Case: Umadevi Bhuwalka Vs. Commissioner of Income Tax, West Bengal

the appellants believed that his right, title and interest under the partnership created by the document of 1939, passed to Radha Raman Shaw (representing the heirs and successors of Uma Charan Shaw). It is stated in the recitals that from that day the business of the partnership styled as Uma Charan Shaw & Bros. was carried on with Radha Raman as one of the partners7. The deed then goes on to recite that "the capital of the co-partnership shall be the amount as will be found to the credit of the parties thereof". The deed allowed the parties to draw from time to time reasonable amounts for their respective personal expenditure to be adjusted at the time of the determination of profit and loss of the year. These profits and losses were to be distributed equally between the partners. It was further provided as follows" That for properly carrying on with this co-partnership business account/accounts with reputed bank/banks shall be opened in the name of the co-partnership firm or in any other name/names as may be agreed uponIf agreed upon by and between the partners the parties hereof may continue to operate the existing account/accounts with different bank/banks or close down the same as and when necessary. Such bank account/accounts shall unless otherwise agreed upon be operated jointly and/or severally by the partners." *8. It is contended that these provisions were designed to create a veneer of partnership for income-tax purposes, while the joint family continued as before. By keeping the accounts as hitherto by the partners, the outside world was not informed that the Hindu undivided family had disrupted. The decisions rendered in the case are said to involve a finding of fact, and it is contended for the Department that there was material on which the finding could be rested. Though the Tribunal stated that it had not proceeded on the ground that the partnership was illegal being against the Bengal Excise Act, 1911, the argument was referred to as supporting the conclusion that the firm was not genuine. Section 42(1)(a) of the Bengal Excise Act reads" 42.(1) Subject to such restrictions as the State Government may prescribe the authority who granted any licence, permit or pass under this Act may cancel or suspend it(a) if it is transferred or sub-let by the holder thereof without the permission of the said authority. " *9. There was no evidence that the excise licences were transferred or sub-let. The three shops, it appears, were managed separately and their accounts were kept distinct. There was thus nothing which militated against the partnership and it cannot be said that this affected the genuineness of the agreement. Extracts from the Bali Khata have been exhibited in this case. They show the capital account of the partners, their drawings from time to time and their profits separately. There is nothing to show that the entries in the Bali Khata were different from the other account books and the Bali Khata served as an abstract of all the business of the partnership. That it was not shown to the excise authorities does not prove that the book was not genuine. This account has been in existence ever since the first partnership agreement, and nothing has been said to establish that it was not regularly maintained in the ordinary course of business. Similarly, the bank accounts were left in the names of the licensees in order to keep the various businesses separate and distinct. The partnership deed provided for this, and there was nothing which made the partnership doubtful. The maintenance of these bank accounts cannot be said to furnish a veneer of partnership while underneath the family continued undisturbedNo doubt, the family continued as Hindu undivided family for nearly three decades, but there was nothing to prevent a family from disrupting and forming a partnership. The earlier decision was not res judicata, and the family could on a subsequent date enter into a fresh agreement with new partners and ask for its registration. This is what was done in 1947, and the occasion was the death of Uma Charan in that year. It must not be forgotten that Uma Charan was the eldest and must have been the senior partner. With his death the need for further adjustments arose, and a fresh document was executed10. The Department contends that one of the unusual features was that though the balances of the partners were fluctuating as their drawings were made, the profits continued to be divided equally. This is no doubt an unusual feature, but it depends upon how the drawings were considered by others. There was an arrangement in the deed itself for such drawings, and looking at the circumstances of the family the drawings during a year could not be said to be too extensive as others had withdrawn large sums also in their turn11. Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters12. It was contended that there were three orders, viz., the order of assessment, the order under section 25A and the one under section 26A, and merely reversing the order under section 26A cannot be of any consequence particularly as the order under section 25A stands. We are not concerned in these appeals in deciding what advantage will accrue to the appellant firm. That is its look-out, and we do not, therefore, accept the argumentThe result is that the order of the Appellate Tribunal is reversed. The firm shall be registered under section 26A of the Act for the assessment year 1948-49. The appeal against the order of the High Court need not be considered, since it is not necessary to pass any orders thereon. There will be no order in that appeal

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. There was no evidence that the excise licences were transferred orThe three shops, it appears, were managed separately and their accounts were kept distinct. There was thus nothing which militated against the partnership and it cannot be said that this affected the genuineness of the agreement. Extracts from the Bali Khata have been exhibited in this case. They show the capital account of the partners, their drawings from time to time and their profits separately. There is nothing to show that the entries in the Bali Khata were different from the other account books and the Bali Khata served as an abstract of all the business of the partnership. That it was not shown to the excise authorities does not prove that the book was not genuine. This account has been in existence ever since the first partnership agreement, and nothing has been said to establish that it was not regularly maintained in the ordinary course of business. Similarly, the bank accounts were left in the names of the licensees in order to keep the various businesses separate and distinct. The partnership deed provided for this, and there was nothing which made the partnership doubtful. The maintenance of these bank accounts cannot be said to furnish a veneer of partnership while underneath the family continued undisturbedNo doubt, the family continued as Hindu undivided family for nearly three decades, but there was nothing to prevent a family from disrupting and forming a partnership. The earlier decision was not res judicata, and the family could on a subsequent date enter into a fresh agreement with new partners and ask for its registration. This is what was done in 1947, and the occasion was the death of Uma Charan in that year. It must not be forgotten that Uma Charan was the eldest and must have been the senior partner. With his death the need for further adjustments arose, and a fresh document wasis no doubt an unusual feature, but it depends upon how the drawings were considered by others. There was an arrangement in the deed itself for such drawings, and looking at the circumstances of the family the drawings during a year could not be said to be too extensive as others had withdrawn large sums also in their turn11. Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which theOfficer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in theseare not concerned in these appeals in deciding what advantage will accrue to the appellant firm. That is itsand we do not, therefore, accept the argumentThe result is that the order of the Appellate Tribunal is reversed. The firm shall be registered under section 26A of the Act for the assessment yearThe appeal against the order of the High Court need not be considered, since it is not necessary to pass any orders thereon. There will be no order in that appeal