ORDER
N.D. Raghavan, Vice President
1. This is an appeal by the assessee, challenging the order dated 27.7.2003 of the CIT(A), as erroneous.
2.1 Facts of the case in brief are THAT: In connection with scrutiny assessment proceedings in the case of the assessee for the assessment years 1997-98 onwards, summons under Section 131 of the Act were issued to the Managing Partners, Smt. S. Laxmi and Shri K. Ramulu. Sworn statements of the above two persons were also recorded on 3.8.1999 and 12.8.1999. While recording the sworn statements, details of the partners of the firm during the accounting year relevant to the assessment year 1998-99 and also on the date of recording the statements, have been ascertained. The said sworn statements revealed that as on 3rd August, 1999, there were only three partners, viz. Smt. S. Laxmi with 75% share, her husband Shri K. Ramuloo with 5% and S. Mata with 20% share; that S. Mata was not a living person, but Goddess Santoshi Matha; and that her share of profit would be utilized for spiritual purposes. Relevant portions of those sworn statements were extracted by the Assessing Officer on pages 3 and 4 of the assessment order. On a perusal of the statements of these two Managing Partners, the Assessing Officer observed that one of the partners of the assessee-firm is non-existing and artificial partner, created by the other partners and shown as an existing partner. He, therefore, concluded that in terms of Section 185, there was failure on the part of the assessee to comply with the provisions of Section 184, and as such, it has to be assessed in the same manner as AOP. The observations of the AO in this behalf, in para 7 of the assessment order, are as follows-
7. As per Explanation to Section 184(2) of the I.T. Act, it is stipulated that for claiming status as that of the firm, the assessee should enclose a copy of the instrument of the partnership certified in writing by all the partners not being a minor. In the assessee’s case, certified copy of the partnership deed filed for the asst. year 96-97 is not in accordance with this stipulation. It is not known who has signed as “Matha” both in the original partnership deed and certified copy. It is curious to note that partner at sl.No. 3 of the deed dt. 20th Oct., 1995 is shown as Ms. Matha, d/o Ganapathi, aged about 19 years, R/o. Nizamabad. This, it is clear that the other partners have created fictitious partner in the guise of S. Matha and furnished fictitious name, age and share etc. without any supporting proof. As the partnership is claimed to have been entered into with a non-existing and fictitious person, the firm cannot be treated as such, since there could be no valid partnership under the partnership Act between existing and non-existing persons. The claim of assessee that “S. Matha” is Goddess Santoshi Matha and the capital in her name was invested by partner, S. Laxmi, for which she filed returns subsequently including the income falling to the share of “S. Matha” is clearly an afterthought, as such creation of fictitious partner was not mentioned in the. original partner deed dt. 20-10-95 for reasons best known to the partners. Even the case law cited by the assessee relates to provisions of Sections 184/185 before their amendment by the Finance Act, 1992 (w.e.f. 1.4.93). Hence, the claim of the assessee of its status as that of the firm cannot be conceded to and therefore, has to be rejected….
He accordingly completed the assessment of the appellant treating its status as an AOP. Since the income returned for the year under appeal exceeded the taxable minimum, invoking the provisions of Section 1 67B(2)(1), he charged the tax on the income determined at maximum marginal rate.
2.2 On appeal before the CIT(A), assessee besides reiterating the contentions urged before the Assessing Officer, submitted that in terms of the amended provisions of Section 184/185, submission of a certified partnership deed was the only requirement to be assessed as a firm. This contention was rejected by the CIT(A) observing that falsehood cannot be allowed to be built up merely on the ground of sole legal requirement. Reliance was also placed before the CIT(A) on the decision in the case of Bhagwanchand S. Jain & Go. v. Additional CIT 127 ITR 770, where, considering allocation of 5 paise in a rupee to charity, it was held that such allocation was not by way of share to a partner but only distribution of profits providing for a reserve in favour of charity to that extent, and as such the firm was entitled to registration. The CIT(A) distinguished the facts of that case from that of the instant case, with the following observations –
But in the instant case, even the facts are not similar. An attempt has been made to project that S. Mata as a living person which is illegal. One of the other partners was signing for S. Mata, and the requirement of the partnership deed having to be signed by all the partners is not fulfilled. Finally as of August 99 only two partners remained, S. Lakshmi and K. Ramuloo and the fictitious person S. Mata. There Is no evidence that S. Mata denotes Goddess Mata or that the other partners knew about S. Mata was a fictitious person or a deity or that certain proportion of the profits was to be set apart for spiritual purposes. To this extent the partnership deed is not valid. The status is upheld as AOP to be taxed at maximum marginal rate….
Besides, therefore, upholding the action of the Assessing Officer in completing the assessment treating the status of the assessee as an AOP, the CIT(A) enhanced the assessment by directing the Assessing Officer to disallow interest and “remuneration payments made to the partners, since the claim for assessment in its status as firm was not accepted, and thus to make additions of Rs. 96,884 and Rs. 19,500 respectively.
