Partnership for leasing commercial assets can qualify for registration where the arrangement is a legally valid business partnership.

A partnership formed to lease out a commercial asset and share the resulting income was treated as a valid partnership for registration purposes under section 26A of the Income-tax Act, 1922. The Court held that the source of the receipts, including lease income, did not determine the legality of the partnership; the controlling question was whether the arrangement was legally constituted under the Partnership Act and involved a permissible business activity. As no rule prohibited partners from exploiting a factory by lease, the absence of direct trading did not defeat registration. The partnership was therefore held entitled to registration, and the reference was answered in favour of the assessee.

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Issues: Whether a partnership formed for leasing out a commercial asset and deriving income therefrom was a valid partnership entitled to registration under section 26A of the Income-tax Act, 1922.

Analysis: The decisive inquiry was whether the partnership was legally constituted under the Partnership Act and whether the absence of direct trading activity prevented registration. The Court held that the source of the income, namely lease receipts, was irrelevant to the validity of the partnership for registration purposes. If the partners validly combined to exploit a commercial asset by leasing it out, the arrangement did not become illegal merely because the income might be assessable as rental income rather than business income under the charging provisions. The Court found no provision in the Partnership Act prohibiting such a partnership and treated the lease of the factory as a permissible mode of carrying on business.

Conclusion: The partnership was valid and entitled to registration under section 26A; the reference was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: A partnership formed to exploit a commercial asset by leasing it out is not invalid merely because the resulting income may be taxable under a different head; for registration, the controlling question is the legal existence of a partnership carrying on a permissible business activity.

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