Law:

Section:

Sections 184 to 186 of Income-tax Act, 1961 [Corresponding to section 26A of Indian Income-tax Act, 1922] - Firm - Registration - Assessment years 1954-55 and 1955-56 - Assessee-firm consisted of eight partners - Its application for renewal of the assessee-partnership firm consisted of 8 partners - Its application for renewal of registration under section 26A was rejected by the ITO on the ground that six of the partners entered into a sub-partnership with members of their respective families for sharing of their respective profits from assessee-firm - He held that in fact the assessee-firm consisted of more than 20 partners which was illegal - On second appeal, the Tribunal ordered renewal on the ground that the 8 men alone were partners of assessee firm and that the agreement by individual partners to share profit with their respective family members were only deeds of sub-partnerships - However, Tribunal allowed registration - Whether where several persons are partners in a firm and any of them separately enters into agreement with strangers in their individual capacity agree to share profits derived by him, such agreement would not make stranger a partner in original firm and in no way affect other members of principal firm and it can be no ground for not registering firm - Held, yes - Whether assessee-firm was a firm constituted of 8 partners and its constitution was not affected by arrangement entered into by six of them with their sons, etc. - Held, yes - Whether further that into instant case capital invested by six partners came from their HUFs would be irrelevant, and, it could not be assumed that not six partners but all members of their respective families would be partners of assessee-firm - Held, yes - Whether, therefore, registration of assessee firm could not be denied - Held, yes FACTS The assessee-partnership firm consisted of 8 partners. Its application for renewal of registration under section 26A was rejected by the ITO on the ground that six of the partners entered into a sub-partnership with members of their respective families for sharing of their respective profits from assessee-firm. He held that in fact the assessee-firm consisted of…

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