Firm registration under the Income-tax Act can raise a question of law when factual findings lead to a non-genuineness inference.

Refusal to register a firm under sections 184 and 185 of the Income-tax Act, 1961, was treated as raising a question of law where the Tribunal had first made factual findings and then inferred that the partnership was non-genuine. The High Court held that, even though the underlying findings were factual, the legal consequence of those findings for the right to registration and the propriety of drawing a non-genuineness inference could justify a reference under section 256(2). The reference was therefore considered maintainable, and the Tribunal was directed to state the case.

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Issues: Whether the refusal to register the firm, and the inference that the partnership was non-genuine on the facts found by the Tribunal, raised questions of law warranting a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The application concerned registration of a firm for specified assessment years. The Tribunal had recorded factual findings and, on that basis, treated the firm as non-genuine and refused registration. The controversy was whether, applying sections 184 and 185 of the Income-tax Act, 1961, the legal consequence of those findings and the permissibility of refusing registration on those facts gave rise to a question of law. The Court held that although the Tribunal's findings were factual, the effect of those findings on the right to registration, and whether an inference of non-genuineness could properly be drawn, involved a question of law. It therefore considered the reference justified.

Conclusion: The application was allowed and the Tribunal was directed to state the case and refer the proposed questions to the High Court.

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