P BANERJEE Vs. COMMR OF INCOME TAX

JUDGEMENT

(1.) In this case the assessment year is 1951-52 and the relevant accounting year is the financial year 1950-51. Dr. P. Banerjee had been carrying the business of manufacture and sale of certain patent medicines, and for the previous years he had been assessed to income-tax in the status of an individual. For the assessment year 1951-52 a notice was served by the Income-tax authorities under Section 22(2) upon Dr. Banerjee. Thereafter a return was filed by his eldest son Parimal Banerjee as a partner of the firm 'P, Banerjee' and an application was also filed for registration of the firm. The case of the assessee was that there was a partnership constituted of Mrs. Ava Banerjee, the wife of Dr. Banerjee, and his four sons, namely Parimal Banerjee, Prasanta Banerjee, Partha Banerjee and Pranab Banerjee. It was alleged that at the end of March, 1950, Dr. Banerjee had made a gift of the business and the good-will to the partnership, and from 1-4-1950, these five partners carried on the business as a partnership firm. It was also stated that on 6-11-1950, a formal partnership deed was executed between the five partners. The Income-tax Officer rejected the application for registration of the firm on the ground that it was a sham and illusory transaction. An appeal against the order of the Income-tax Officer was taken by the assessee, but the appeal was rejected by the Appellate Assistant Commissioner. The matter was then taken on appeal to the Tribunal by the assessee. The Tribunal dismissed the appeal, holding, in the first place, that as a matter of law there could be no valid partnership existent on 1-4-1950, because on that date only Mrs. Ava Banerjee was an adult and all the four sons of Dr. Banerjee were minors. The Tribunal took the view that unless there was a valid partnership between two adult members, the minors could not be admitted to the benefits of the partnership, and, therefore, the partnership which was said to have come into existence on 1-4-1950, was not valid in the eye of law and could not be registered. In the second place, the Tribunal examined materials produced by the parties and held that the gift of the business and goodwill made by Dr. Banerjee in favour of the alleged partners was not genuine and that no gift either of the business or the assets was made by Dr. Banerjee to the alleged firm. The Appellate Tribunal hence took the view that the deed of partnership was a sham transaction and there was no partnership in existence as alleged by. the assessee. In view of these findings the Tribunal held that no registration could be granted under Section 26A of the Income-tax Act and, therefore, dismissed the appeal.

(2.) Under Section 66(2) of the Income-tax Act the Appellate Tribunal has stated a case and referred it to the High Court upon the following question of law :

(3.) In my opinion, therefore, the reasoning of the Appellate Tribunal on this point is highly relevant. In the next place the Tribunal took into account the circumstance that the profit and loss account filed by the assessee started with the opening stock of Rs. 2,638/8/-. It is pointed out by the Tribunal that if the deed of gift was true and the opening stock was received by the firm from Dr. Banerjee, an entry should have been made to that effect in the account books. The Tribunal observed that there was no such entry in the account books and so there was good reason to doubt the validity of the gift made by Dr. Banerjee on the alleged date and also the existence of the alleged partnership. In my opinion, this is also very relevant reasoning and has a cogent bearing on the decision of the question whether the partnership alleged by the assessee was real or a bogus transaction. Thirdly, the Appellate Tribunal took into account the circumstance that Dr. Banerjee did not give a notice of discontinuance of his business under Sections 25(1) and 25(2) of the Income-tax Act. Section 25(1) states :