Strict compliance governs partner interest deductions and registered-firm status when statutory tax conditions are unmet.

Interest paid to partners on capital introduced by them was treated as an allocation of net profits rather than interest on business borrowing, so the claimed deduction was not admissible. The article also states that a firm which failed to apply for registration within the prescribed time, and lacked a duly executed partnership instrument at the relevant stage, could not later be treated as a registered firm merely because a certificate was subsequently issued. Strict compliance with the statutory definition and procedure was required, and later administrative steps could not create retrospective registered-firm status or alter the tax liability.

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Issues: (i) Whether interest paid to partners on capital introduced by them was an admissible allowance under the Income-tax law; (ii) Whether a firm that did not apply for registration within the prescribed time could nevertheless be treated as a registered firm for the assessment year because a registration certificate was later obtained.

Issue (i): Whether interest paid to partners on capital introduced by them was an admissible allowance under the Income-tax law.

Analysis: The payment was treated not as interest on capital borrowed for business, but as an allocation of a portion of the firm's net profits in favour of partners who had made special advances of capital. The underlying inquiry whether there was a genuine borrowing or merely a capital contribution was treated as one of fact, but on the stated question the payment did not fall within the claimed allowance.

Conclusion: The allowance was not admissible and the answer was against the assessee.

Issue (ii): Whether a firm that did not apply for registration within the prescribed time could nevertheless be treated as a registered firm for the assessment year because a registration certificate was later obtained.

Analysis: Registration depended on compliance with the statutory definition and the prescribed rules, including an application made on or before the due date for the return and the existence of a duly executed instrument of partnership. As those requirements were not met within time, later presentation of an application and later issue of a certificate could not confer registered-firm status for the earlier year or split the liability for super-tax. The court also rejected any reliance on alleged equities or on administrative error to override the statutory definition.

Conclusion: The firm was not a registered firm for the assessment year and the answer was against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue, with the assessees held liable as an unregistered firm and ordered to bear the costs.

Ratio Decidendi: Eligibility for tax deduction or registered-firm status must be established by strict compliance with the governing statutory definition and prescribed procedure, and later administrative acts cannot confer retrospective fiscal benefits where the statute makes timely compliance a condition precedent.

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