HEMANDASS DHANRAJMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two applications filed under Section 256(2) of the I.T. Act, 1961, at the instance of the assessee, raise identical questions and can, therefore, be disposed of by one order.

(2.) D.B. Civil Income-tax Case No. 69 of 1976, M/s. Hemandass Dhanrajmal (Khari Feeder Project, Jaipur), claimed the status of a registered firm for the assessment year 1966-67. The following persons were declared to be its partners :

(3.) THE first three partners were the partners of the main firm, M/s. Hemandass Dhanrajmal. THE main firm obtained a contract from the irrigation department to execute the works known as Jawahar Sagar Project. THE three partners, namely, Hemandass, Hukmatrai and Daulatram took two new partners, Lekhraj and Kalidass. THEy were given only supervisory work over the labour employed by M/s. Hemandass Dhanrajmal on the works to be performed on Jawahar Sagar Project. Admittedly, no capital was to be invested by either Lekhraj or Kalidass. Each of them was given 25% share in the profit and loss to be incurred by the firm in execution of the work of the project. THE newly introduced partners were made responsible for maintaining the accounts, make payment of the amount received from partners Nos. 1, 2 or 3 to the labour. THEy were also not authorised to prepare the bills and receive the payments. THE assessee-firm was registered with the Registrar of Firms, Rajasthan, Jaipur, as No. 904/67 on June 26, 1967. THE assessee-firm then applied for registration of the firm under Section 185 of the Income-tax Act, 1961. THE ITO doubted the genuineness of the partnership firm. He recorded the statements of Lekhraj and Kalidass (two newly introduced partners) on July 26, 1971. Hemandass was also examined on the same date. THE ITO came to the conclusion that neither Lekhraj nor Kalidass had any earlier experience of technical nature or of administrative nature in irrigation contract work. THEy were simply performing the functions of a mistry. No capital was invested by them. THEy could not even read the partnership deed. THEy did not know whether M/s. Hemandass Dhanrajmal maintained any accounts or not. THEy had no knowledge about the account books and from their statements it appears that no account books were maintained by them. He further held that no separate bank account for the concern, M/s. Hemandass Dhanrajmal (Jawahar Sagar Project) was kept. THE irrigation department had given the contract to M/s. Hemandass Dhanrajmal and there was no sanction obtained by the so-called newly constituted firm for getting the contract transferred in its name. On the basis of the above findings and other facts, noted by him in the assessment order, learned ITO, Special Ward II, Jaipur, rejected the application for registration, filed by M/s. Hemandass Dhanrajmal (Jawahar Sagar Project).