Law: Income Tax Act, 1922

Section: 26,66

(a) Income-tax Act (XI of 1922)---Ss. 26-A & 66--Partnership firm--Registration--Genuineness of partnership- -Reframing of question by High Court for deciding real controversy which was not reflected in question referred was justified and refusal to grant registration was legal. Prior to assessment year 1961-62 the appellant firm was a partnership concern consisting of two partners each having 50% share in the profits and losses in the firm and was granted registration. Owing to some accident both of them became physically handicapped and entered into fresh deed of partnership on 1-4-1960 inducting four other persons two person related to each partner. Two of these four were already in employment of the firm. Under the new deed the incoming partners were not required to contribute any capital. They could also not interfere with the management of the firm. They could alienate their shares in favour of original two partners, only and not even to any one amongst them. An application filed by the firm duly signed by all the partners for registration was refused on the ground that the newly formed partnership was not a genuine one. The High Court to which reference was made reframed the question and upheld the order of the Income-tax authorities that the firm was not genuine. Held, that there was sufficient material on record on the basis of which the taxing authorities as well as the Tribunal could record an adverse finding on the genuineness of the firm against the assessee and that registration was rightly refused. In the ultimate analysis the real controversy centred round the question whether or not factually a genuine firm had come into existence for the assessment year 1961-62 as a result of the execution of the instrument of partnership on April 1, 1960 and whether for recording a negative finding thereon against the assessee as done by the lower authorities there was evidence on the record? This being the real issue, which was not reflected in the first question formulated by the Tribunal the High Court was justified in reframing that question. It is true that the taxing authorities and the Tribunal did-go into the question of the appellant-firm's…

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