Genuine partnership and valid gift by book entries supported firm registration despite non-participating partners.

A partnership preceded by gifts to two daughters through book entries can be recognised as genuine where the gifts are real and effective and the partnership deed contemporaneously acknowledges the daughters' capital. The use of book entries does not by itself invalidate a gift; their sufficiency depends on the subject-matter and surrounding conduct. Registration of the firm, notice to banks, and the executed deed supported genuineness, and the daughters' lack of active management did not defeat the partnership because a partner may contribute capital without participating in administration. The assessee-firm was therefore entitled to registration under section 26A, and refusal to register was unjustified.

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Issues: Whether the assessee-firm was entitled to registration under section 26A of the Income-tax Act where the partnership was preceded by gifts to two daughters effected through book entries and followed by execution of a partnership deed.

Analysis: The validity of the partnership turned on whether the gifts to the daughters were real and effective and whether the firm was genuinely constituted. The mere use of book entries did not by itself invalidate the gifts, because the sufficiency of such entries depended on the nature of the subject-matter and the surrounding conduct. The contemporaneous execution of the partnership deed, the express acknowledgment of the daughters' capital in the deed, the registration of the firm, and the notification to banks supported the conclusion that the gifts had been validly made and that the partnership was not a sham. The absence of active participation by the lady partners did not undermine genuineness, since a partner may contribute capital without taking part in management.

Conclusion: The assessee-firm was entitled to registration under section 26A, and the refusal to register was not justified.

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