Question of law on genuineness of firm and effect of partners' power of attorney under income-tax reference procedure

A question arose whether the Tribunal's finding that no genuine firm had come into existence, based on the effect of a general power of attorney executed by the partners and its perceived inconsistency with partnership law, gave rise to a question of law for reference under section 256(2) of the Income-tax Act, 1961. The High Court treated the issue as legal in nature because it concerned the existence of material supporting the Tribunal's conclusion and the legal effect of the power of attorney under section 4 of the Indian Partnership Act, 1932. The applications were allowed and the Tribunal was directed to state the case and refer the question.

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Issues: Whether the question proposed, namely whether there was any material before the Tribunal for holding that no genuine firm had come into existence, gave rise to a question of law warranting a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The Tribunal had recorded its finding on the genuineness of the firm by relying on the effect of a general power of attorney executed by the partners and its view that such conferral of wide powers was contrary to section 4 of the Indian Partnership Act, 1932. On that basis, the applicants sought a reference on the footing that the existence of material for the Tribunal's conclusion was itself a legal issue.

Conclusion: The question was held to be one of law, and the applications under section 256(2) were allowed with a direction to the Tribunal to state the case and refer the question to the High Court.

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