Law:

Section:

Section 4 of the Income-tax Act, 1961 - Firm Assessment Of - Assessee-firm made transanctions through another firm R to whom it paid commission - In separate proceedings, firm r had been found by tribunal to be not genuine - ITO clubbed R's income with assessee-firm's income, holding that R was benami of assessee - tribunal, without going into question of genuineness of r, reversed ITO'S order by holding that r was not benami of assessee - Whether tribunal's finding that r was not benami of assesses was correct - Held, on facts, yes - Whether tribunal was justified in directing exclusion of R's income from assessee's income without going into question of genuineness of R - Held, on facts, no [matter remanded for further consideration] FACTS The assessee was a firm consisting of four partners. For the relevant assessment year the assessee had made most of its purchases through another firm R and had paid commission and interest to it. One of R's partners was the son of a partner in the assessee-firm while the other two partners were the wives of two of the other partners of the assessee-firm. None of the partners of the firm R ever stayed at Bombay, though its business was carried on there by a power of attorney agent, through whom the assessee had been making its purchases prior to the constitution of the firm R. In separate proceedings, the firm R had been found by the Tribunal to be not genuine and refused registration. In the present proceedings, the ITO held that the firm R was the benami of the assessee-firm and, therefore, clubbed the income of the former with the income of latter. On appeal, the Tribunal found from the entries in the books of account that the department had failed to establish that the capital contribution for the firm R came from the assessee-firm. The Tribunal also did not find any motive for the setting up of R as a benami firm. Adverting to the relationship between the parties who were partners of the assessee-firm and R, the Tribunal held that one of the partners of the assessee-firm was not interested in the firm R and, therefore, all partners of the assessee-firm could not be stated to have derived any benefit by setting up R as a…

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