Partnership deed control does not defeat registration where profit-sharing and mutual agency remain the essential features.

A partnership deed conferring wide managerial and proprietary powers on one partner does not, by itself, negate partnership where the agreement still shows sharing of profits and mutual agency. The Bombay HC explained that registration depends on whether the deed, read as a whole, creates the essential incidents of partnership rather than a master-servant relationship. Common bank operation, profit-sharing, duties to work in the business, and restrictions on outside business supported partnership status, and enlarged control over assets or constitution of the firm was not inconsistent with that result.

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Issues: Whether the assessee firm was entitled to registration under section 26A of the Income-tax Act, 1961, on a proper construction of the partnership deed and whether the relationship between the parties was that of partners or of employer and employees.

Analysis: The essential test of partnership is the existence of an agreement to share profits and the element of mutual agency. The deed provided for common operation of the bank account for partnership business, allocation of profits according to shares, obligations on the partners to devote themselves to the business, and restrictions against engaging in other business. Although one partner was given wide powers of control, ownership of goodwill, stock-in-trade and other assets, and authority to regulate the constitution of the firm, such enlarged management powers were not inconsistent with a partnership if the essential elements of partnership were otherwise present. The Court held that the surrounding terms of the deed, taken as a whole, did not convert the arrangement into one of master and servant.

Conclusion: The assessee firm was entitled to registration under section 26A of the Income-tax Act, 1961. The Commissioner's cancellation of the registration was erroneous, and the question referred was answered in the affirmative in favour of the assessee.

Ratio Decidendi: A deed conferring wide managerial or proprietary control on one partner does not negate partnership where the agreement still satisfies the essential elements of partnership, namely sharing of profits and mutual agency.

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