Bona fide partnership requirement defeats sham retirement where conduct shows continued control and profit benefit, justifying refusal of registration.

A partnership seeking registration under income-tax law must be a real and bona fide firm. Where the deed, bank-account arrangements and surrounding conduct show that an alleged retirement is only on paper, and the supposed retired partner continues to exercise control over accounts, policy and management while retaining the benefit of profits, the arrangement may be treated as illusory and registration refused. Direct evidence of an agreement to share profits is not essential if the inference can properly be drawn from circumstantial evidence.

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Issues: Whether the new partnership constituted after the alleged retirement of one partner was genuine and entitled to registration under the income-tax law.

Analysis: The recitals and operative clauses of the new deed, the manner in which the bank account was opened, and the surrounding circumstances were examined together. The deed stated that the retired partner had left the business to be carried on by the continuing partners, yet it also vested him and another principal partner with control over accounts, policy, and management, with their decisions binding on all partners. The bank account was opened in joint names rather than in the firm name, and the profit-sharing structure left the retired partner's group substantially in the same position as before. On these materials, the alleged retirement was treated as illusory, and the partnership as a make-believe arrangement rather than a real reconstitution. The Court also held that direct evidence of an agreement to share profits was not necessary where the inference could properly be drawn from circumstantial evidence.

Conclusion: The partnership was not genuine and registration was rightly refused.

Final Conclusion: The reference was answered against the assessee, and the refusal to grant registration was upheld.

Ratio Decidendi: A partnership seeking registration must be a real and bona fide firm; where the surrounding documents and conduct show that an alleged retirement is only on paper and the supposed retired partner continues to control the business and retain the benefit of profits, the firm can be treated as not genuine and registration may be refused.

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