TaxTMI 
TaxTMI 
1961 (12) TMI 83
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....he Indian Income-tax Act?" 2. The assessee applied for registration under section 26A of the Act for the assessment years 1951-52, 1952-53, 1953-54, 1954-55 and 1955-56. The firm in question was stated to consist of four partners: 1. Ramprasad, 2. Chandrabai, 3. Bhagwandas, and 4. Venugopal (minor), and the name of the firm was M/s. Hiranand Ramsukh. 3. The firm originally consisted of two partners with equal shares, viz., Ramprasad and Bhagwandas. The business of the assessee was commission agency. Ramprasad also had his individual business in the name of M/s. Hiranand Ramsukh (bankers) in which from S.Y. 2003-4 he introduced his aunt, Mrs. Chandrabai, as a partner. In the present firm, quite in consonance with what he did in his banking business Ramprasad took in Mrs. Chandrabai, his aunt, as a partner with four annas share, the four annas share that was given to her obviously coming on the splitting up of the eight annas share which Ramprasad had originally. Later in S.Y. 2006-7 Ramprasad and Chandrabai split up their shares once again and allowed Ramprasad's minor son, Venugopal, (who was given in adoption to Rajiwanbai, wife of an uncle of Ramprasad) six annas share,....
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....ommon order in regard to the five years, it held that registration was properly refused for the reason that Chandrabai and Venugopal were not real partners as they were simply shown to reduce the incidence of tax of the partner, Ramprasad. A copy of the order of the Tribunal is annexure "C" hereto forming part of the case. 6. Before we conclude this statement, it is necessary to point out that the application for renewal of registration was filed on the basis of a partnership consisting of four partners. The High Court has held that one of the alleged partners, Mrs. Chandrabai, was not a genuine partner. In those circumstances, it is respectfully pointed out that the assessee is not entitled to registration if it is proved that even one of the alleged partners was not a genuine partner. K. Ranganathachari, for the assessee C. Kondiah, for the Commissioner JUDGMENT KUMARAYYA J.--The Income-tax Appellate Tribunal, Hyderabad Bench, has on the requisition of this court referred under section 66(2) the following questions for determination: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in refusing to recognise Venugopal as a....
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.... not be answered at all. Mr. Ranganathachari, the learned counsel for the petitioner, contends that under section 26A it is not open to the income-tax authority to refuse registration of the firm on the mere ground that a partner have dealt with the beneficial ownership in respect of his share in any particular manner. He argues further that when the partners of a firm have, in their application for registration stated truly the position of the partners qua the firm, the firm ought to be registered. In support of his argument, he has relied on Commissioner of Income- tax v. A. Abdul Rahim & Co. [1961] 43 I.T.R. 8. Before we deal with this contention, we may notice the relevant statutory provision in this behalf. Section 26A reads thus: "26. (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (2) The application shall be made by such person ....
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....ll pass an order in writing refusing to recognise the instrument of partnership or the certified copy thereof and finish a copy of such order to the applicants. So, then, under the provisions referred to above on receipt of an application for registration of a firm, the Income-tax Officer has to be satisfied whether there is or was a firm constituted as shown in the instrument and whether the application has been properly made. He is entitled in that connection to examine whether the partnership is true, whether each of the partners mentioned therein is a real partner, whether the shares are properly specified and are real ones and whether the profits which are to be distributed under the deed will truly be the profits of those particular individuals. If he is not satisfied as to the genuineness with regard to any of these things, it is open to him to reject the application on the ground that there was no genuine partnership brought into existence by the deed It is clear that the abovementioned section, rules and the particulars required in the form have been carefully designed to enable the assessment of the registered firm to be done in the manner provided under sub-section (5....
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....y the applicants would not be correct, and there appears to be little doubt that the Commissioner would be entitle to hold that the deed executed by the applicants was not a correct partnership deed." In the present case it would appear that though Srimathi Chandrabai has been shown as a partner and her share have been specified as Rs. 0-1-0, she is neither a genuine partner nor has she got a beneficial interest in the share entered in here name in the instrument of partnership. In these circumstances, on the proper construction of the relevant provision and rules, it is obvious that the Income-tax Officers was perfectly within his powers in refusing to registered this firm. In Raju Chettiar & Brother v. Commissioner of Income-tax [1949] 17 I.T.R. 51, 62, the Madras High Court elaborately dealt with this question and come to the conclusion that if registration has to be obtained under section 26A of the Indian Income-tax Act it can only be by a genuine firm which specified the actual share of each partner and when that is not done, the Income-tax Officer is competent, if not bound, to refuse registration. It was a case where the Income-tax Officer refused registration of the fir....
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....ners is concerned. If the deed does not set out correctly such agreement in this respect amongst the partner, then that deed of partnership is not liable to be registered. If there is an arrangement arrived at between two out of the four partners of the firm binding on those two partners alone and not binding on the partnership, the same cannot be taken into consideration for the purpose of considering whether the instrument of partnership is one which is capable of being registered under the provisions of the Act. If there is an arrangement amongst all the partners that the share standing in the name of the partner. Abdulrehman Kalubhai, was not to belong to him but to the partner. Abdul Rahim Valibhai, then the deed of partnership would no represent the true position amongst the partners and their true shares in the firm and the instrument would not be liable to be registered under the Act. In the present case there is no finding given by the Appellate Tribunal to the effect that an agreement was arrived at amongst all the partners that the share of Abdulrehman Kalubhai should be treated as the share of his uncle, Abdul, Rahim Valibhai. In the Circumstances, it is not possible fo....