- Bookmark
- Share
- CaseIQ
Commissioner Of Income-Tax v. Mithalal Ashok Kumar
Factual and Procedural Background
The Commissioner of Income-tax, Bhopal, filed an application under Section 256(2) of the Income-tax Act, 1961, seeking a direction to the Income-tax Appellate Tribunal, Indore, to refer a question of law regarding the correctness of the Tribunal's grant of registration to the assessee-firm for the assessment year 1978-79.
The assessee, Mithalal Ashok Kumar, claimed to be a registered firm based on a partnership deed dated October 21, 1976, with the partners and their shares detailed. The Income-tax Officer observed that another firm, M/s. Abhayakumar Jaswantkumar, already existed with overlapping family members as partners and noted several peculiarities: common family members, capital sourced from common funds, identical business nature (cloth business), and common business premises.
The Income-tax Officer further found that two lady partners of the assessee firm were unaware of the business, suggesting the firm was a sham and merely a branch of the existing firm. Consequently, the assessment was completed treating the assessee as an "AOP" and including its income in the existing firm's assessment.
The assessee appealed unsuccessfully before the Appellate Assistant Commissioner and the Tribunal, which dismissed the appeal on the ground that the arrangement was sham.
Subsequently, the assessee filed a miscellaneous application under Section 254(2) of the Income-tax Act, 1961, for rectification, which the Tribunal allowed by setting aside its earlier order and directing a rehearing of the appeal.
The Revenue challenged the Tribunal's recall of its order under Section 256(1), but the Tribunal rejected the application. After rehearing, the Tribunal held that the assessee firm was genuine and directed registration for the assessment year 1978-79.
The Revenue again sought a reference of the legal question to this Court, which was rejected, leading to this application.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in granting registration to the assessee-firm for the assessment year 1978-79?
- Whether the Tribunal was justified in law in recalling its order dated January 15, 1982, and setting it aside for fresh disposal?
- Whether the question proposed by the Revenue constitutes a question of law calling for a reference to this Court?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. M.P. Bidi Leaves & Company, [1983] 144 ITR 487 (MP) | Clarification on what constitutes a question of law requiring reference. | Used to support that the Tribunal's factual finding of genuineness of the firm does not raise a question of law. |
| India Cements Ltd. v. Commissioner Of Income Tax, Madras, [1966] 60 ITR 52 (SC) | Distinction between questions of law and fact in tax appeals. | Referenced to affirm that factual conclusions by the Tribunal are not questions of law. |
| CIT v. Chander Bhan Harbhajan Lal, [1966] 60 ITR 188 (SC) | Principles governing references of questions of law by tax authorities. | Applied to reinforce that the issue at hand is factual, not legal. |
| Sir Shadilal Sugar & General Mills Ltd. v. CIT, [1983] 141 ITR 664 (All) | Scope of Tribunal's power to rectify orders under Section 254(2). | Supported the Tribunal's inherent power to rectify its own mistakes. |
| Chimanlal Umaji v. CIT, [1980] 121 ITR 507 (MP) | Guidance on the nature of orders and when references are appropriate. | Used to emphasize the factual nature of the Tribunal's decision. |
| Shri Paramanand Bhai Patel and Smt. Jyotsna Devi Patel v. CIT, [1984] 149 ITR 80 (MP) | Application of principles regarding question of law and factual findings. | Reinforced the conclusion that no question of law arises from the Tribunal's factual findings. |
Court's Reasoning and Analysis
The Court analyzed the sequence of events and the Tribunal's actions, noting the Tribunal had initially dismissed the assessee's appeal but later, on the assessee's application under Section 254(2), acknowledged mistakes apparent on the record and set aside its earlier order for rehearing. Upon rehearing, the Tribunal concluded the firm was genuine and directed registration.
The Court emphasized that the Tribunal's conclusion on the genuineness of the firm is a finding of fact, not a question of law. It relied on established precedents distinguishing factual findings from legal questions that warrant reference. The Court also recognized the Tribunal's inherent power to rectify its own orders under Section 254(2) of the Income-tax Act, 1961.
Given this, the Court held that the question proposed by the Revenue does not constitute a question of law requiring reference. The Court further noted that it had already declined to call upon the Tribunal to make such a reference in a related case (M.C.C. No. 49 of 1984).
