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Issues: (i) Whether the partnership deed and surrounding facts showed a genuine partnership entitled to registration under section 26A; (ii) Whether the individual assessee was liable to be taxed on the entire profits of the business or only on his share.
Issue (i): Whether the partnership deed and surrounding facts showed a genuine partnership entitled to registration under section 26A.
Analysis: The validity of the firm could not be tested by looking at any single clause in isolation. The Court found that the oral evidence of the alleged partners, read with the deed, showed that they had no meaningful role, no real capital contribution, and no real agency inter se as partners. Clauses conferring exclusive control over employment, dismissal, and dispute resolution on one partner, when combined with the surrounding facts, supported the inference that the so-called partners were only dummies and that the partnership was not genuine.
Conclusion: The assessee was not entitled to registration; the partnership was held to be not genuine.
Issue (ii): Whether the individual assessee was liable to be taxed on the entire profits of the business or only on his share.
Analysis: Once the firm was found not to be a genuine partnership and registration was refused, the individual assessment necessarily followed the position that the business remained substantially that of the former proprietor. On that footing, the entire business income was assessable in his hands and not merely the stated fractional share.
Conclusion: The individual assessee was liable to be taxed on the entire profits of the business.
Final Conclusion: The reference was answered against the assessees and in favour of the department, with the refusal of registration and the assessment of the whole business income upheld.
Ratio Decidendi: A partnership may be treated as non-genuine where the combined effect of the deed and the surrounding evidence shows that the alleged partners are only nominal participants without real agency, contribution, or participation in the business.
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