Partnership registration cannot be denied merely because some partners are sleeping partners or do not actively manage the firm.

A partnership firm was treated as a genuine firm for tax registration purposes where the deed was duly executed, the registration application was timely, and partner shares were specified in accordance with Section 4 of the Indian Partnership Act, 1932. The presence of sleeping partners or alleged benamidars, and their limited participation in business affairs or withdrawals, did not by itself justify denial of registration when the capital was supported by accepted gifts. Prior assessment of share income in the hands of some partners also did not permit refusal on these facts, and the Explanation to Section 185(1)(b) of the Income-tax Act, 1961 was held not to bar registration.

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Issues: Whether the assessee-firm was entitled to registration under the Income-tax Act despite the finding that two lady partners were sleeping partners and alleged benamidars, and despite prior assessment of share income in the hands of some partners.

Analysis: The firm was constituted by a duly executed partnership deed, the application for registration was made in time, the shares of partners were specified, and the partnership satisfied the legal requirements of Section 4 of the Indian Partnership Act, 1932. The capital introduced by the lady partners had come from accepted gifts and the mere fact that they did not actively participate in business affairs or withdrawals did not, by itself, justify refusal of registration. The prior assessment of share income in the hands of some partners also meant that the Income-tax Officer could not refuse registration on the facts of the case, and the explanation to Section 185(1)(b) of the Income-tax Act, 1961 did not warrant denial of registration.

Conclusion: The firm was a genuine partnership and was entitled to registration; refusal of registration was not justified.

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