CBDT circulars bind tax authorities on partnership validity, and dual-capacity signing does not invalidate the firm.

A partnership firm is not invalid merely because one partner signs or acts in a dual capacity, where the CBDT has issued a circular stating that such execution does not affect the firm's constitution. The High Court held that income-tax authorities are bound by binding CBDT circulars and cannot disregard them while considering registration issues. On that basis, the proposed cancellation of the firm's registration could not be sustained, and the notice was quashed.

---

---

Issues: Whether a partnership firm is invalid merely because one partner signs the deed in dual capacity, and whether the Assessing Officer could ignore the Central Board of Direct Taxes circular on that question.

Analysis: The Board had taken the view that where a partnership is constituted by two or more persons, one or more of them may sign the deed in dual capacity without invalidating the firm. The Court held that this categorical statement governed the controversy and that the Income-tax Officer was bound by the circulars issued by the Board. On that basis, the proposed cancellation of registration could not be sustained.

Conclusion: The notice proposing cancellation of registration was quashed and the petition succeeded.

Ratio Decidendi: An income-tax authority is bound by a binding circular of the Central Board of Direct Taxes, and a partnership is not invalid merely because a partner signs or acts in dual capacity.

---