Genuine partnership status upheld despite benamidar allegations and special rights in the partnership deed.

A partnership is not rendered nongenuine merely because one partner is alleged to be a benamidar or because the deed reserves proprietary rights in capital-contributing partners and allows adjustment of profit shares or admission of new partners. The court held that partners may contractually define their mutual rights and obligations, and such terms do not destroy the essential relationship of partnership if the arrangement still reflects real partnership inter se. On that basis, the firm was treated as genuine and entitled to registration, and refusal of registration on the ground of nongenuineness was held to be wrong.

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Issues: Whether the firm constituted under the partnership deed was a genuine firm entitled to registration under section 26A of the Indian Income-tax Act, 1922.

Analysis: The finding that one partner was only a benamidar of another could not by itself deprive that person of partner status as against the remaining partners. The deed's provisions reserving proprietary rights in the capital-contributing partners and conferring power to introduce new partners and adjust profit shares did not destroy the essential character of partnership. Partners were free to define their mutual rights and obligations by contract, and the power to admit new partners was consistent with the statutory rule that such admission otherwise requires consent of all partners. The arrangement therefore did not justify the conclusion that the working partners were not real partners.

Conclusion: The firm was a genuine partnership and the Tribunal was wrong in refusing registration on the ground that it was not genuine.

Final Conclusion: The reference was answered in favour of the assessee, and the partnership was held to be genuine and capable of registration.

Ratio Decidendi: A partnership is not rendered nongenuine merely because one partner is a benamidar or because the deed gives special proprietary or managerial rights to some partners, so long as the contractual arrangement preserves the essential relationship of partnership.

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