Holding and Implications
The petition filed by the Revenue is dismissed.
The Court declined to direct the Income-tax Appellate Tribunal to refer the question of law proposed by the Revenue, holding that the matter involved factual findings by the Tribunal regarding the genuineness of the assessee firm. The direct consequence is that the Tribunal's decision granting registration to the assessee-firm for the assessment year 1978-79 stands confirmed. No new legal precedent was established, and the decision primarily affects the parties by affirming the Tribunal's factual conclusion and its power to rectify its own orders.
1. The Commissioner of Income-tax, Bhopal, has submitted this application under Section 256(2) of the Income-tax Act, 1961, with a prayer to direct the Income-tax Appellate Tribunal, Indore, to send a statement of the case and refer the question of law quoted below:
" Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in granting registration to the assessee-firm for the assessment year 1978-79 ?"
2. Facts: The assessee, Mithalal Ashok Kumar, claimed the status of a registered firm on the basis of a deed of partnership dated October 21, 1976. The application for registration was filed on March 21, 1977. The constitution of the said partnership firm was shown as below :
(1) Shri Mithalal, karta, representing the HUF styled as "Mithalal Chhaganlal"
35% share.
(2) Smt. Pyaribai w/o. Mithalal 30% share (3) Smt. Pushpabai w/o. Abhayakumar 30% share.
(4) Shri Ashok Kumar s/o. Mithalal 5% share.
3. The Income-tax Officer noticed that there was already in existence a firm styled as M/s. Abhayakumar Jaswantkumar, Indore. It was assessed by another Income-tax Officer at Indore. The partners and their shares are as under :
(1) Shri Mithalal, in his individual capacity 35% share.
(2) Shri Chhaganlal, father of Shri Mithalal 10% share.
(3) Shri Abhayakumar s/o. Mithalal 30% share.
(4) Shri Ashok Kumar 25% share.
4. The Income-tax Officer noticed the following peculiar features about these two entities :
(1) The two entities are constituted by the members of the same family. They are related closely to each other, either as husband and wife, brothers or father and son.
(2) The capital investment is also traceable to a common source. Mithalal brought in capital of Rs. 20,576.90 from the Hindu undivided family funds, Shri Ashok Kumar introduced capital of Rs. 12,486 by transfer from Mithalal Chhaganlal, Hindu undivided family, and a sum of Rs. 2,125.50 from Abhayakumar Jaswantkumar. Smt. Pyaribai brought in her capital of Rs. 6,000 by withdrawing from M/s. Abhayakumar Jaswantkumar. Capital of Rs. 6,000.99 of Smt. Pushpabai consists of Rs. 5,000 received by her as gift, a little before the formation of this firm, from Shri Chhaganlal, father of Shri Mithalal, who is the karta of a Hindu undivided family.
(3) Both the entities are doing cloth business.
(4) Business is carried on by both in the same premises.
5. The Income-tax Officer also found that the business of the assessee was run by Shri Mithalal and Ashok Kumar, who were common partners. From the statement of the two lady partners recorded by the Income-tax Officer, he found that they did not have any knowledge of business of the alleged firm. They were only housewives. Smt. Pyaribai, when shown the partnership deed by the Income-tax Officer, displayed ignorance thereof.
6. On a consideration of the material gathered by the Income-tax Officer, he came to the conclusion that no genuine firm styled as "Mithalal Ashok Kumar" came into existence. He held that this entity is only a branch business of the firm already existing, namely, M/s. Abhayakumar Jaswant-kumar. The Income-tax Officer completed the assessment of the assessee in the status of an " AOP " as a protective measure. He further held that the income of the assessee will be included in the assessment of M/s. Abhayakumar Jaswantkumar.
7. Against the order of the Income-tax Officer, the assessee went up in appeal before the Appellate Assistant Commissioner who examined the matter in detail and upheld the order of the Income-tax Officer. According to him, the two lady partners were benami for their husbands.
8. The assessee went up in further appeal before the Tribunal, before whom it was argued on behalf of the assessee that active participation by the ladies in the conduct of the business of the assessee is not essential. It was also contended that one of the partners was assessed on the share income as a partner of this firm, before the assessment of the assessee. However, the Tribunal held that it could be safely inferred that the management of the two entities was being conducted by Shri Mithalal, the business premises were common and the nature of business of both was also common. They also noted that some constituents of the assessee were quite ignorant about its business activities. It also found that the entire arrangement appears to be sham and thus dismissed the appeal.
