1984 PLP (Trib (PTD)

3. On appeal, the learned A. A. C., unnecessarily incorporated the entire written arguments of the assessee-firm in the appellate order. Good deal of energy was wasted by the learned A. A. C. in making extraneous distinction of incriminatory add exculpatory parts of statements of sale partners. Reliance was placed on a portion of an old decision reported as 17 I T R

51. The learned A. A: C. concluded all the partners to be dummies and the business to be ownership of the Attorney. Registration was refused by the learned A. A. C. inter alla on these basis:

(i) that financial resources of the partner being very limited, their investments were doubtful. (ii) that all the partners have been given equal share in the profit and loss irrespective of their capital investments. (iii) that bank account was operated by the Attorney, (iv) that none of the partners had any past experience of construction business. (v) that the partners were not technically qualified to undertake cons truction contracts and their Attorney being experience was actually at the helm of affairs of business., (vi) that the Power-of-Attorney given by the partners to the Attorney establishes that the real control of business was given to him. The learned A. A. C. was of the view that defects pointed out by him may not be individually fatal but were cumulatively serious to establish that no genuine firm was in existence. Assigned status of U. R. P. was changed and the business was held to be of the Attorney of appellant-firm in his individual capacity.

4. The appellant's A. R. strenuously contended that the departmental officers erred in holding that no genuine firm was in existence. The objections of the officers below were contested to be fallacious and based on extraneous considerations. The appellant's A. R. submitted that if invested capital of the partners was not in accordance with their financial position addition could have been made in individual assessments as investment from un disclosed sources but for the purposes of registration this was not a legal defect in the eye of law. Regarding allocation of equal share of profit and loss as against different invested capital of the partners, the appellant's A. R. stated the objection to be irrelevant as the matter was internal affair of the partners who happened to be closely related to each other. Similarly the objection that the partners had not experience of contractor's business was contested to be just irrelevant consideration as under no law the partners of any firm were required to be full trained in the business to be undertaken by the partnership. The I: T. O.'s objection .of non-appearance on the fixed date, i. e. 29-11-1982 was challenged to be factually incorrect. as all the, partners were present and on that very date the Inspector recorded their statements in the office and submitted his report, otherwise the partners being residents of different places, it was not possible for the Inspector to contact and record their statements on the same date. The D. R.; on the other hand, submitted that the appellant-firm was not genuinely constituted because entire business was being run and controlled by the Attorney who till the immediately preceding assessment year himself was doing business of a Contractor. The D. R.'s plea was that in such like circumstances to examine genuineness of any firm being in exclusive domain of the Income-tax Authorities, discretion was rightly exercised by holding that the appellant-firm was not genuinely constituted.

5. After hearing the representatives of both the parties and on going through the record, we are of the view that the appellant's claim of registration, of firm has been refused on illegal, erroneous and extraneous considerations. Initially the I. T. O. proceeded in an irresponsible manner by observing that on 29-11-1982 none was present on behalf of the appellant whereas, in fact, all the six male partners were not only present in the office but their statements were recorded on that very date by the Inspector. Not only the required documents i.e. photo-copies of the National Identity Cards; copies of Personal Accounts of the partners. Balance-sheet and Certificate of Registration with the Registrar of Firms were filed but the Inspector also submitted his report on that very date as well. It was merely on the Inspector's re commendations that the I. T. O. proceeded in the matter in a misleading manner. Statements of the male partners fully established the investments, ratio of share profits and the nature of business. Even one partner had stated the fact of employment of an Attorney berate of his experience is construction business. If the appellant-firm had employed an experienced Attorney, neither any irregularity was committed nor any illegality was done. Under law any individual, an A. O. P., a firm or a company has a legal right to appoint any person as its Attorney. In the appellant's case, Attorney did not operate the; Bank Accounts, though, he was authorised to do so as per contents of Power-of-Attorney. The I.-T. O. did not bother to find out the position of bank account. In fact as per certificate, bank accounts were operated by one of the partners, namely; Mr. A .M ..The I.-T. O. dealt with the appellant's case in a careless manner and all the reasons assigned for refusal of registration were erroneous. On appeal, the learned A. A. C., erred in dealing with the issue on the basis of an obsolete law, reported in the case of R ..C ..& Brothers v. C. I. T. 17 I T R

51. Thereafter, such water has flown under the bridges. The ingredients of the relevant section of registration of firm have undergone substantial changes and reported case-law bas totally changed the whole concept of registration of firm. We have no hesitation in observing that the learned A. A. C. has based his decision just of an old decided case whereas all the defects pointed out in the appellate order already stood concluded by various reported cases. In (1963) 7 Taxation (Trib.) 15, it was held that non-rendering of satisfactory explanation regarding investment of the partners was no ground for refusal of registration of firm. In (1960) 2 Tax 84 it was held that firm is not to suffer in its claim of registration if the partners' capital is not satisfactorily explained. In C. I. T. v. Amin Match Works, Dacca P L D 1964 S C 377, Supreme Court of Pakistan laid down that: "Under section 26-A of the Income-tax, Act two conditions have only to be satisfied, firstly, that the firm has been constituted under an instrument of partnership, and secondly, that the instrument has specified the shares of the partners. If these conditions are satisfied, the firm is entitled to registration." In a case reported as 1983 P T D 289 where registration was refused by the I. T. O. as partners comprised of lady partners only and business was done by General Attorney, the Surd High Court held, that since partnership was registered with the Registrar of Firms, where names of the partners are also recorded, the firm was genuine, no matter the business was carried through General Attorney. At the time of decision reported as 17 I T R 51, provisions of section 26-A of the repealed Income-tax Act, were absolutely different. Thereafter, the main section has undergone substantial changes. Reported decision also laid down law different from the one relied by the learned A. A. C. In this view of the matter, there was no sense on the part of the learned A. A. C. in relying on an outdated and irrelevent law. In the facts and circumstances of the instant case, the learned A. A. C. misread the partnership deed as well as the power-of-attorney. Statements of the male partners have not been read as a whole. It was not a case of genuineness of a firm merely on the basis of contents of partnership deed rather all the male partners had admitted execution of partnership deed, constitution of a firm, nature of business, invested capital and ratio of share of profit and loss of the partners. Merely due to employing of an experienced person and by appointing him as an Attorney, no violation of any specified requirements was made. In case the Attorney failed to file return for the salary income, for his default, genuineness of the appellant-firm could neither be doubted nor effected. Under no provisions of the Partnership Act, the partners are require to be fully trained in the business which is to be undertaken by the firm. We are fortified in ibis view by a decision reported as P L D 1981 Lah. 1, wherein it was held that section 4 of the Partnership Act does not imply all the partners or one of them to physically run the whole show himself. Mere fact that the partners had no past experience and were not qualified to undertake the firm's business is thus no defect in the eye of law having any bearing on genuineness of the firm. Similarly by authorising the Attorney through a Power-of-Attorney to undertake the firm's business, no illegality was committed for the purposes of genuineness of the firm.

7. As a result of the above discussion,, orders of the officers below are vacated and the appellant firm is granted registration for the year under review. The appeal succeeds accordingly. M. Z. M. Appeal accepted.