ORDER–Assessee, a registered firm, transferred amount separate from profit as charity.
Ratio :
The charity was only a method of keeping fund of
profit separate from accounts of firm so that said amount may not
be available to revenue to tax and said fund was actually enjoyed
by the partners; such charity not being genuine, constituted
valid ground for cancellation of registration in exercise of
revisional jurisdiction.
Held :
If charity is shown in the books of the firm, but has not
been actually met, if a so-called fund in the name of a charity
is created and it is not in existence in the sense that it is
not functioning at all or the charity is only a method of keeping
a certain amount of profits separate from the accounts of the
firm for the purpose of actual division shown in the books
amongst the partners so that finally in the assessment of tax,
the said amount is not available to the revenue but for all
purposes, the partners enjoyed the said amount shown to have been
spent on charity, it will be pertinent to hold that the charity
is not genuine that by transferring a certain amount in such a
way to a fund, the divisible profits are reduced by the said
amount and not divided amongst the partners in accordance with
the deed of partnership and, accordingly, the registration or
renewal thereof is made in ignorance of certain amount of profit
earned or there was a misrepresentation in respect of a certain
amount of profit, which ought to have been divided amongst the
partners, that may justify even cancellation of the registration.
This will constitute a good ground for interference, is the
exercise of the power of revision by the Commissioner, as he is
bound to exercise the jurisdiction is the interests of the
revenue.
(ii) The case is however remitted to the Income Tax Officer for
examination of the question whether the charity to the Fund shown
in the years of accounting by the assessee is genuine or not.
Application:
Not to current assessment years in view of
new scheme of assessment of firms.
A. Y. :
1975-76
Firm-Registration–CANCELLATION–Portion of profit not actually divided amongst the partners but transferred to reserve with specific share of partners available for division in subsequent year.
Ratio :
Even though a portion of profit was not actually
divided amongst the partners yet since the amount was transferred
to a reserve account with specific shares of partners which was
available for division in the following year, it cannot be said
that profits have not been divided among the partners in
accordance with law warranting cancellation of registration.
Held :
Under the circumstances there is no deliberate withholding of information in the sense that the
taxable profit has been divided and credited to the account of
the partnership as amounts contributed by the partners, that is
divisible profits, it will not be proper to say that the profits
have not been divided between the partners in accordance with law
and in that way, the profit sharing ratio is not maintained
between the partners.
Case Law Analysis :
St. Joseph’s Provisions Stores v.
CIT (1962) 45 ITR 380 (Ker) relied on.
Application :
Not to current assessment years.
A. Y. :
1974-75
Income Tax Act 1961 s.182
Income Tax Act 1961 s.183
Income Tax Act 1961 s.186
Firm-Registration–CANCELLATION–Transfer of profits to non-genuine charity funds.
Ratio & Held :
Where amount was transferred to charity fund
which was not genuine and in this way divisible profits were reduced,
cancellation of registration was justified.
Held :
Individuals, and like individuals, associations of
individuals, such as partnership firms may be expending some
money on charity. Whether such expenditure will be available as a
deduction or not will in no way be an issue, however, for the
purpose of the registration of a firm for the obvious reason
that, if actually spent, the charity amount in no way will be
available as profit for division amongst the partners. If
charity, however, is shown in the books of the firm, but has not
been actually met, if a so-called fund in the name of a charity
is created and it is not in existence in the sense that it is not
functioning at all or the charity is only a method of keeping a
certain amount of profits separate from the accounts of the firm
for the purpose of actual division shown in the books amongst the
partners so that finally in the assessment of tax, the said
amount is not available to the revenue but for all purposes, the
partners enjoyed the said amount shown to have been spent on
charity, it will be pertinent to hold that the charity is not
genuine warranting cancellation of registration.
Application :
Not to current assessment years.
A. Y. :
1974-75
Income Tax Act 1961 s.182
Income Tax Act 1961 s.183
Income Tax Act 1961 s.186
JUDGMENT
Mishra, J.
1. The assessee, a partnership firm, was registered for the assessment year 1974-75, by the Income-tax Officer. Its registration was renewed for the year 1975-76. The Commissioner, however, called for the records and exercised his powers under section 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), to cancel the registration granted for 1974-75 and 1975-76 and to direct the Income-tax Officer to treat the firm as unregistered for the said assessment years and to recompute the tax accordingly and cancelled the registration for the assessment year 1974-75 and 1975-76 and ordered recomputation of the tax. The assessee appealed before the Tribunal against the said order of the Commissioner. The Tribunal has found that the Commissioner’s order is not proper. The Revenue sought a reference on the common question “whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the Commissioner’s order passed under section 263 of the Income-tax Act, 1961, in cancelling the registration granted to the firm under section 185 was not justified and was not valid in law ?” and eventually pursuant to a direction of this court in T.C.P. Nos. 65 and 66 of 1980, the Tribunal made the reference.
