Genuine partnership required for firm registration; failure to produce an alleged partner can justify adverse inference and refusal

Registration of a firm under section 26A of the Indian Income-tax Act, 1922 requires proof of a valid, genuine partnership actually existing in accordance with the partnership instrument; a mere deed stating shares is not enough. The Income-tax Officer may verify whether the alleged partners are real and whether the arrangement is bona fide. Here, the alleged partner was not produced despite opportunity, although her examination was necessary to test the claimed capital contribution and admission to the firm. An adverse inference was therefore justified, the genuineness of the partnership remained unproved, and refusal of registration was upheld in favour of the Revenue.

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Issues: Whether the claim for registration of the firm was rightly refused on the ground that the partnership was not shown to be genuine.

Analysis: Registration under section 26A of the Indian Income-tax Act, 1922 requires not merely an instrument of partnership specifying shares, but a valid and genuine partnership actually existing in accordance with that instrument. The Income-tax Officer is entitled to verify whether the alleged partners are real partners and whether the arrangement is bona fide. On the facts, the alleged partner was not produced before the Income-tax Officer despite opportunity, though her examination was necessary to verify the claimed capital contribution and her admission to the firm. In these circumstances, an adverse inference could legitimately be drawn against the assessee, and the existence of a genuine partnership remained unproved.

Conclusion: The refusal of registration was justified and the question was answered in favour of the Revenue.

Ratio Decidendi: For registration of a firm, the assessee must prove a real and genuine partnership, and failure to produce an alleged partner for verification may justify an adverse inference and refusal of registration.

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