Firm registration depends on existence as constituted by deed, not later breach of partnership terms

A firm remained entitled to registration under section 26A where its application was properly made and the firm existed as constituted by the partnership deed at the time of filing. Rule 4 requires the Income-tax Officer to be satisfied that there is or was a firm in existence in accordance with the instrument of partnership and that the application is properly made. A later failure by the partners to credit interest on capital as provided in the deed did not invalidate the application or by itself show that the firm was not constituted as stated in the instrument. Registration could be refused only if the firm did not exist as constituted by the deed.

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Issues: Whether a firm is entitled to registration under section 26A when, after filing a properly made application and while the firm existed as shown in the instrument of partnership, the partners later failed to credit interest on capital as stipulated in the deed.

Analysis: Rule 4 of the Rules framed under section 59 of the Income-tax Act permits registration if the Income-tax Officer is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made. The application remained properly made on the date of filing, and the existence of the firm as constituted by the deed was not in doubt. A later failure to credit interest on capital did not render the application invalid or by itself show that the firm was not constituted in accordance with the instrument. Refusal of registration can rest on the non-existence of the firm as constituted by the deed, not on a subsequent departure from one of its terms.

Conclusion: The firm was entitled to registration under section 26A, and the answer was given in favour of the assessee.

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