2. The Revenue’s case in this behalf is that the profits of the firm were not divided amongst the partners in accordance with the deed of partnership dated December 29, 1972. For the assessment year 1974-75, the divisible book profits amounted to Rs. 99,143. The firm transferred Rs. 39,143.14 to one Vembathu Ayyanar Swamy Fund and divided the balance amongst the partners, in accordance with the profit-sharing ratio. The firm also kept separate from the profits actually handed over to the partners as shown in the books as a reserve fund. According to the Revenue any reserve fund was not contemplated in the deed of partnership of the assessee. The transfer to the alleged charity of one Vembathu Ayyanar Swamy Fund was contrary to the partnership deed. The registration in such a situation operated against the Revenue. Similarly, the Commissioner found that the profits for the year 1975-76 were not divided in accordance with the deed. The assessee, this year, transferred a sum of Rs. 30,981.64 to Vembathu Ayyanar Swamy fund and separated as reserve fund a sum of Rs. 11,532.
3. Chapter XVI of the Act contains special provisions applicable to firms. Section 182 in the said Chapter says :
“182. (1) Notwithstanding anything contained in sections 143 and 144 and subject to the provisions of sub-section (3), in the case of a registered firm, after assessing the total income of the firm, –
(i) the income-tax payable by the firm itself shall be determined; and
(ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly.
(2) If such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of sections 70 to 75.
(3) When any of the partners of a registered firm is a non-resident, the tax on his share in the income of the firm shall be assessed on the firm at the rate or rates which would be applicable if it were assessed on him personally, and the tax so assessed shall be paid by the firm.
(4) A registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding thirty per cent. thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him; and where the tax so levied cannot be recovered from the partner, whether wholly or in part, the firm shall be liable to pay the tax, to the extent of the amount retained or that could have been so retained.”
4. In the case of unregistered firms, the assessment is ordered under section 183, which says :-
“183. In the case of an unregistered firm, the Income-tax Officer –
(a) may determine the tax payable by the firm itself on the basis of the total income of the firm; or
(b) if, in his opinion, the aggregate amount of the tax payable by the firm if it were assessed as a registered firm and the tax payable by the partners individually if the firm were so assessed would be greater than the aggregate amount of the tax payable by the firm under clause (a) and the tax which would be payable by the partners individually, may proceed to make the assessment under sub-section (1) of section 182 as if the firm were a registered firm; and, where the procedure specified in this clause is applied to any unregistered firm, the provisions of sub-sections (2), (3) and (4) of section 182 shall apply thereto as they apply in relation to a registered firm.”
5. A special provision has been made for the registration of firms, under section 184, and under section 185 of the procedure as to the registration on receipt of application, has been contemplated. The registration already granted in accordance with the procedure under section 185 can be cancelled on the grounds and reasons as stipulated under section 186, which reads as follows :
“186. (1) If, where a firm has been registered, or its registration has effect under sub-section (7) of section 184 for an assessment year, the Income-tax Officer is of opinion that there was during the previous year no genuine firm in existence as registered, he may, after giving the firm a reasonable opportunity of being heard and with the previous approval of the Inspecting Assistant Commissioner, cancel the registration of the firm for that assessment year :
Provided that no such cancellation shall be made after the expiry of eight years from the end of the assessment year in respect of which registration has been granted or has effect.
(2) If, where a firm has been registered or its registration has effect under sub-section (7) of section 184 for any assessment year, there is, on the part of the firm, any such failure in respect of the assessment year as is mentioned in section 144, the Income-tax Officer may cancel the registration of the firm for the assessment year, after giving the firm not less than fourteen days’ notice intimating his intention to cancel its registration and after giving it a reasonable opportunity of being heard.
(3) Where the registration of a firm is cancelled for any assessment year the Income-tax Officer shall amend the assessment of the firm and its partners for that assessment year on the footing that the firm is an unregistered firm.
(4) The provisions of section 154 shall, so far as may be, apply to the amendments of the assessments of the firm and its partners under sub-section (3) of this section, the period of four years specified in sub-section (7) of that section being reckoned from the date of the order cancelling the registration.”
