Advocate-partner clause did not invalidate the firm where he remained a sleeping partner and took no active part in business.

A partnership firm was held entitled to registration where one partner was an advocate and the deed contained a clause permitting participation in business, because the governing Bar Councils Act, 1926 did not impose a total ban on holding an interest in a firm but only on active participation. The Tribunal's finding and the advocate's unrebutted affidavit showed that he never in fact took part in the business and remained a sleeping partner, so the clause never operated. A mere authorisation to participate did not make the firm illegal; at most, any actual breach would attract disciplinary consequences for the advocate, not invalidate the partnership.

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Issues: Whether the assessee-firm was entitled to registration under section 26A of the Indian Income-tax Act, 1922, for the assessment year 1959-60 when one of the partners was an advocate and the partnership deed contained a clause permitting his participation in the business.

Analysis: The applicable law was the Bar Councils Act, 1926, and not the Advocates Act, 1961. Under that law, an advocate was not under a total ban from having an interest in a partnership business, but was prohibited from actively participating in its affairs. The additional statement of the Tribunal and the unrebutted affidavit of the advocate showed that he never in fact took part in the business and remained a sleeping partner, so the offending clause in the deed never operated. A mere clause authorising participation did not render the partnership illegal, because any breach would at most expose the advocate to disciplinary consequences and would not invalidate the firm itself.

Conclusion: The assessee-firm was entitled to registration under section 26A for the assessment year 1959-60.

Final Conclusion: The reference was answered in favour of the assessee, and the matter was sent back to the Tribunal for action in accordance with the opinion expressed.

Ratio Decidendi: A partnership is not rendered illegal merely because its deed authorises an advocate-partner to participate in the business, if the advocate in fact does not actively participate and remains only a sleeping partner.

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