Law:

Section:

Section 186 of the Income-tax Act, 1961 - Firm - Position prior to 1-4-1993 - Assessment year 1983-84 - By an agreement, a retired partner 'A' was made entitled to 50 per cent share of profits in sale of furniture division of assessee-firm - Whether since such attempt on part of assessee was clearly aimed at reducing profits and tax liability and at same time granting erstwhile partner all benefits of partner as he was enjoying before his retirement, it could be said that agreement in question was not genuine - Held, yes - Whether, therefore, Assessing Officer was justified in refusing registration to assessee - Held, yes FACTS An agreement was entered between one of the partners of the assessee-firm and its retired partner 'A', which provided that the retired partner should be entitled to 50 per cent of the net profit of the steel furniture division and in case of inadequacy of profit, 'A' should be entitled to a minimum amount as his share of profit from the firm which should be his guaranteed share or profit. For the assessment year 1983-84, the assessee-firm paid to 'A' the guaranteed profit out of profit earned by the branch. The Assessing Officer refused registration to the assessee observing that the agreement meant the sharing of profits by 'A' without being a partner and that had been done with a view to reduce the profits and tax liability, therefore, 'A' remained a benami partner in the firm and the firm was not genuinely constituted. On appeal, the Commissioner (Appeals) set aside the order of the Assessing Officer. On further appeal, the Tribunal set aside the order of the Commissioner (Appeals) and restored that of the Assessing Officer. On reference : HELD The Tribunal after appraising the entire material on record, had recorded a finding of fact that the arrangement between four partners and 'A' was sham and was not real and the same had been entered with a view to reduce the incidence of taxation by diverting the profits of the partnership firm and was not for the purpose as mentioned in the agreement. The assessee had not been able to pin-point any error or misreading of evidence on the basis of which he could claim that said finding was…

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