HARDWARMAL ONKARMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter called "the Act"), made by the Income-tax Appellate Tribunal, Patna Bench, on the following question of law:

(2.) THE assessee is a registered firm consisting of eight partners. At the time of inspection of the books of account, the Income-tax Officer noticed various cash credits in the names of the partners, the aggregate of which was Rs. 45,900. Each of the seven partners had one-ninth share in the partnership and the eighth one had two-ninths share. THE cash credit found deposited was Rs. 5,100 in the name of each of the partners who had one-ninth share each and a sum of Rs. 10,200 was found credited in the name of the partner who had two-ninths share. In other words, the deposits were exactly in proportion to the shares of the partners in the business. THE stand of the assessee before the Income-tax Officer was that the deposits were out of the income of the partners and should be assessed in their hands; they were not the income of the registered firm.

(3.) BEFORE the Income-tax Officer it was asserted that the sum of Rs. 45,900 has been brought by the eight partners from sources which could not be explained but the money had been deposited in the firm. The Income-tax Officer rejected this explanation and chiefly on two grounds--(i) that in the assessment year 1960-61 the assessee-firm was found to be maintaining double set of account books and two big sums to the tune of Rs. 1,06,000 were added to the assessee's income, and this, in the opinion of the Income-tax Officer, proved that the profits of the business outside the books had been divided amongst the partners, and (ii) that the very fact that the amounts have been deposited in proportion to the shares of the partners in the business goes to prove that it was the secreted income of the firm, which was, by this method, divided amongst the partners.