6. Section 263 of the Act, however, empowers the Commissioner to call for and examine the records of any proceeding under the Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The procedure, on receipt of application and registration of a firm, as envisaged under section 185 above, requires an enquiry into the genuineness of the firm and its constitution, as specified in the instrument of partnership and the satisfaction of the Income-tax Officer that there is or was during the previous year in existence a genuine firm with the constitution so specified. If he is not so satisfied, he (Income-tax Officer) may refuse, in writing, to register the firm. Cancellation of the registration is permissible, as envisaged under section 186, by the Income-tax Officer, if in his opinion there was during the previous year no genuine firm in existence and for the reasons, as are spelled out in section 144 of the Act for the best judgment assessment, that is, if the assessee has failed to make the return required by any notice given under sub-section (2) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or failed to comply with all the terms of the notice issued under sub-section (1) of section 142 or failed to comply with a direction issued under sub-section (2A) of that section, or, having made a return, failed to comply with all the terms of the notice issued under sub-section (2) of section 143. Assessment of a registered firm is done on the total income of the firm, that is, the income-tax payable by the firm itself and the share of each partner in the income of the firm. In the case of an unregistered firm, it is determined on the basis of the total income of the firm or the aggregate amount of tax payable by the firm, if it were assessed as a registered firm and the tax payable by the partners individually, if the firm were so assessed, would be greater than the aggregate amount of tax payable by the firm and the tax which would be payable by the partners individually. It is difficult in this scheme of law to find as a ground for cancellation of the registration any defect in the return, unless it is shown that the assessee had failed to make a return required by any notice given under sub-section (2) of section 139 and had not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or failed to comply with all the terms of a notice issued under sub-section (1) of section 142 or failed to comply with a direction issued under sub-section (2A) of that section or, having made a return, failed to comply with all the terms of the notice issued under sub-section (2) of section 143. It will be premature thus to cancel any registration granted to a firm, in accordance with law, on a ground other than the ground that there was, during the previous year, no genuine firm existed, and before a notice issued under sub-section (2) of section 143 (i.e., where a return had been made under section 139, a notice of demand was issued on an assessment having been made under sub-section (1) of section 143, or, whether or not an assessment has been made under sub-section (1) of section 143, the Income-tax Officer considers it necessary or expedient to verify the correctness or the completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf. The Commissioner can exercise his revisional powers only when he considers that any order passed by the Income-tax Officer is “erroneous” in so far as it is prejudicial to the interests of the Revenue. The order passed by the Income-tax Officer can be said to be “erroneous” only when he has failed to take notice of the requirements, as envisaged under sections 184 and 185 of the Act. The requirements envisaged are, (1) the partnership is evidenced by an instrument; and (2) the individual shares of the partners are specified in that instrument.
7. It is possible in a given case, however, to take notice of the presence of the elements of section 143(2)(b) of the Act, where a firm is sought to be assessed as a registered firm and the Income-tax Officer considers it necessary or expedient to verify the correctness and the completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf. In case the Income-tax Officer has failed to exercise such a discretion, the Commissioner in exercise of his revisional power, may act and require the assessee to produce evidence so that the correctness and completeness of the return filed by it can be verified.
8. We have made a brief study of the relevant provisions of the Act with a view only to ensure that exercise of revisional power by the Commissioner should not become a fiat, but should be within the bounds of law and satisfy the need of fairness in administrative action and fair play and full compliance with the requirements of the principles of natural justice as in quasi-judicial proceedings and in making a quasi-judicial order. Section 263 has envisaged a condition that the Commissioner can exercise his power of revision of the order passed by the Income-tax Officer only if the order is prejudicial to the Revenue and in a case where the order passed by the Income-tax Officer is erroneous. We do not intend to give any limited meaning to the word “erroneous”, as an order may be called “erroneous” if it is passed in ignorance or in violation of any law as well as when it is passed without taking into consideration all the relevant facts or is affected by the presence of any irrelevant fact into consideration.
