2001 PLP 1444 (PTD)

NASIM SIKANDAR, J.‑‑‑The, Lahore Bench of the Income‑tax Appellate Tribunal has framed following question of law for our consideration and reply:‑‑‑ "Whether on the facts and circumstances of the case, the learned Tribunal was justified to hold that non‑production of account books could not lead to the inference that the firm was not genuine and registration could not be cancelled?"

2. According to the statement of the case, the assessee‑respondent derives income from a commission agency of Pakistan State Oil for kerosene oil. For the assessment year, 1984‑85 a return was filed in the status of registered firm. During the course of assessment proceedings the Assessing Officer required the assessee to produce books of accounts but the same were withheld. However, on the failure of the assessee, the Assessing Officer issued him a show‑cause notice as to why its registration should not be cancelled. In absence of compliance, by way of an order, dated 30‑3‑1985 he proceeded to cancel the registration of the firm earlier allowed under section.68(5) of the Income Tax Ordinance, 1979. Accordingly a status of U.R.F. was assigned to the assessee. The assessee failed before the First Appellate Authority while the Tribunal found in its favour. It was held that the Assessing Officer committed a legal error in cancelling the registration merely on the ground that account books had not been produced though the Assessing Officer could draw an adverse inference in regard to the income but not in regard to the genuineness of the firm.

3. After hearing the learned counsel for the revenue we are of the 'view that the question if a genuine firm was in existence is necessarily a question A of fact and, therefore, does not give rise to a legal controversy. In re: Commissioner of Income‑tax, Rawalpindi v. Zamindara Flour Mills, Lyallpur (1970 SCMR 530), the apex Court maintained the dismissal order recorded by this Court in Miscellaneous Application 1Vo.4993 of 1969. In that or4er it was concluded that the question whether the partnership existed before 1st of March; 1963, that is prior to the' date of the execution of the partnership deed, was a question of fact.

4. The Supreme Court of India in re: Krishan Flour Mills v. Commissioner for Income‑tax, Bangalore (1962) 5 Taxation 165 and re: Ratanchand Darbarilal v. Commissioner of Income‑tax, M.P. (1985) 155 ITR 720, has also held the view that the genuineness of a firm was normally a question of fact. In a recent judgement that Court on an identical issue in re: Prem Family (Pvt.) (Specific) Trust v. Commissioner of Income‑tax 1998 PTD 241 concluded that genuineness of a trust was a question of fact and therefore; Allahabad High Court was found unjustified in allowing application of the revenue under section 256(2) of the Income‑tax Act.

5. It is a well‑settled rule that an inference of fact from proved facts is a question of fact which could be challenged only when it was not supported by any legal evidence or material and secondly, that the conclusion of fact drawn by the Appellate Tribunal was perverse and was not rationally possible. Also reference in this regard is made to the judgment of the Punjab and Haryana High Court in re: Additional Commissioner of Income‑tax v. Roshan Lal Kuthiala (1977) 35 Tax 27.

6. In the light of the aforesaid pronouncements we are also of the view that existence or genuineness of a firm is normally a question of fact and therefore, cannot be a subject‑matter of reference to this Court under section 136(1) of the Income Tax Ordinance, 1979 unless it arises in the two situations discussed by the Punjab and Haryana High Court in re: Additional Commissioner of Income‑tax v. Roshan Lal Kuthiala (supra).

7. Answer declined. M. B. A./C‑61/L Answered declined.