9. Thereafter, the assessee filed miscellaneous application under Section 254(2) of the Income-tax Act, 1961, before the Tribunal for rectification on the ground that the Tribunal failed to consider the material placed on record about which submissions were also made. The Tribunal, by its order passed on August 24, 1982, held as under :
" For the reasons discussed above, we are of the view that there are mistakes in our order. The same are apparent from the record. We have already held in preceding paras that Section 254(2) of the Income-tax Act, 1961, specifically empowers the Tribunal to rectify any order passed by it. As discussed above, the Tribunal has inherent power to rectify a wrong committed by itself. In such cases, really speaking, the Tribunal will not be exercising the power of review. We have pointed out the circumstances under which we have committed a wrong or an error in deciding the appeal. In our opinion, the mistakes committed are apparent from the record.
In view of the aforesaid facts, we set aside our order and accordingly order is set aside. The appeal shall be heard again and the same shall be discussed after hearing the parties. Since the matter has become very old, the Assistant Registrar is directed to fix the hearing of the appeal as early as possible."
10. Thus, the Tribunal set aside their own order dated January 15, 1982, and directed that the appeal which had been decided and disposed of on January 15, 1982, shall be reheard. Accordingly, the Tribunal allowed the miscellaneous petition.
11. The Revenue, therefore, submitted an application before the Tribunal under Section 256(1) of the Income-tax Act, 1961, for reference of the question mentioned below :
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in recalling their order passed on January 15, 1982, in ITA No. 744/Ind/81, and setting it aside for fresh disposal ?"
12. However, the Tribunal rejected the said application. Therefore, the Revenue has filed M.C.C. No. 49 of 1984 [CIT v. Mithalal Ashok Kumar--[1986] 158 ITR 755 (MP)].
13. Thereafter, the Tribunal by annexure-D reheard the appeal on merits and held that the firm, M/s. Mithalal Ashok Kumar, is a genuine firm and directed the Income-tax Officer to grant registration to the firm for the previous year relevant to the accounting year 1978-79.
14. The Revenue, therefore, submitted an application under Section 256(1) of the Income-tax Act, 1961, to the said Tribunal for referring the question quoted above to this court, which was rejected. Hence, this application.
15. The decision given in M.C.C. No. 49 of 1984 (CIT v. Mithalal Ashok Kumar, [1986] 158 ITR 755 (MP), has great a bearing on the question proposed in this petition by the Revenue, because it is a consequential one. By a detailed order passed by us today in M.C.C. No. 49 of 1984, we have declined to call upon the Tribunal to make a reference as urged on behalf of the Revenue. In the present case, it is clear that the Tribunal, after rectifying its mistake and taking into consideration the material on record, which it had failed to consider earlier has come to a conclusion that the assessee-firm was a genuine firm. This is purely a finding of fact and in such a situation, no question of law as such arises and, in this connection, reference may be made to the decisions in CIT v. M.P. Bidi Leaves & Company, [1983] 144 ITR 487 (MP); India Cements Ltd. v. Commissioner Of Income Tax, Madras., [1966] 60 ITR 52 (SC); CIT v. Chander Bhan Harbhajan Lal, [1966] 60 ITR 188 (SC);
Sir Shadilal Sugar & General Mills Ltd. v. CIT, [1983] 141 ITR 664 (All); Chimanlal Umaji v. CIT, [1980] 121 ITR 507 (MP) and Shri Paramanand Bhai Patel and Smt. Jyotsna Devi Patel v. CIT, [1984] 149 ITR 80 (MP). In this connection, the learned counsel for the assessee also invited our attention to the comments of the learned author in his book Law of Income Tax by Kanga & Palkhivala (7th edn.) vol. I, at page 1159.
16. Thus, the Tribunal having taken all the facts and circumstances into consideration while deciding the appeal on merits, we are of the opinion that the question proposed by the Revenue being not a question of law as such does not call for a reference.
17. In the result, this petition fails and is dismissed with no order as to costs. We decline to call upon the Tribunal to refer the question as proposed by the Revenue.
Alert