Case: Bhaichand Amoluk and Company Vs. Commissioner of Income Tax, Bombay City I

The facts leading up to the appeal may be stated shortly. One Bhaichand Amolukh Vora, father of Chhotalal Bhaichand, started a firm in 1910, to work as principal agents for a number of insurance companies. In that firm, in addition to Bhaichand Vora and Chhotalal Bhaichand, one Nathubhai Patel was also a partner. Bhaichand Vora died in 1948, and the two surviving partners continued as the firm. Nathubhai Patel died in 1949, and it is stated that the firm thereafter consisted of Chhotalal Bhaichand and his wife, Bai Lalitaben. In the years that followed, the business of the firm was treated as the sole business of Chhotalal Bhaichand to which no objection was taken, because, as is now explained, the income of the wife would, in any event, have been included in the income of Chhotalal Bhaichand under section 16(3) of theAct. In June 1950 the Insurance (Amendment) Act, 1950 (No. 67 of 1950), came into force, which amended the Insurance Act of 1938 (No. 4 of 1938), by adding a new section (42B) by which the insurers were prohibited after the expiration of seven years from the commencement of Act No. 67 of 1950, from appointing, or transacting any insurance business in India through a principal agent. Contracts between an insurer and a principal agent were also required to be in writing, and the model terms contained in Part I of the Sixth Schedule to the Act were to be deemed to be incorporated in and form part of every such contractThe case of the firm is that Chhotalal Bhaichand, realising that the business of principal agents was to come to an end after the expiry of seven years, looked for other sources of employment and accepted a job as assistant manager of the New India Assurance Company. He withdrew from the firm, and the old firm was reconstituted from January 1, 1953, though the deed of partnership was executed on April 22, 1953. By this deed, the partnership consisted of three persons, with shares asBai Manibai (mother of Chhotalalannas in the rupee(2) Mr.annas in the rupee(3) Mr. Premchand D.annas in the rupee(4) Two minor sons of Chhotalal Bhaichand, Jayant and Harshad, were also admitted to the benefits of the partnership to the extent of 1 1/2 annas in the rupee, eachThe balance of 2 annas in the rupee was earmarked to build up a reserve fund of Rs. 10,the assessment yearcorresponding to the year of account, calendar year 1953, an application for the registration of this new firm was made under section 26A of the Indiantax Officer by his order dated September 30, 1954, declined registration, holding that the firm belonged solely to Chhotalal Bhaichand, and that there was only a pretence of a firm. He gave five reasons for coming to this conclusion. They were that Chhotalal Bhaichand had not made any formal transfer of the business to the new partners, that the deed stated that neither Khambatta nor Premchand claimed any interest in the goodwill of the business, that there was no consideration for which Bai Manibai, the mother of Chhotalal Bhaichand. (the assessee), and his two minor sons became entitled to the income from the business, and that the reason that the goodwill was reserved for her because the business had been started by her late husband was " fallacious ". A fifth reason was given that a cheque for Rs. 6, 400 being Manibais share of profits was drawn by the firm " to self ", and in later years the amount was traced to the account of Chhotalal Bhaichand. The explanation of Manibai that she received Rs. 5, 000 out of that amount and spent it on charities was not acceptedOn appeal to the Appellate Assistant Commissioner, registration of the firm was ordered. On further appeal to the Tribunal, the order of the Appellate Assistant Commissioner was, in its turn, set aside, and the Tribunal reached the conclusion that Manibai and the two minor sons were not the real partners of the new firm, but that the partnership consisted of Chhotalal Bhaichand and two others. The Tribunal, in spite of this finding, restored the order of theOfficer. The firm then applied for a reference of the questions arising from the Tribunals order, and suggested as many as 18 questions. The Tribunal declined the reference by an order, which set out the grounds on which its decision in the appeal proceeded, adding reasons which had not been givenfirm then applied to the High Court under section 66(2), and set out the 18 questions which it alternatively summarised into two, asWhether the finding of the Tribunal that the partnership but is in reality a partnership between Chhotalal, is not genuine Premchand and Khambatta is supported by any material on record and/or is based wholly or partly on conjectures, suspicions, surmises, incorrect assumptions or irrelevant materials, and/or amounts to an error or misdirection in law ?2. If the above question is answered against the applicant, then, in view of the Tribunals finding that there was a partnership between Chhotalal, Premchand and Khambatta whether the Tribunal ought to have directed an assessment to be made on that firm as an unregistered firm and whether the action of the Tribunal in setting aside the order of the Appellate Assistant Commissioner and restoring that of theOfficer is valid ?"The High Court declined to raise the first question, and asked for a reference only on the second question, which it recast as follows" In view of the Tribunals finding that there was a partnership between Chhotalal, Premchand and Khambatta, whether the Tribunal ought to have directed an assessment to be made on that firm as an unregistered firm and whether the action of the Tribunal in setting aside the order of the Appellate Assistant Commissioner and restoring that of theOfficer is valid ?

Reasoning:
Regarding the first ground, it is quite obvious that there was material on which the finding could be based. If Chhotalal withdrew from the business, his wife, Lalitabai, would be left as the sole proprietor. No mention of her interest whatever was made in the subsequent deed, and she seems to have disappeared completely. On the termination of the old firm and the setting up of the new firm, one would expect some adjustment entries in the books of account, and these were singularly lacking. One would also expect a communication by the new agents to the various insurance companies in writing about the change of principal agents and an appointment letter in the name of the new firm by them. The bank accounts would have been transferred to the new partnership firm, and thein favour of Premchand and Khambatta would have been cancelled and the new firm would have been authorised to deal with the accounts. Without any such action, the decision of the Tribunal, that the firm which asked for registration was not a real firm, cannot be said to be founded on no materialIn so far as the addition of certain other reasons, which are characterised as surmises, conjectures and suspicions, is concerned, this court has observed in Gheestas case as follows" We must read the order of the Tribunal as a whole to determine whether every material fact, for and against the assessee has been considered fairly and with due care ; whether the evidence pro and con has been considered in reaching the final conclusion ; and whether the conclusion reached by the Tribunal has been coloured by irrelevant considerations or matters of prejudice. Learned counsel for the appellant has taken us through the entire order of the Tribunal as also the relevant materials on which it is based. Having examined the order of the Tribunal and those materials, we are unable to agree with learned counsel for the appellant that the order of the Tribunal is vitiated by any of the defects adverted to in Dhirajlal Girdharilal v. Commissioner ofar Salay Mohamed Sait v. Commissioner ofWe must make it clear that we do not think that those decisions require that the order of the Tribunal must be examined sentence by sentence, through a microscope as it were, so as to discover a minor lapse here or an incautious opinion there to be used as a peg on which to hang an issue of law. In view of the arguments advanced before us it is perhaps necessary to add that in considering probabilities properly arising from the facts alleged or proved, the Tribunal does not indulge in conjectures, surmises or suspicions.Tribunal was trying to unravel the motive for the formation of the new firm with an old lady and two minor sons in place of Chhotalal, and what was observed by the Tribunal was in connection with the motive which suggested itself to it, and was not based on any material. Even if the Tribunal mentioned those suspicions, we do not think that they entered into the solution of the problem before it. Suspicions and surmises are best avoided ; but in the present case, the order of the Tribunal proceeded on such solid facts that the speculation about the motive of Chhotalal did not make any material difference to the finding reached, though we cannot help saying that the Tribunal would have beento leave speculation out altogether. We are of opinion that this case falls within the ruling in Gheestas case