Sabyasachi Mukharji, J.
1. The assessee is M/s. Lalit Trading Corporation. It was claimed to be a partnership irm constituted of Smt. Indira Rani Poddar and Smt. Sarada Devi Poddar, being the two major partners, and three minors who had been shown to have been admitted to the benefits of the partnership. The two major partners are related as mother-in law and daughter-in-law whereas the three minors are grandsons of Smt. Indira Rani Poddar. The firm was said to have been constituted by an instrument of partnership dated 27th April, 1957, with effect from 1st January, 1957. The assessment year involved in this reference is 1959-60, for which the relevant accounting year is the year commencing from 27th July, 1957, and ending on 30th June, 1958. For the immediately preceding assessment year, viz., the assessment year 1958-59, which was the first year of assessment, the assessee had filed an application for registration under Section 26A of the Indian I.T. Act, 1922, on the 27th June, 1957. The assessee had also filed a return showing ' nil ' income for the assessment year 1958-59. During the course of assessment proceeding for that year, the authorised representative of the assessee filed a letter dated 7th September, 1962, in which it was stated that no business was done during the period from 1st January, 1957, to 25th July, 1957, and, therefore, a ' nil ' return of income was filed. It was further brought to the notice of the ITO that the business had actually commenced on the 26th July, 1957, and the books of accounts were closed for the first time on 30th June, 1958, which accounting year was relevant to the assessment year 1959-60, and for which a return of income was also made.
2. The ITO on these facts found that the very first year of business of the assessee was for the assessment year 1959-60, and for that assessment year the assessee had filed an application for renewal of registration on 29th June, 1959. However, when pointed out by the ITO that for the assessment year 1959-60, an application for registration under Section 26A of the Indian I.T. Act, 1922, should have been filed, the assessee actually filed the said application for registration on 31st December, 1963. It was clear that the assessee had not filed any application for registration under Section 26A of the Indian I.T. Act, 1922, for the assessment year 1959-60, during the accounting year which was 26th July, 1957, to 30th June, 1958. According to the ITO, therefore, the registration application under Section 26A was belated and could not be entertained in the absence of satisfactory explanation for the delay. The ITO, therefore, considered the various factors and found that one of the lady partners, Smt. Indira Rani Poddar, was the mother-in-law, and the other lady partner, Smt. Sarada Devi Poddar, was the daughter-in-law and the three minors were grandsons of Smt. Indira Rani Poddar, who were admitted to the benefits of the so-called partnership. According to the ITO, the scrutiny of the books of account showed that the entire business was managed and looked after by M/s. K. L. Poddar & Sons Pvt. Ltd. In the above concern, Biswanath Poddar and Kashi Prosad Poddar were directors and they were the two sons of Smt. Indira Rani Poddar, partner of this alleged firm. One of the minors, Lalit Kumar Poddar, was the son of Sri Biswanath Poddar and 1he other minor, Sri Vikram, was the son of Sri Kashi Prosad Poddar and the third minor, Sri Bharat Kumar, was the son of Sri Ram Niwas Poddar who was the first son of Smt. Indira Rani Poddar. Scrutiny of the books of accounts further showed that the entire purchases were made from M/s. Martin and Mining & Minerals Pvt. Ltd. of Bangalore. In this concern also, Sri Kashi Prosad Poddar was a director. The assessee could notproduce a single original voucher from the above company showing that the purchases were made from them. The assessee's firm had got a bank account in the State Bank of Mysore. These accounts were operated by Smt. Indira Rani Poddar and Smt. Sarada Rani Poddar as per the letter of the bank dated 29th November, 1963. Scrutiny of the bank account showed that during the entire accounting year, there were six transactions only in this bank account; of these five transactions were small and negligible. The only transaction worthy of notice was the credit of Rs. 1,47,377.54 deposited on the 4th October, 1957, as sale proceeds realised from Hind Mercantile Pvt. Ltd., Madras. On the same date, the amount was transferred to M/s. K.L. Poddar & Sons Pvt. Ltd. Therefore, according to the ITO, it was clear that the bank account was created only as an eyewash in order to create evidence that the partners were carrying on business. The ITO further held that the application was belated. The firm consisted of ladies and minors who lacked the requisite knowledge of carrying on an intricate and complicated manganese ore business which was mostly exported to foreign market with a little use in local steel industries. All the purchases and sales were actually conducted by M/s. K.L. Poddar & Sons Pvt. Ltd. in which the husbands or parents of the partners were vitally interested. The above bank account in the Bank of Mysore did not show any transaction being done in the course of the day to day business except one or two stray transactions relating to the business. In reply to the queries made by the ITO, the assessee stated that the partners consulted the guardians of the minor beneficiaries and agreed to carry on the business. The lady partners thus consulted their husbands and other relatives and decided to start the business. Further, the partners carried on the partnership business, according to the assessee, with the help of their assistants and the transactions of the bank were made as and when these were necessary. The ITO, therefore, refused registration of the firm for the year 1959-60.
