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TaxTMI 
TaxTMI 
TaxTMI 
1964 (11) TMI 10
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....phew of Abdul Rahim Valibhai. On March 6, 1956, a partnership deed was executed between the said four persons. Under the said partnership, Abdul Rahim Valibhai, Abdullah Rehman, Abdul Rahim Malangbhai and Abdul Rehman Kalubhai had 7 annas, 5 annas, 2 annas and 2 annas share respectively. On May 8, 1956, the said firm presented an application to the Income-tax Officer for its registration under section 26A of the Indian Income-tax Act, 1922, hereinafter called the Act. The Income-tax Officer held that the partnership was a bogus one and, on that finding, refused to register it. The assessee took up the matter on appeal to the Appellate Assistant Commissioner, who held that the partnership agreement was valid in law and that the fact that one of the partners was a benamidar of another was not a ground for refusing to register the firm, though it might entitle the Income-tax Officer to consider the income pertaining to the share of the benamidar as part of the income of the real owner in assessing the latter's income to tax. The Income-tax Officer questioned the correctness of the decision by preferring an appeal to the Appellate Tribunal, Bombay Bench. The Tribunal also held that the....
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.... partners is a benamidar of another partner will not detract from its validity or disqualify it from being registered under the Act. To appreciate the contentions it will be convenient at the outset to read the relevant part of section 26A of the Act and also the rules made thereunder. " Section 26A.--(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 or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed ; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed. " Rules 2 to 6B of the Rules made under section 59 of the Act deal with the registration of firms. " Rule 2.--Any firm constituted under an instrument of partnership specifying the individual shares of the partners may, under the provisions of section 26A of the Indian Income-tax Act, 192....
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.... partnership is a genuine and valid one, the Income-tax Officer has no power to reject its registration if the other provisions of section 26A of the Act and the rules made thereunder are complied with. In the present case the partnership was found to be a genuine one. All the formalities prescribed by the rules have been complied with. The individual shares of the partners as shown in the instrument of partnership have been specified in the application. Therefore, unless there is some legal impediment in the way of a benamidar of one of the partners being a partner of the firm, the Income-tax Officer would not be exercising his jurisdiction if he rejected the application for registration. The first question, therfore, is whether the benamidar of a person can be a partner of a firm. Under section 2(6B) of the Act, " firm ", " partner " and " partnership " have the same meanings respectively as in the Indian Partnership Act, 1932 (IX of 1932) : provided that the expression " partner " includes any person who being a minor has been admitted to the benefits of partnership. Under section 4 of the Indian Partnership Act, " Partnership " is the relation between persons who have agree....
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....e benamidar, the person beneficially entitled is fully affected by the rules of res judicata. " In Aruna Group of Estates, Bodinayakanur v. State of Madras a Division Bench of the Madras High Court, on the basis of the said legal position, rightly held that the benami character did not affect the benamidar's capacity as partner or his final relationship with the other members of the partnership. It pointed out that " if any partner is only a benamidar for another, it can only mean that he is accountable to the real owner for the profits earned by him from and out of the partnership. " Therefore, a benamidar is a mere trustee of the real owner and he has no beneficial interest in the property or the business of the real owner. But, in law, just as in the case of a trustee, he can also enter into a partnership with others. If so, what is the principle of law which prohibits the benamidar of a partner from being also a partner along with the said partner with others ? Qua the other partners, he has separate and real existence ; he is governed by the terms of the partnership deed ; his rights and liabilities are governed by the terms of the contract and by the provisions of the Par....
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....sistant Commissioner had any evidence before him to lead to the conclusion that the mother in this case was not really entitled to a beneficial interest of 4 1/2 annas share, I think he was justified in refusing to register the deed. " With great respect, we cannot agree with the said observations. If a benamidar has the character of a trustee and, therefore, can enter into partnership with another in his own name, the share allotted to him in the partnership must be held to specify correctly his individual share therein. Kania J. (as he then was) did not express any opinion on this aspect of the case. A Division Bench of the Andhra Pradesh High Court in Hiranand Ramsukh v. Commissioner of Income-tax, held that a person shown as a partner in a partnership deed was not a genuine partner and, therefore, the Income-tax Officer was perfectly justified in refusing to register the firm. There the assessee-firm originally consisted of 2 partners with equal shares, namely, Ramprasad and Bhagwandas. After the death of Bhagwandas, Ramprasad took his aunt, Mrs. Chandrabai, and his minor son as partners. The Income-tax Officer held that both Mrs. Chandrabai and Ramprasad's minor son were not....