Case: Krishna Flour Mills Vs. Commissioner of Income Tax, Bangalore

on the footing that on the facts found by the Tribunal, apart from mere suspicion and surmises, no such inference as has been drawn by the Tribunal reasonably follows ; his argument is that the materials point only one way, and on such facts as the Tribunal has found no person acting judicially and properly instructed as to the relevant law could have come to the finding at which it arrived3. Learned counsel for the respondent has contested the correctness of the position taken up on behalf of the appellant, and he has pointed out that the question regarding which the appellant moved the High Court under section 66(2) is different from the question which is now being canvassed. It is true that by merely adding the words " right in law " to a question which is otherwise a question of fact does not make it a question of law. It is equally true that whether a firm is genuine or not is normally a question of fact. It is clear, however, that the grievance of the appellant is that the facts found by the Tribunal do not reasonably lead to the conclusion it has drawn and the conclusion is based on suspicion and surmise4. What are the facts which the Tribunal has found ? They may now be set out seriatim : (1) the two new partners, Nagaratnamma and V. Setty, contributed their share of the capital in the manner stated in the deed of partnership ; (2) the capital account of V. Setty in the books of the partnership business showed, during the six years from 1948 to 1954, that he had accumulated profits of about 2 lakhs and had withdrawn about Rs. 3, 000 a year in the two years 1950 and 1951 and Rs. 15, 366, Rs. 12, 864 and Rs. 12, 058 respectively in the three years 1952, 1953 and 1954 respectively ; (3) that the amounts withdrawn in 1950 and 1951 represented notionally the household expenses debited to his account, by reason of the fact that V. Setty lived then with his brotherin-law; (4) that the amounts withdrawn in 1952, 1953 and 1954 covered similar expenses as also expenses for improvement of a house which V. Setty had purchased in 1945 ; (5) that the appellant had not furnished full details of how the amounts withdrawn in those years were spent ; (6) the account of Nagaratnamma showed that she had not withdrawn any part of her share of profits, which were separately shown in the account ; and (7) she was an ordinary type of Hindu house-wife. The Tribunal also referred to the circumstances that K. R. Setty had been corresponding with the income-tax authorities on the footing that he was the proprietor of the business even after the commencement of the partnership ; but that correspondence does not appear to have been made a part of the record, nor is there any mention of what K. R. Setty had actually stated and in what circumstances. On these facts the Tribunal stated its conclusion in the following words "On the above facts, we do not find it difficult to reach a conclusion that the partnership claimed on the basis of the deed dated November 16, 1949, is not genuine and that the deed is a document not intended to be acted upon. It may be that so far as the outside world is concerned the three persons in question have held themselves out as partners, but that cannot by any means establish automatically the genuineness of the arrangement too. The actual conduct of the parties inter se is the essential point to bear in mind for this purpose. On the above facts, we hold that the firm is not genuine and accordingly not registerable under section 26-A."5. Apart from the relation between the parties which is not in dispute, the Tribunal has not really referred to any conduct of the parties inter se which would indicate that the partnership was not genuine. The underlying assumption in the reasoning of the Tribunal seems to be that a partnership consisting of the wife and brother-in-law must be necessarily suspect and if the wife saves her profits and the brother-in-law does not spend his share of the profits fully, the inference must be that the partnership is a bogus partnership. On the materials placed before us, we consider that such an inference is unreasonable and not justified either by partnership law or common human experience. The books of partnership accounts were not held to be false ; nor was it suggested that there were no good reasons for taking the wife and brother-in-law as partners. It was accepted that both of them contributed their share of the capital, and it was not disputed that the brother-in-law managed the business, and at the relevant time lived with K. R. Setty. Learned counsel for the respondent suggested that the sum of Rs. 50, 000 which Nagaratnamma contributed might not be her stridhanam in law. It is enough to point out that no such finding was given by the Tribunal; on the contrary, the Tribunal found that she contributed her share of the capital in the manner stated in the deed of partnershipFor these reasons, we think that a question of law arises out of the order of the Tribunal, namely, " whether in the facts and circumstances found by the Tribunal, there was material to come to the conclusion that the partnership firm constituted by the deed of partnership dated November 16, 1949, was not genuine? " We would accordingly allow these appeals, set aside the order of the High Court of Mysore dated October 8, 1958, and direct that the Tribunal be required to state a case on the question indicated above and refer it to the said High Court. The appellant will be entitled to its costs of the High Court and of this court. There will be one set of costs in these appeals.

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

Explanation:
0[ds]They may now be set out seriatim : (1) the two new partners, Nagaratnamma and V. Setty, contributed their share of the capital in the manner stated in the deed of partnership ; (2) the capital account of V. Setty in the books of the partnership business showed, during the six years from 1948 to 1954, that he had accumulated profits of about 2 lakhs and had withdrawn about Rs. 3, 000 a year in the two years 1950 and 1951 and Rs. 15, 366, Rs. 12, 864 and Rs. 12, 058 respectively in the three years 1952, 1953 and 1954 respectively ; (3) that the amounts withdrawn in 1950 and 1951 represented notionally the household expenses debited to his account, by reason of the fact that V. Setty lived then with his(4) that the amounts withdrawn in 1952, 1953 and 1954 covered similar expenses as also expenses for improvement of a house which V. Setty had purchased in 1945 ; (5) that the appellant had not furnished full details of how the amounts withdrawn in those years were spent ; (6) the account of Nagaratnamma showed that she had not withdrawn any part of her share of profits, which were separately shown in the account ; and (7) she was an ordinary type of HinduThe Tribunal also referred to the circumstances that K. R. Setty had been corresponding with theApart from the relation between the parties which is not in dispute, the Tribunal has not really referred to any conduct of the parties inter se which would indicate that the partnership was not genuine. The underlying assumption in the reasoning of the Tribunal seems to be that a partnership consisting of the wife andmust be necessarily suspect and if the wife saves her profits and thedoes not spend his share of the profits fully, the inference must be that the partnership is a bogus partnership. On the materials placed before us, we consider that such an inference is unreasonable and not justified either by partnership law or common human experience. The books of partnership accounts were not held to be false ; nor was it suggested that there were no good reasons for taking the wife andas partners. It was accepted that both of them contributed their share of the capital, and it was not disputed that themanaged the business, and at the relevant time lived with K. R. Setty. Learned counsel for the respondent suggested that the sum of Rs. 50, 000 which Nagaratnamma contributed might not be her stridhanam in law. It is enough to point out that no such finding was given by the Tribunal; on the contrary, the Tribunal found that she contributed her share of the capital in the manner stated in the deed of partnershipFor these reasons, we think that a question of law arises out of the order of the Tribunal, namely, " whether in the facts and circumstances found by the Tribunal, there was material to come to the conclusion that the partnership firm constituted by the deed of partnership dated November 16, 1949, was not genuine? " We would accordingly allow these appeals, set aside the order of the High Court of Mysore dated October 8, 1958, and direct that the Tribunal be required to state a case on the question indicated above and refer it to the said High Court. The appellant will be entitled to its costs of the High Court and of this court. There will be one set of costs in these appeals.