3. Being aggrieved by the said decision of the ITO, the assessee preferred an appeal before the AAC. The AAC was of the view that the delay should be condoned. But the AAC accepted the other finding of the ITO and referred to the facts mentioned by the ITO. He further mentioned that the ladies and the minors lacked the requisite knowledge for carrying on the intricate and complicated business of manganese ore exportation and they could not have canied on this business. He further observed that all the purchases and sales were effected through M/s. K.L. Poddar & Sons Pvt. Ltd. and the fact that the purchase price was paid by M/s. K.L. Poddar & Sons Pvt. Ltd. and the sale price was also received by M/s. K.L. Poddar & Sons Pvt. Ltd. indicated that it was M/s. K.L. Poddar & Sons Pvt. Ltd. who were really carrying on the business. The AAC, further, held thatit was clear that the partners never took any active part in the business as such, excepting signing some correspondence or cheques, etc., on some occasions. It was also noteworthy that the business was stated to be carried on at Bangalore in Mysore State while the two partners were housewives living at Calcutta with their husbands. It was also not out of place to mention that one of the limited companies, M/s. K.L. Poddar & Sons Pvt. Ltd., which is practically a family concern of M/s. Kissenlal and his sons was also doing the same manganese business at Bangalore on a vast scale. The AAC further observed, inter alia, as follows :
' It also appears that the purchases are made from the same parties who were supplying Manganese Ore to M/s. K.L. Poddar & Sons Pvt. Ltd. including M/s. Poddar Martin Mining & Minerals Ltd., which is also one of the family concerns of Poddars. Similarly, sales are also shown to have been made to certain of the family concerns like M/s. Poddar Martin Mining & Minerals Ltd., James & Company (P.) Ltd., and Agarwal Bros. Ltd., etc., all of which are family concerns of Poddars ; other sales shown in this year are to another concern which was one of the constituents of M/s. K.L. Poddar & Sons Pvt. Ltd. It was also observed that these two partners, Smt. Indira Rani Poddar & Smt. Sarada Devi Poddar, are shown to have contributed capital to the extent of Rs. 10,000 each. In the case of the three minors who are admitted to the business of the partnership each of them is stated to have contributed Rs. 5,000 as capital. It is found that the amount shown as contributed by the minors was withdrawn by 31st December, 1957, during the very first year and in the case of the adult partners entire capital contributed excepting Rs. 5,000 in each of the cases of Smt. Indira Rani Poddar and Smt. Sarada Devi Poddar is shown as withdrawn during the very first year. Thus, the amount of Rs. 10,000 contributed by these two partners was hardly sufficient for carrying on the manganese business, the turnover in which was more than Rs. 3,00,000 in the very first year. It was also observed that the entire business was financed by M/s. K.L. Poddar & Sons Pvt. Ltd. and all the sale proceeds alleged to belong to this appellant-firm were credited in the account of M/s. K.L. Poddar & Sons Pvt Ltd. and the entire purchase price is also shown to have been paid by M/s. K.L. Poddar & Sons Pvt. Ltd. It was explained that this was done to use the overdraft facilities to which K.L. Poddar & Sons Pvt. Ltd. were entitled from various banks at Bangalore. Thus, the purchase price is being paid out of funds of K.L. Poddar & Sons Pvt. Ltd. from the overdraft facilities they have with their banks and the sale proceeds once again went back to the same company, though the business is stated to be carried on by M/s. Lalit Trading Corpn. Though it is contended that there were a number of transactions made by M/s. Lalit Trading Corporation in the purchase and sale of man-ganese, it is surprising that no contract for purchase or sale of manganese entered into by Lalit Trading Corporation could be produced before the Income-tax