9. In the instant case, we are inclined to grant to the Commissioner the benefit of discretion and do not propose to record that he has exercised his revisional power without exercising the necessary constraints as are to be applied on his discretion by the express language of section 263 of the Act read with other relevant provisions thereof and proceed accordingly to consider, as the Tribunal has considered, the case of the Revenue. The Revenue’s case has been that the profits were not distributed in accordance with the terms of the deed of partnership, in the sense that the funds, that is, the reserve fund as well as contribution on behalf of the assessee-firm to the charity, viz., Vembathu Ayyanar Swamy Fund, were not allocated before finding out the profits and thus amounted to disposal of profits in a manner contrary to the terms of the deed of partnership. The Revenue placed reliance on a decision of the Supreme Court in the case of Khanjan Lal Sewak Ram v. CIT [1972] 83 ITR 175 in support of its case. The appellant-firm, that is, Khanjan Lal Sewak Ram before the Supreme Court, had applied for the renewal of the registration for the assessment year 1948-49 under section 26A of the Indian Income-tax Act, 1922. The application was signed by all the partners and in para 3 thereof, they appended a certificate to the effect that “the profits of the previous year were divided or credited as shown below”. Four partners of the firm, however, made a disclosure statement to the Income-tax Officer to the effect that the firm had earned, by way of profit, money outside the books. In that disclosure statement, they further stated that those profits were divided between the partners. Some of the partners approached the Income-tax Officer stating that they were not given their full share of the profits of the business earned by the firm and that the entire profits earned in that business carried on in the previous year were not recorded in the books and the first four partners had given to them only their shares of those profits which were recorded in the books. They sought to withdrawn the application for registration because all the profits earned had not been divided according to their shares. On further disputes inter se between the partners, the Income-tax Officer finally received an application by two of the partners that they were withdrawing their signatures in the application for renewal of the registration as the profits of the previous year were not distributed according to the deed of partnership and the certificate of registration required under rule 4(1) of the Income-tax Rules, 1922, framed under the Indian Income-tax Act, 1922, had never been granted as required by law on the back of the partnership deed. Therein they further stated that, as the certificate under rule 6 had not been granted by the assessee in accordance with law, the firm was not entitled to registration under rule 6 of the Rules. The Income-tax Officer held that the firm had earned considerable black market profits and the same had not been distributed amongst the partners according to the partnership deed and, therefore, the firm was not entitled to the renewal of registration. He further opined that the application for registration stood withdrawn. On the basis of those conclusions, he refused to renew the registration of the firm and taxed the firm in the status of an association of persons. The Appellate Assistant Commissioner upheld the decision of the Income-tax Officer. When the matter came before the Tribunal, the two members constituting the Bench differed inasmuch as the Judicial Member, on the basis of those findings, held that the firm was not entitled to the renewal of registration and the Accountant Member opined that inasmuch as the profits that had been entered in the books had been distributed, there was compliance with the provisions of the Act as well as the Rules. In view of the difference of opinion between the two members, the matter was referred to the President of the Tribunal under section 5A(7) of the Act. The President agreed with the Judicial Member that the firm was not entitled to have the renewal of the registration asked for. The Tribunal then submitted a reference to the High Court at the instance of the assessee. The High Court answered the question, “Whether the assessee-firm which had distributed its book profits amongst the partners according to the instrument of partnership but which had not distributed the profits earned by it in the black market amongst the six partners in accordance with the instrument of partnership was entitled to renewal of registration for the assessment year 1948-49”, in favour of the Revenue. Although the facts of the case before us are substantially different and the incidence that may fall finally as to the application of the law on the facts of the instant case, may be completely different from the incidence that followed in the case of Khanjan Lal Sewak Ram we find for the purposes of approval of the exercise of jurisdiction by the Commissioner in the instant case, one element present, that is, when in the instant case admittedly the money kept in the reserve fund and the money gifted to charity, constituted the profits of the firm, and if such reserve fund and charity fund were not created and done in accordance with law and were not genuine, they were as profits, available for distribution amongst the partners and admittedly the amounts in the reserve fund and the charity were not distributed to the partners, as profits, but were shown as reserve with the shares of the partners identified therein and gifted by the firm, on behalf of the partners.
10. The Tribunal has quoted the relevant passage from the judgment of the Supreme Court in Khanjan Lal Sewak Ram’s case [1972] 83 ITR 175, which is as under (at page 180) :
“The reason behind rule 6 was that, at the relevant time, the registered firm as such was not taxable. Only the partners of the firm could be taxed. That being so, if a portion of the profits earned by the firm was not divided amongst the partners or credited to their accounts, to that extent, the profits earned by the firm escaped assessment. Therefore, the certificate contemplated by rule 6 is not a mere formality. It has a definite purpose. If a portion of the profits earned by the firm was not actually divided amongst the partners or credited to their accounts, then the only course open to the Income-tax Officer was not to register that firm and to tax the partners of the firm as an association of persons. By giving a false certificate that the profits earned by the firm had been divided or credited in the manner shown in the application, the assessee-firm was trying to evade tax. Hence, we must hold that the application for renewal of registration made by the assessee did not comply with the conditions prescribed in paragraph 3 of rule 6. Hence, the Income-tax Officer was justified to refuse to renew the registration.”
