Genuine partnership and profit allocation are essential for tax registration; benamidars alone do not bar registration.

A partnership must be genuine on the evidence, and the tax authorities may reject it where the deed, conduct of the parties, and accounts show only a paper arrangement used to reduce tax liability; the finding of no genuine partnership was upheld. Registration under section 26A also required compliance with the rules on proper division or credit of profits in the books, and that requirement was not proved, so registration was rightly refused. However, the mere presence of benamidars among the alleged partners was not, by itself, an independent bar to registration if the statutory requirements were otherwise met.

---

---

Issues: (i) Whether the deed of partnership dated 1 April 1960 brought into existence a genuine partnership and whether the finding of no genuineness was supported by evidence; (ii) Whether the assessee was entitled to registration under section 26A in view of non-compliance with the registration rules and absence of proper division or credit of profits; (iii) Whether the presence of benamidars among the alleged partners disentitled the firm to registration.

Issue (i): Whether the deed of partnership dated 1 April 1960 brought into existence a genuine partnership and whether the finding of no genuineness was supported by evidence.

Analysis: The partnership deed had to be read as a whole along with the surrounding circumstances and the statements of the alleged partners. The evidence showed that the so-called new partners had no real knowledge of the business, their conduct was consistent with a paper arrangement, and the account records did not support a real reconstitution of the firm. The departmental authorities had material before them to conclude that the arrangement was only a device to reduce tax liability.

Conclusion: The finding that no genuine partnership came into existence was upheld and was against the assessee.

Issue (ii): Whether the assessee was entitled to registration under section 26A in view of non-compliance with the registration rules and absence of proper division or credit of profits.

Analysis: The rules required the profits or losses to be divided or credited in accordance with the deed. The record did not establish any proper division of profits in the books of account, and the unsigned balance-sheet and loose papers could not prove compliance. The materials produced did not satisfactorily trace the alleged allocation to the regular books of account.

Conclusion: Registration was rightly refused on this ground, against the assessee.

Issue (iii): Whether the presence of benamidars among the alleged partners disentitled the firm to registration.

Analysis: The mere fact that one or more partners may be benamidars for others does not, by itself, justify rejection of registration under section 26A. That circumstance is not an independent bar to registration if the statutory requirements are otherwise satisfied.

Conclusion: The objection based solely on benamidars failed and was in favour of the assessee.

Final Conclusion: The reference was answered partly in favour of the department and partly in favour of the assessee, with the finding of no genuine partnership and non-compliance with the registration requirements being sustained, but the mere presence of benamidars not constituting a valid ground to refuse registration.

Ratio Decidendi: In income-tax registration matters, a partnership must be shown to be genuine on the evidence and the statutory requirement of proper division or credit of profits must be complied with; however, the mere existence of benamidars among the partners is not by itself a ground to refuse registration.

---