Officer. Even before me at the first few hearings such contracts were not produced on the ground that they were not available. However, at the last hearing a contract alleged to have been entered into with M/s. Hind Mercantile Corporation Ltd. on 22nd February, 1967, for sale of 1,500 tons of manganese ore was produced. It appears that the signatures on this alleged contracts are fresh and one look at the alleged contract will show that it was not entered into in the usual course of business. It was also observed that there are no other contracts for other transactions of purchase and sale. It appears from the details of purchases and sales filed before me that the appellant is shown to have sold 24.12 tons of manganese ore to M/s. Agarwal Brothers on 30th June, 1957, out of a purchase of 23.76 tons of manganese stated to have been purchased from one S. D. Mining Industries on 30th June, 1957. The appellant is not in a position to explain how he could have sold the goods on 30th June, 1957, when they were actually purchased on 30th October, 1957, and how they could sell greater quantity when the manganese ore purchased was less. Though such attempt was made to explain that while the bill from S. D. Mining Industries was received on 30th October, 1957, and the supply of manganese ore was made much earlier, no evidence was produced in support of this claim. The assessee is still not able to explain as to how they could sell 24.12 tons out of 23.76 tons. These facts clearly show that business did not belong to the appellant himself but certain transactions made by others in respect of their stock are shown as the transactions of the appellant firm.'
4. He, therefore, held that M/s. Lalit Trading Corporation was not a genuine company and the ITO was justified in not granting registration.
5. Thereafter, the assessee went up in appeal before the Tribunal. Before the Tribunal, it was contended that the books of account were maintained by the assessee and were produced before the ITO and he had scrutinised some of the matters which, according to the assessee, were not germane to the matters in issue. It was further emphasised that in the assessment proceedings for this year, the accounts of the assessee-firm were not challenged in any way and the various objections raised merely went to cloud and confuse the issue. It was not disputed by the departmental authorities that all the formalities had been gone through and thus the assessee-firm was only required to prove that there was such a firm in existence and, according to the assessee, the assessee-firm could not have furnished any better proof than the ITO's assessment order in the case of the firm as also of the partners. According to the assessee, the firm got its work done through a limited company and that company acted as its bankers andfinanciers and the question of benamidar in this case did not arise as the limited company acted as its broker.
6. The Tribunal was of the view that though the ITO was entitled to find out whether the firm was genuine or not and whether there was a proper partnership deed or not yet having once assessed the firm it was no longer open to the ITO to refuse registration on the ground that the partnership firm did not exist in fact. The Tribunal further referred to the fact of partnership and observed if the partnership was genuine and actually existed in terms specified in the deed, the fact that the firm was formed with a view to diminishing the incidence of taxation was irrelevant. The Tribunal further was of the view that the ground whether one of the partners was the benamidar was not germane for refusing the registration. According to the Tribunal, the consideration that weighed with the taxing authorities below was not germane and there was nothing illegal if the assessee-firm got its business done through M/s. K.L. Poddar & Sons Pvt. Ltd. In that view of the matter, the Tribunal allowed the appeal and directed the ITO to register the assessee-firm.
