Partnership registration cannot be refused where profits are fully reallocated among continuing partners after retirement under the deed.

Where the genuineness of a partnership firm is undisputed and registration formalities are complied with, registration cannot be refused merely because, after one partner's retirement, the continuing partners' revised shares do not total 100 per cent on paper. The Rajasthan HC noted that the entire profit was in fact distributed among the remaining partners in accordance with the partnership arrangement, and the retiring partner's share had been absorbed in the reallocation. On those facts, the profits were treated as properly divided and registration was sustained.

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Issues: Whether the Tribunal was right in holding that refusal of registration to the partnership firm was not justified where the profits, after retirement of one partner, were divided among the remaining partners in accordance with the partnership arrangement.

Analysis: The firm's genuineness was not in dispute and the statutory formalities for registration had been complied with. After the retirement of the partner holding 37 per cent share, the remaining partners were credited with profits in the ratio of their respective shares, resulting in distribution of the entire profit among them. The fact that the aggregate remaining shares totalled 63 per cent did not mean that 37 per cent of the profits remained undistributed, because that portion had effectively been absorbed in the reallocation among the continuing partners. On these facts, the profits were treated as having been properly divided in accordance with the partnership deed.

Conclusion: The refusal of registration was not justified and the Tribunal was right in sustaining registration of the firm.

Final Conclusion: The reference was answered in favour of the assessee, affirming that the firm was entitled to registration.

Ratio Decidendi: Where the genuineness of a partnership firm is undisputed and, after a partner's retirement, the entire profits are in fact distributed among the continuing partners according to the revised partnership shares, registration cannot be refused merely because the original aggregate share totals do not add up to 100 per cent.

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