2.3 Aggrieved by the order of the CIT(A) dated 27.3.2003, assessee preferred this second appeal before the Tribunal.
3. The learned Counsel for the assessee submitted THAT: The Appellate Commissioner erred in confirming the order of the Assessing Officer in treating the assessee as an AOP instead of a partnership firm. After amendment of the provisions of Section 184 of the Income Tax Act with effect from 1.4.1993, the partnership has to be treated as a firm, if the conditions mentioned in Section 184 are satisfied, and since in the instant case all such conditions are satisfied , the status of the assessee should have been treated as a partnership firm as claimed by the assessee. Under the amended provisions of Section 184, there is no possibility of verifying the genuineness of the partnership firm for treating the status as a firm. Without prejudice to these contentions, the learned Appellate Commissioner erred in holding that the partnership is invalid simply because Goddess S. Matha is introduced as a partner and one of the partners signed on behalf of Goddess in the partnership deed. The learned Appellate Commissioner erred in enhancing the income by directing the Assessing Officer to make additions of Rs. 96,884 being interest paid to. partners; and of Rs. 19,500 being remuneration paid to partners, since the status of the assessee is determined as an AOP. The learned Appellate Commissioner also erred in holding that the income of the AOP is chargeable at the maximum marginal rate, especially when profit is shared according to the known profit ratio. Paper-book filed before the Tribunal may be seen, which contains the written submissions filed before the CIT(A) as well as the partnership deed amended on 20.10.1995, besides para-4 of the order of the CIT (A)- impugned at pages 2 and 3 thereof. The point that boils down is as to whether or not the assessee can be considered under Section 184 as a firm or Association of Persons and whether salary and interest paid to partners is allowable under Section 40(b). To strengthen the claim of the assessee that the firm has been validly constituted under a partnership deed, which is validly existing,- and that therefore salary and interest of the partners have to be allowed under Section 40(b), reliance is placed on the decisions following-
(a) CIT v. Abdul Rahim 55 ITR 651-SC
(b) Official Trustee of West Bengal v. CIT 93 ITR 348-SC
(c) Bhagwanchand Jain And Co. v. CIT 127 ITR 770-Kar.
4. On the other hand, the learned Departmental Representative countered the above submissions of the assessee and, to say in brief, supported the order impugned, besides submitting THAT: Ingredients of a valid partnership may be clearly seen under Section 4 of the Partnership Act. In the instant case, the partnership is an invalid one. This aspect is clearly brought out by the argument of the assessee relying upon the case law to bring in benami aspect of the matter, as such aspect was never the intention of the Department but of the assessee only. The authorities below have clearly analysed the situation and meticulously examined the issue, and have rightly come to the conclusion that there could be no valid partnership under the Partnership Act between existing and non-existing persons, and that, therefore, the assessee’s claim of its status as a firm, could not be conceded. The Assessing Officer has clearly given his finding that ‘it is not known who has signed as Matha both in the original partnership deed and certified copy. It is curious to note that partner at sl. No. 3 of the deed dt.20th Oct., 95 is shown as Ms. Matha d/o. Ganapathi, aged about 19 years, R/o. Nizamabad. Thus, it is clear that the other partners have created fictitious partner in the guise of S. Matha and furnished a fictitious name, age, and share etc. without any supporting proof.’ If such kind of partnership is held to be valid and the assessee’s contention would be accepted, much larger repercussions would happen in future in the society even to the extent of a single person forming partnership with God. Therefore, this is a fittest case wherein the order impugned has necessarily to be sustained by throwing out the unreasonable stand taken by the assessee. Reliance is also placed on the decisions following-
(a) Rao Bahadur Ravulu Subba Rao v. CIT 30 ITR 163-SC at 166
(b) CIT v. Tapang Light Foundry and Co. 147 ITR 591-Cal.
5.1 Rival submissions heard and relevant orders read, including the case laws relied upon by the parties and relevant provisions of the concerned statutes, namely not only under the. Income Tax Act, but also under the Indian Partnership Act, apart from those papers filed in the paper-book. filed by and on behalf of the assessee and referred to therein in the course of arguments. After doing so, I am of the considered opinion that the defence of the Revenue has substantial force unlike the stand of the assessee especially when the case-laws relied upon by the Department come to the rescue of the Revenue unlike those case-laws relied upon by the assessee refusing to assist the assessee being distinguishable.