7. Upon this under Section 66(2) of the Indian I.T. Act, 1922, the following question has been referred to this court :
' Whether there was evidence before the Tribunal to hold that the assessee-firm ;is a genuine one and satisfied the condition of registration under Section 26A of the Indian Income-tax Act, 1922 '
8. Counsel for the assessee contended before us that in the background of the facts and circumstances of this case, the ITO and the AAC were not justified in holding that there was, in fact, no genuine firm. It appears that there were several factors involved in this question. Firstly, the partners were two ladies being the mother-in-law and daughter-in-law. The others, who were admitted to the benefits of the alleged partnership were some minors, one being the son of one of the partners and the others being grandsons of the other partner. Secondly, the entire transactions, whatever these were, were managed and looked after by M/s. K.L. Poddar & Sons Pvt. Ltd., a concern in which Biswanath Poddar and Kashi Prosad Poddar were directors and they were two sons of Smt. Indira Rani Poddar, partner of the assessee-firm, and the other two were minors, Lalit Kumar Poddar, the son of Biswanath Poddar, and Vikram Kumar, the son of Kashi Prosad Poddar. We have noticed the nature of the account with the State Bank of Mysore and the quantum of transactions carried on, the manner of supply of capital of the business, the nature of business done and the method of doing such business. In that light the ITO as well as the AAC had evidence to hold that the firm was not genuine and factually did not exist. On behalf of the assessee, it was urged that the fact that the partners were ladies and minors who were inexperienced by themselves to carry onthe business was irrelevant for determining the existence of the partnership. It was, secondly, urged that the fact that the assessee-firm carried on their business through M/s. K.L. Poddar & Sons Pvt. Ltd. was also irrelevant because, according to counsel for the assessee, the fact that someone carried on a business with the aid and assistance of someone else was not indicative of the fact that the firm ceased to carry on the business. It is true that the various factors mentioned by the ITO and also the AAC taken by themselves singly did not indicate that either no business was carried on by the firm or there was no firm in existence. But these factors were not irrelevant as such.
9. Same facts neutral in themselves when taken in conjunction with one another may assume colour, to which due weight has to be given. (See in this connection the observations of the Supreme Court in the case of Sree Meenakshi Mills Ltd. v. CIT : [1957]31ITR28(SC) ). When a conclusion is reached on an appreciation of a number of facts established by evidence, whether it is sound or not, must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting in the picture as a whole. Many of the facts which the ITO and the AAC have mentioned in their orders by themselves in isolation may not be conclusive or decisive of the fact whether the firm was genuine or not. But the cumulative effect of these facts is, in our opinion, that there was no evidence at all of any overt act by any of the partners doing anything regarding the management or the carrying on of the business except signing some letters and cheques and these are indicative of the fact that there was in fact no genuine firm but a simple simulation of the same. Partnership is after all the relation between the persons who agree to share the profits of a business carried on by all or any of them acting for all and the persons who have entered into partnership. There must be relationship of agreement to share the profits of the business carried on by all or any of them. Now, the question is : Is there any evidence whatsoever of any act which is indicative of the fact that any of the partners had carried on anything on behalf of themselves in respect of the said business except signing certain letters
10. The Tribunal, in our opinion, misdirected itself in this matter by considering whether there was legality in the transactions. The facts which the ITO and the AAC have mentioned including the fact of the nature of the work done by M/s. K.L. Poddar & Sons Pvt. Ltd. were not on the question of the legality of the firm, but on the question of the reality of the firm. This aspect of the matter, in our opinion, the Tribunal failed to appreciate. Further, the Tribunal relied on the observations of theSupreme Court in the case of CIT v. Sivakasi Match Exporting Co. : [1964]53ITR204(SC) for the proposition that registration cannot be refused because one of the partners was the benamidar of another. In this case, the ITO was not considering the question of refusal of registration on the ground that the firm was a benamidar of M/s. K.L. Poddar & Sons Pvt. Ltd. The AAC and the ITO were considering the question of benami on the ground that there was in reality no firm at all. From this aspect of the matter, the ITO and the AAC had approached the question and had referred to the evidence and the factors mentioned in the order holding that the firm was really a dummy of the company and was not a firm itself. The Supreme Court in the case of Sree Meenakshi Mills Ltd. v. CIT : [1957]31ITR28(SC) had referred to the fact that the word 'benami' is used to denote two different kinds of transactions. It is in the second sense mentioned in the Supreme Court judgment, that is to say, in the sense that the partnership was a fictitious arrangement and the document did not represent the reality that the ITO and the AAC had approached the matter.
