Hafiz Abdul Ghafoor v. Commissioner Of Income-Tax

1. This is an application by a firm said to consist of three persons, Hafiz Abdul Gafoor, Abdul Latif and Mohammad Ibrahim, under Section 66(3) of the Income-tax Act, asking for a direction that the Commissioner of Income-tax should refer certain questions for the opinion of the High Court. There are 13 questions suggested in all, but it is admitted that the whole position comes to the simple question whether, when certain persons have made an application in accordance with Section 26-A of the Income-tax Act, the income-tax authorities are entitled to go behind a deed of partnership which the persons produce and to find that the deed is bogus and to refuse to register them as a firm for the purposes of the Income-tax Act. Although the present application is made in the name of the firm showing three partners, the Case has been treated by the income-tax authorities, and indeed by the firm itself, as consisting of four partners; one of the partners, Abdul Bazak, has been omitted from those participating in this application.

2. The facts briefly are that since 1934 there had been a registered firm consisting of Abdul Gafoor and Mohammad Yasin, each having an eight-anna share in the partnership. On 17th June 1937 Mohammad Yasin, died and on 9th July 1937 a new partnership was drawn up, showing as partners Abdul Gafoor, his son Abdul Razak, Abdul Latif, the brother of Mohammad Yasin, and Mohammad Ibrahim, the minor son of Mohammad Yasin, aged 9, each partner having been declared to have a four-anna share in the business.

3. The Income-tax Officer considered the application for registration, which was presented to him on the basis of this partnership deed, as suspicious and asked for the firm's books. These disclosed that when the old partnership which had been in existence for some three years had been dissolved owing to the death of Mohammad Yasin, there had been no settlement of the old accounts or a determination of the share of the deceased partner which would go to his heirs under Mahomedan law, that no account had been made of the total capital of the firm or indeed of the capital contributed by the two partners under the former deed or of the four partners under the present deed. Neither had there been any individual account between the earlier partners or between the present ones. It was also considered suspicious that one of the new partners should be a boy who was still at school and who was admitted to an equal share of the profits of the partnership on the ground that he knew some English and would be able to deal with the English correspondence, and that Abdul Latif should be shown as a four-anna owner when he had previously worked for the firm without remuneration, and that a child should be brought in on equal terms with the others in matters of profit.

4. Now, there is no prohibition in law against a child being introduced to share in the profits of the firm, and Section 48 of the Income-tax Act shows that in a firm which has been registered such a minor is equally entitled to the benefits accruing to a firm from registration, that is to say the benefits of individual assessment, or rather the benefits accruing under S. 48 of the Act. The facts which I have set out and which indeed are not disputed, do, in my opinion, constitute evidence on which the income-tax authorities were entitled to come to a conclusion that the deed of partnership newly entered into was a sham transaction drawn up for the purpose of attempting to obtain an undue benefit in the matter of assessment. That the deed is a sham transaction has been found by the Income-tax Officer, on appeal by the Assistant Commissioner of Income-tax and on a revision application and also on an application to refer to this Court by the Commissioner of Income-tax. It is urged that whether the income-tax authorities are allowed to go behind a statement made in a deed of partnership when registration is sought is a question of law, and it is contended that they are not allowed so to do. This proposition has been negatived in more than one High Court. In 57 Cal 1336 In re Bissesswarlal Brijlal, (1930) 17 AIR Cal 449 , 128 IC 327 , 57 Cal 1336 , 34 CWN 363 (FB) a Full Bench of the Calcutta High Court held that the Income-tax Officer has power to call for evidence over and above the documentary evidence adduced in the partnership deed. In the High Court of Lahore it was held in 19 Lah 113 (1938) 25 AIR Lah 105 , 181 IC 332 , ILR (1938) 19 Lah 113 that it was open to an Income-tax Officer to find against the declarations and the provisions contained in the partnership deed and to refuse registration if he found that the deed was incorrect. It is true that this was a case of a joint Hindu family and the inquiry was authorized under S. 25-A of the Act. The principle must, in my opinion, apply equally in cases of registration under S. 26-A of the Act since it cannot be presumed that an inquiry is to be made only in cases of Hindu family concerns and that applications for registration by these alone, asserting partnership where there had formerly been joint undivided status, are the only deeds which can be open to suspicion.

5. The latest decision is that in 10 ITC 426. Central and United Provinces, (1938) 10 ITC 426 There it was held that income-tax authorities are competent to hold as judges of fact that a partnership which purport to be evidenced by a deed produced before them is fictitious; the only proviso appeare to be, according to this judgment, that there must be some evidence on which the decision as judges of fact is reached. Undoubtedly there is evidence in the case before me, evidence which I have already described. In this Court in 5 ITR 615, C.P and U.P, (1937) 5 ITR 615 it is laid down that if the income-tax authorities find that a deed of partnership, is sham and not intended to be acted upon, and there is evidence on which they could arrive, at such a finding, the High Court will not weigh the evidence with a view to decide whether the finding is correct or otherwise. This appears to me to conclude; the matter, and if it is urged that the decision of a Bench of the Court of the Judicial Commissioner in AIR 1930 Nag 6 (1930) 17 AIR Nag 6 , 121 IC 38 takes a different view (the case was merely given in reference before me and its applicability was not shown), then it must be held to have been overruled by the Divisional Bench of this Court in 5 ITR 615 C.P and U.P, (1937) 5 ITR 615 already cited. The applicants have had to make an unrefundable deposit of Rs. 100 and pray that in the event of ill success, no costs should be awarded against him. The learned counsel for the Commissioner of Income-tax does not press for costs, and in the circumstances, although I consider that some costs would be justified, I make he order. The application is accordingly dismissed.

G.N/R.K

6. Application dismissed.