1964 (2) TMI 98 - HC - Income Tax

High Court grants registration to firm under Income-tax Act based on partnership deed

Himalaya Engineering Company Versus Commissioner of Income-Tax, Bihar And Orissa.

The High Court ruled in favor of the assessee, overturning decisions by lower authorities and granting registration to a firm under the Income-tax Act ... - Issues:1. Registration of a firm under section 26A of the Income-tax Act based on a partnership deed dated April 26, 1955.2. Determination of the genuineness of the partnership deed and the status of new partners.Analysis:The judgment revolves around the registration of a firm under the Income-tax Act based on a partnership deed dated April 26, 1955. Initially constituted with two partners, the firm saw a change in its constitution with the addition of two new partners, the sons of the original partners, with altered profit shares. The Income-tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal all doubted the genuineness of the partnership deed and refused registration under section 26A. The Tribunal specifically held that the new partners were not genuine and that the deed was a sham and nominal document not intended to be acted upon.The Income-tax Appellate Tribunal referred a question of law under section 66(2) regarding the registration of the firm to the High Court. The High Court analyzed the circumstances and arguments presented. The counsel for the assessee contended that the Tribunal's findings lacked supporting material and reasoning to declare the partnership deed as sham. The High Court agreed with the assessee's argument, citing precedents like Umacharan Shaw & Bros. v. Commissioner of Income-tax and Shahabuddin Mohammad Raza v. Commissioner of Income-tax. These cases emphasized that the absence of separate capital accounts or initial capital contributions by partners does not invalidate a partnership if there is no concrete evidence to prove otherwise.Relying on these precedents, the High Court concluded that there was insufficient material to deem the partnership deed of April 26, 1955, as invalid. The Court held that the firm constituted under this deed was genuine and should have been granted registration under section 26A of the Income-tax Act. Consequently, the question of law was answered in favor of the assessee, overturning the decisions of the lower authorities. The High Court declined to award costs in this matter.In summary, the judgment highlights the importance of substantial evidence in determining the genuineness of a partnership deed for registration under the Income-tax Act. It underscores that mere suspicions or conjectures are insufficient grounds to reject registration, especially when there is no concrete proof of the partnership being non-genuine.