Genuineness of partnership deed governs firm registration when tax authorities find the arrangement to be a sham.

Income-tax authorities may examine the genuineness of a partnership deed when considering registration of a firm, and they are not confined to the document's form if evidence shows the arrangement is bogus or a sham. Circumstances such as no settlement of prior accounts, no capital accounts, and indicators that the deed was created to secure tax advantage can support a finding that the partnership was not intended to be acted upon. The presence of a minor partner does not prevent such scrutiny. Where evidence supports the finding of a fictitious deed, the High Court in reference jurisdiction will not reweigh that evidence, and refusal of registration may be sustained.

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Issues: Whether, on an application for registration of a firm under the Income-tax Act, the income-tax authorities are entitled to look beyond the partnership deed and refuse registration if the deed is found to be bogus or a sham.

Analysis: The application arose out of a request for a reference under Section 66(3) of the Income-tax Act concerning registration of a firm under Section 26-A. The material before the income-tax authorities showed circumstances from which they could infer that the partnership deed was not genuine, including the absence of settlement of prior accounts, absence of capital accounts, and features suggesting that the deed was drawn up to obtain an undue tax benefit. The existence of a minor partner did not prevent scrutiny, and the authorities were entitled to examine whether the deed reflected a real arrangement. Where there is evidence supporting a finding that the deed is a sham, the High Court will not reweigh that evidence in reference jurisdiction.

Conclusion: The income-tax authorities were competent to disregard the partnership deed if they found, on evidence, that it was fictitious or not intended to be acted upon, and the refusal to register the firm was upheld.

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