal to give reasons for their decision, especially when they re setting aside the orders of their subordinate tribunal. Even when the subordinate tribunals order is confirmed, the Appellate Tribunals order must shown that they have greed with the reason given by that Tribunal. It was observed by the Supreme Court in Commissioner of Income-tax v. Jadavji Narsidas and Co. :