CHHAGANLAL GULAB CHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference under s. 256(1) of the IT Act, 1961, is at the instance of the assessee for answering the following questions of law :

(2.) THE relevant assessment year is 1972-73. Ratanlal and Gulabchand were brothers who had separated in 1959. Vimal Kumar is the son of Ratanlal. Initially, there existed a joint family business comprising of the two brothers, Ratanlal and Gulabchand. On April 3, 1971, a fresh partnership deed was executed showing Ratanlal, his son, Vimal Kumar, and Gulabchand as partners. THEre was no partition between Ratanlal and his son, Vimal Kumar, and they continued to comprise a smaller HUF of which Ratanlal as father was the Karta. THEre was no investment of capital by Vimal Kumar in this partnership. THE assessee-firm comprising of Ratanlal, Gulabchand and Vimal Kumar, as partners, applied to the ITO for registration of the firm. THE ITO rejected the application on the ground that Vimal Kumar, being a member of the HUF of which Ratanlal as the father was the Karta, could not be a partner of the firm more so when there was no investment of any capital by him. Registration was accordingly refused by the ITO. THE assessee's appeal to the AAC, however, succeeded inasmuch as the AAC held that a valid partnership could be constituted by these three partners. THE Revenue's appeal to the Tribunal has thereafter been allowed. THE Tribunal has taken the same view as the ITO in favour of the Revenue that no valid partnership could be constituted in these circumstances. This has led to the reference for decision of the above questions of law arising out of the Tribunal's order.