11. Now, it is pertinent to quote from the aforesaid judgment of the Supreme Court the relevant rules, which are found in the passage extracted below (at page 179) :
“This court has ruled in Agarwal and Co. v. CIT that the conditions of registration prescribed by section 26A (Indian Income-tax Act, 1922) and the relevant Rules (Income-tax Rules, 1922) are :
1. On behalf of the firm, an application should be made to the Income-tax Officer by such person and at such times and containing such particulars, being in such form and verified in such manner as are prescribed by the Rules;
2. The firm should be constituted under an instrument of partnership;
3. The instrument must specify the individual shares of the partners; and
4. The partnership must be valid and must actually exist in the terms specified in the instrument.
Therein it was further laid down that if those conditions are fulfilled, the Income-tax Officer is bound to register the firm. The same rule will apply in the case of renewal of registration. In this case, we are primarily concerned with the question whether the application made by the firm is in accordance with the Rules prescribed. The Rules with which we are concerned in this appeal are paragraph 3 of rule 6 and rule 6A. Paragraph 3 of rule 6 provides that the partners should append the following certificate to their application for renewal of registration :
‘We do hereby further certify that the profits (or loss, if any) of the previous year or period up to the date of dissolution were/will be divided or credited as shown below ….’
Rule 6A provides that ‘on receipt of an application under rule 6, the Income-tax Officer may, if he is satisfied that the application is in order and that there is or was a firm in existence constituted as shown in the instrument of partnership, grant to the assessee a certificate signed and dated by him in the following form …’ It further provides :
‘If the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to renew the registration of the firm’.”
12. The Supreme Court then said (at page 179) :
“Now, the sole question for decision is whether the application made in this case complied with the requirements of paragraph 3 of rule 6. If it did not comply with the requirements of rule 6, the Income-tax Officer was within his powers in rejecting it. As seen earlier, the finding of the Tribunal is that though the profits of the firm entered in its account books had been distributed, the profits earned but not entered in the account books have not been divided or credited in the account books.”
13. From that, the Supreme Court has held (at page 179) :
“…. it follows that the certificate given in the application for renewal of registration is not a true certificate and further that a substantial portion of the profits earned has not been divided.”
14. The judgments of the different High Courts, which were brought to the notice of the Supreme Court were noted, but the court found that they had no bearing on the point in issue and said (at page 182) :
“we have not gone into the question whether all or any of them were correctly decided or not.”
15. The Andhra Pradesh High Court in the case of Variety Hall and Ramakrishna Textiles v. CIT [1972] 84 ITR 202, has taken the view that the failure to disclose certain income and to divide the same amongst the partners in accordance with the terms of the partnership deed does not by itself disentitle a firm to be registered as long as the partnership is evidenced by an instrument of partnership and there is no reason to doubt the genuineness of the partnership.
16. Mention is made in this judgment of an earlier judgment of the Andhra Pradesh High Court in the case of Chintalapatti Ranga Naikulu v. CIT [1963] 48 ITR 968, in which, it is held that where an instrument of partnership contemplated the division of all the profits but a portion of the profits was carried to the next year’s account the registration should be refused. In the words of the learned judge, who decided the case in Variety Hall and Ramakrishna Textiles [1972] 84 ITR 202 (at page 205) :
“In the said judgment, it was laid down that one of the essential conditions to be fulfilled in order that a firm is entitled to registration is that the profits (or loss, if any) of the business relating to the previous year should have been divided or credited as the case may be in accordance with the terms of the instrument. If the profits are not so divided, the firm cannot claim to be registered under section 26A of the Act. In the instant case he points out that a sum of Rs. 15,000, which is now estimated to be the income suppressed by the assessee, was not admittedly divided among the partners as contemplated by clauses IV, V and VI of the partnership deed. The failure to divide a portion of the profits among the partners in accordance with the terms of the partnership deed does not by itself disentitle the firm to be registered so long as the partnership is evidenced by an instrument of partnership and there is no reason to doubt the genuineness of the partnership and the Income-tax Officer is satisfied that there is a firm in existence constituted as shown in the instrument of partnership.”