5.2 The partnership deed in the instant case has made the Deity as one of the partners, by giving misleading identifications, that is to say, as if an existing person, by making the Omniscient as if a resident in a particular place only, by giving THE DEITY’s address, spelling out a parent for the Omnipotent from whom only everything on earth gets its birth and growth, by daring to count and fix the age of the Eternal, Everlasting and Immortal as of 19 years only(!); and also by making such Omnipotent to read and sign the deed, when actually the fate of every living being is written not only in the world, including partners herein, but also in the universe, and signed by such ALMIGHTY. The question that arises, therefore, is as to whether there is a valid partnership entitled for assessment in the status of ‘firm’, and whether the assessee is entitled to deduction in respect of interest and remuneration payments to partners.
5.3 In the case of Abdul Rahim and Co., cited supra, relied upon by the assessee, the Hon’ble Supreme Court has held that the registration of the partnership under the Income Tax Act, could not be refused on the ground that one partner was benamidar of the other partner. This case does not fit into the facts and circumstances of the instant case, for the reason that it is not the stand of the Department, as submitted by the Revenue before us, that there is any involvement of benamidar.
5.4 In the case of Official Trustee of West Bengal cited supra, and relied upon by the assessee again, the Hon’ble Supreme Court has held, no doubt, that a Hindu Deity is an individual within the meaning of that word under the Income Tax Act, and could be treated as a unit of assessment. However, we cannot wear blinkers to our eyes so as not to read the ratio of the Apex Court in the same decision, that it would be only through its shebaits who are in possession and management of its property that its income is assessable. In the instant case, there was no shebait for the alleged partner ‘S. Matha’. The other partners fictitiously created the Creator Herself as a partner in that name, as pointed out by the Revenue. The question before me is not as to whether a Hindu beity could be an assessee, but it is as to whether there could be a valid partnership firm with a Hindu Deity as one of the partners. Hence, this decision of the Apex Court also is not applicable to the facts of the instant case.
5.5 In the case of Bhagwanchand S. Jain, cited supra and relied upon by the assessee, the Hon’ble Karnataka High Court has held that allocation of five paise in a rupee for charity was not by way of share to a partner, but only distribution of the profits providing for a reservation in favour of charity to that extent; and that the loss would be shared in the same ratio as the profits would have been shared by the four partners, and therefore, the firm was entitled to registration. Here also, we cannot wear blinkers to our eyes, when the very same decision has also at the out set held that a partnership deed should be read in a reasonable manner, which the assessee has failed to appreciate. In the instant case, as pointed out by the Revenue, a fictitious person, i.e. The Creator is created by the rest of the so-called partners in the name of a Hindu Deity and made a partner of the firm in terms of the partnership deed, and as such it is a clear-cut case of allocation of share of profit to such Hindu Deity, and not a case of mere ‘distribution of the profits providing for a reservation’ as held in the cited case. As against the cited case, in the instant case, the human beings have dared to do directly business with and not sparing even THE ALMIGHTY by prescribing an Avtar to Hek as a partner of the firm. Thus, this case is also distinguishable and fails to come to the rescue of the assessee.
5.6 On the other hand, in the case of Rao Bahadur Ravulu Subba Rao and Ors. v. CIT, cited supra and relied upon by the Revenue, the Hon’ble Supreme Court has held that as the rules are requiring the application for registration of the firm to be signed by the partner in person, the signature of an agent on his behalf has been held to be invalid. The Apex Court has also further held that such concerned Income Tax Rules are intra vires the powers of the rule making authority. The signature which is prescribed by these Rules is that of the partner himself and they are not complied with by the agent signing the application on his behalf. While so, I am unable to understand as to how a signature affixed on the partnership deed by some one on behalf of an Immortal and Invisible, yet Eternal Deity could be held to be valid. This decision, therefore, definitely comes to the aid of the Department to rule out the claim of the assessee.
5.7 In the case of CIT v. Tapang Light Foundry and Co., cited supra and also relied upon by the Revenue, the Hon’ble Calcutta High Court has held that, in a case where there is a firm with Hindu Deities as partners, no doubt Hindu Deity is a juristic person in an ideal sense and has to operate through a manager or shebait and that as the Hindu Law imposes certain limitations on the power of the shebait, the property of the Hindu Deity could not be ordinarily alienated by the shebait except only under exceptional cases and for the benefit or preservation of the property, as well as that partnership deed providing that capital of partners liable for ordinary losses, the firm cannot be granted registration under Section 184 of the Income Tax Act. Hon’ble Calcutta High Court has also duly taken into account the decisions relied upon by the assessee before me too, and indeed it has also referred to the case of Hoosen Kasam Dada v. CIT 5 ITR 182-Cal., wherein the very same Calcutta High Court proceeded on the basis that a non-personal Being such as The Almighty could not enter into a partnership with material person. Hence, these decisions of the Calcutta High Court squarely apply and fit into the instant case, and the role of The ALMIGHTY could not be reduced either to that of the mortals or to do business for or with the mortals. The roles of the GOD TRIMURTIs, as evident -from the Hindu scriptures, of being a Generator (Creator), Operator (Protector) and Destroyer can neither be assumed by any mortal by creating a non-existing entity in the name of The ALMIGHTY, by protecting/operating the ALMIGHTY fixing the four corners of the address given and determining the age of such ALMIGHTY at a notional figure, nor conversely The God be made to incarnate taking Avtar to protect the business/income of the mortal and to destroy/divert the attempts to bring to tax the legitimate incomes of such human beings.