11. These two types of benami were also referred to by the Supreme Court in its judgment in the case of CIT v. A. Abdul Rahim and Co. : [1965]55ITR651(SC) . Therefore, in our opinion, though the Tribunal considered that there was no legal infirmity in granting the registration, it did not properly appreciate the evidence that had been mentioned by the ITO and the AAC indicating that there was no genuine partnership.
12. It is well settled that in granting the registration under Section 26A, the ITO has to find out whether there was a genuine partnership firm evidenced by a proper partnership deed. (See also in this connection the observation of the Supreme Court in the case of CIT v. A. Abdul Rahim and Co. : [1965]55ITR651(SC) ). On both these conditions, he has to be satisfied. It was urged before the Tribunal that the firm was assessed as a firm. Therefore, after the assessment it was no longer open to the revenue to say that the firm was factually not in existance. The revenue could reject the registration and in that case the firm might be assessed as an association of persons or an unregistered firm. But having assessed the firm in an application under Section 26A, according to the counsel for the assessee, it was no longer open to the revenue authorities to say that the firm in fact did not exist. This according to him would be inconsistent and not logical and it was not possible for the ITO to hold in an application in respect of proceedings for registration which, according to him, is a part of the same assessment proceeding and to hold that the firm was not entitled to registration because factually it did not exist. It is true that in this case the ITO had proceeded to assess the firm though we are not sure whether any income of the firm has been assessed as such, because, from what appears from the records ofthis reference, it appears that in the previous year there was a nil income. Whether in the year in question there was any income assessed to tax, we were not told. Assuming certain income of the firm has been found to be assessable in the assessment proceeding, the question is : In respect of the proceedings for registration under Section 26A of the Indian I.T. Act, 1922, whether the ITO was free to determine the question of genuineness of the firm It is true that there would be certain inconsistency if a firm is assessed to income-tax and in a registration proceeding it is found that the firm does not exist. Section 23 of the I.T. Act provides for the assessment and Sub-section (5) thereof provides for allocation of tax in different contingencies. It provides by Clause (a) in the case of a registered firm and provides by Clause (b) in the case of an unregistered firm. Therefore, after computing the income the tax payable in the case of a registered firm under Clause (a) has to be allocated in a certain manner and the tax payable in the case of an unregistered firm has to be allocated in a certain manner under Clause (b). Therefore, in order to determine in what manner such allocation would be made either under Clause (a) or Clause (b) of Sub-section (5) of Section 23, an application under Section 26A has to be made for registration in the case of a firm. That application has to be dealt with by the ITO under Sub-section (2) of Section 26A, and such applications made should be dealt with by the ITO in such manner as may be prescribed. One of the conditions, it is well settled, is that the ITO must be satisfied about the genuineness of the firm. It is true that the proceeding for registration is part of the assessment proceedings but it is a separate proceeding. We do not find any warrant for holding that the findings in the assessment are conclusive in the registration proceeding nor do we find support for the proposition that once a firm has been assessed, factual existence of the firm is no longer open to be investigated by the ITO under Sub-section (2) of Section 26A. That would, in our opinion, curtail the powers of the ITO under Sub-section (2) of Section 26A about the investigation into the genuineness of the existence of the firm. It is true as counsel for the assessee contended that there would be certain inconsistency. Such inconsistency, however, sometimes occurs when income is sought to be avoided in the hands of the real owner, as was noticed by the Supreme Court in a different context in the case of ITO v. Bachu Lal Kapoor : [1966]60ITR74(SC) . In that view of the matter, we are of the opinion that the fact that there was an order of assessment in respect of the firm does not preclude the examination of the question whether the firm is genuine or not. There were ample evidence, as indicated in the order of the ITO and the AAC, that the firm was not factually genuine.
13. In that view of the matter, the question referred to us must be answered in the negative and in favour of the revenue.
14. In the facts and circumstances of this case, parties, however, will bear and pay their own costs.
Sudhindra Mohan Guha, J.
15. I agree.