Law:

Section:

Sections 182 to 186 of the Income-tax Act, 1961 [Corresponding to section 26A of the Indian Income-tax Act, 1922] - Firm - Position prior to 1-4-1993 - Whether where assessee-firm satisfied legal requirement as mentioned under section 4 of Indian Partnership Act, 1932, inasmuch as there was clear agreement between partners inter se to share profits and losses of business and one of partners was clothed with a power to carry on business of firm on behalf of all the partners, it would be entitled for registration under section 26A - Held, yes FACTS Prior to 1-1-1956, R was carrying on certain business as its sole proprietor. On 30-6-1956, a partnership deed was executed under which R took in his two sons, as partners. The ITO upon consideration of the various clauses of the partnership deed came to the conclusion that the partnership was not a genuine one and that the business was the proprietary concern of R. On appeal, the AAC upheld said order. On further appeal, the Tribunal also rejected claim of assessee holding that there was no element of mutual agency in the alleged partnership between the various partners; that it was clear that whatever contractual relationship existed between the father and the two sons, the result certainly was not a partnership in law and that there was no genuine firm in existence and further that the partnership deed did not create the relationship of partners between the contracting parties as envisaged under the Partnership Act. HELD Question whether a genuine partnership subsisted between the partners will depend on the facts of each case. It was not the contention of the taxing authorities that the deed of partnership in the present case was merely entered into by way of cloak and it did not represent the real intention of the parties to act in accordance with the terms thereof inter se. If the terms of the deed of partnership were carefully scrutinised it was undoubtedly true that very wide and extensive powers were conferred upon R who prior to this deed was the sole proprietor of the business. Even though the new partners, were to contribute towards the goodwill of the business a sum of Rs. 25,000 by having a debit entry…

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