5.8 Indeed, Chaturvedi and Pithisaria, in their famous Treatise on Income Tax Law, fifth Edition at page-5843(Vol.4) have also dealt with these aspects of the matter. It noted the aforesaid case of Hoosen Kasam Dada v. CIT, wherein Hon’ble Calcutta High Court has also held that an individual cannot at the same time be partner in his individual capacity and also as in a representative capacity. Thus, one and the same individual entering into a partnership in more than one capacity has been not encouraged. Even though this aspect of the matter is not directly on the issue in the instant case, according to the said Commentary an individual, who is sui juris, and competent to contract may well enter into an agreement of partnership alongwith other person or persons. ‘Sui juris’ means a person who is neither a minor nor insane or subject to any disability, i.e. of his own right. An Omnipresent, Omnipotent, Eternal and Ageless Deity cannot be called sui juris, so as to be taken in as a partner of a firm. In the instant case, a Deity may be a juristic person, but only through shebait, and certainly not a sui juris competent to contract. This aspect of the matter has been referred to at page 5854 of the said Treatise. As per the said Treatise, the definition of person under Section 2(31) of the Income Tax Act, 1961 cannot be imported into the Partnership Act, 1932, and it is the Partnership Act alone which is relevant, under Section 2(23) of the Income Tax Act, 1961, for finding out who can be joined as partners for the purpose of the latter Act, as laid down in the case of Agarwal & Co. v. CIT 77 ITR 10 at 14-SC, thus supporting our view, in the following words-
Section 4 of the Partnership Act, 1932, prescribes:
‘Partnership’ is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’ and the name under which their business is carried on is called the ‘firm name’.
In view of the aforementioned provision only “persons” can join as partners. Section 2(42) of the General Clauses Act says a “person” shall include any company or association or body of individuals whether incorporated or not. But this definition applies when there is nothing repugnant in the subject or context. After examining the provisions of the Partnership Act, the Privy Council in Senaji Kapurchand v. Pannaji Devichand AIR 1930 PC 300 and this Court in Dulichand Laxminarayan v. Commissioner of Income Tax have held that an association of persons is not a person within the meaning of that expression in the Partnership Act. It is true that Section 2(9) of the Act says that unless the context otherwise requires “person” includes Hindu undivided family. The definition cannot be imported into the Partnership Act, the provisions of which alone are relevant for finding as to who could join as partners. It is only partnerships constituted according to the provisions of the Partnership Act that can be considered as a partnership under the Act. The definition of ‘person’ in the Act is intended for the purpose of levying income-tax and for other cognate matters.
Indeed, Section 2(31) of the Income Tax Act defines a person as including under Clause (vii), every artificial juridical person, but not falling within any of the preceding sub-clauses.
5.9 Assessee highlighted that there has been an amendment to Section 184, and therefore, subsequent to the amendment, the only stipulation is submission of partnership deed, and such submission has to be taken into account, but it cannot be probed through. According to the assessee, if the ingredients of the amended provisions of Section 184 are fulfilled, the status of the assessee should be taken as firm, without any probe. The point here is that submission of the document is necessary only for the purposes of verification of facts and figures. So, when the existence or otherwise of a partner or validity of constitution of partnership firm itself is the issue, a probe into the same is not barred in such amendment, more so, when even the amended provisions refer to the terms ‘partner’ and ‘partnership firm’ and the Department is entitled to do such verification, whether it is before or subsequent to the amendment. This position is clearly spelt out by the aforesaid Treatise on Income Tax at page 5805. In the circumstances, the attempt of the assessee to bring in the aid of the amendment also does not serve any purpose as that question does not arise.
5.10 Thus, on the totality of the facts and the entirety of the circumstances of the instant case and in the light of the ratio decidendi of several case-laws discussed above, coupled with the concerned provisions of law under different statutes referred to above, I deem it fit and proper not to interfere with the order impugned, except to confirm it as it has well dealt with the issues in question.
5.11 Before parting with this case, I have no hesitation to place on record my appreciation for the alertness and intelligent efforts on the part of the Assessing Officer, but for which we could not have had the Darshan of the missing (Invisible) partner in the assessee-firm with human visibility. Equally, I cannot fail to place on record my appreciation for the strenuous efforts put on by both the learned representatives before me, particularly for the Revenue, to put forth and strengthen their respective stands.
6. In the result, the appeal of the assessee is dismissed hereby.