17. We have support for our view as to the exercise of the revisional jurisdiction by the Commissioner from the judgment of the Supreme Court in the case of CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130 and some support for the contention of the Revenue that but for the order of the Commissioner, the firm would have escaped assessment in accordance with law at least in respect of the profits which it reserved and which profit was not distributed amongst the partners in accordance with the terms of the deed of partnership and also which was shown as delivered to a charity fund, but was not distributed to the partners in accordance with the deed.
18. The problem faced by us, however, is not fully answered by any of the judgments above. So far as the reserve fund is concerned, it is seen that the share of each of the partners was carried to the reserve fund and each partner was shown as having contributed his share to the reserve fund. A Bench of the Kerala High Court in the case of St. Joseph’s Provisions Stores v. CIT [1962] 45 ITR 380 has indicated that the partners of a firm, who had resolved that the profits of the firm as disclosed in the profit and loss account need not be divided and credited in the accounts of the partners, but should be credited to a reserve account in which the share of each partner therein should be stated and the profits were accordingly taken to the reserve account, it did not violate rule 6 aforementioned. It is held in this judgment that the absence of entries in the separate accounts of each partner was not fatal. The requirement of rule 6 was met when the profit was taken to the reserve fund showing the partners’ shares separately and indicating what was the contribution of each partner to the reserve find and the application for registration was not liable to be rejected on the ground that rule 6 had not been complied with. The learned judge, who delivered the judgment in Chintalapatti Ranga Naikulu’s case [1963] 48 ITR 968 (AP), however, has commented upon this judgment of the Kerala High Court in these words (at page 971) :
“All that the learned judges said was that immediate user was not required and the position was not different where the profits of the year had been taken to the reserve account after the shares of the partners in the aforesaid amount were shown.”
19. The consensus, however, which we derive from the authorities on the subject is that if a portion of the profits earned by the firm was not actually divided amongst the partners, but was shown in a reserve account with specific shares of the partners therein available for division in the following year, there is no deliberate withholding of information in the sense that the taxable profit has been divided and credited to the account of the partnership as amounts contributed by the partners, that is divisible profits, it will not be proper to say that the profits have not been divided between the partners in accordance with law and in that way, the profit-sharing ratio is not maintained between the partners. We have given our anxious consideration, however, to the charity by the firm and exclusion of that income altogether from the profits of the firm, which was to be divided amongst the partners. We are inclined to assume that individuals, and like individuals, associations of individuals, such as partnership firms may be expending some money on charity. Whether such expenditure will be available as a deduction or not will in no way be an issue, however, for the purpose of the registration of a firm for the obvious reason that, if actually spent, the charity amount in no way will be available as profit for division amongst the partners. If charity, however, is shown in the books of the firm, but has not been actually met, if a so-called fund in the name of a charity is created and it is not in existence in the sense that it is not functioning at all or the charity is only a method of keeping a certain amount of profits separate from the accounts of the firm for the purpose of actual division shown in the books amongst the partners so that finally in the assessment of tax, the said amount is not available to the revenue but for all purposes, the partners enjoyed the said amount shown to have been spent on charity, it will be pertinent to hold that the charity is not genuine, that by transferring a certain amount in such a way to a fund, the divisible profits are reduced by the said amount and not divided amongst the partners in accordance with the deed of partnership and, accordingly, the registration or renewal thereof is made in ignorance of certain amount of profit earned or there was a misrepresentation in respect of a certain amount of profit, which ought to have been divided amongst the partners, that may justify even cancellation of the registration and that, in our view, will constitute a good ground for interference, in the exercise of the power of revision by the Commissioner, as he is bound to exercise the jurisdiction in the interests of the Revenue.
20. We are inclined in the instant case to direct to remit the case to the Income-tax Officer for examination of the question whether the charity to one Vembathu Ayyanar Swamy Fund shown in the years of accounting by the assessee is genuine or not. The Income-tax Officer for the said purpose shall give to the assessee opportunity to bring to his notice such evidence which would show that such a charity was in fact made in the said years by the assessee. We observe, however, in addition to the direction, that the Income-tax Officer would examine whether any further proceeding would be of any help to the Revenue and benefit the Revenue. If he is of the opinion that further proceedings would only encumber and would help none, and the amount of revenue involved is not very high, he may not proceed further and may take the findings of the Tribunal in this behalf as final. While considering whether to proceed further, the Income-tax Officer may take into consideration the fact whether in the subsequent years to the assessment years involved in the instant proceedings, the claim of the assessee as to charity has been accepted. In case the claim of the assessee to charity in the subsequent years has been accepted, he may not proceed at all, as the charity, which has been upheld as genuine and valid for so many years by now, should not for some years alone be said to be not genuine.