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Issues:
1. Registration of a firm under the Income-tax Act, 1961. 2. Genuine partnership or sham partnership involving benamidars. 3. Refusal of registration by the Income-tax Officer. 4. Appeal process before the Tribunal. 5. Difference of opinion between Tribunal members. 6. Application for reference under section 256(2) of the Act. 7. Rejection of the application by the Tribunal. 8. Judicial interpretation of the genuineness of a firm. Analysis: The case involves an application by the Commissioner of Income-tax seeking a reference to the High Court regarding the registration of a firm under the Income-tax Act, 1961. The firm, comprised of three partners, faced scrutiny over the genuineness of its partnership, specifically questioning the involvement of two lady partners as benamidars. The Income-tax Officer denied registration, alleging that the partnership was a sham to divert income. The Appellate Assistant Commissioner upheld this decision, leading to an appeal before the Tribunal. The Tribunal's members were divided in their opinions, with the Judicial Member denying registration and the Accountant Member supporting the firm's genuineness. This disagreement prompted a reference to the President, who favored the Accountant Member's view. However, the Commissioner's subsequent application for reference under section 256(1) was rejected by the Tribunal, prompting the current application under section 256(2) before the High Court. The legal arguments presented revolved around whether the Tribunal erred in rejecting the initial application for reference. The Revenue contended that the question raised was a legal issue, citing precedents from other High Courts. However, the Court distinguished these cases, emphasizing the factual distinctions. In contrast, the respondent's counsel relied on a Supreme Court judgment to support the firm's genuineness. The Court examined the apex court's decision in a similar case involving a family partnership, highlighting that the genuineness of a firm is a factual matter, not a legal question. Consequently, the Court rejected the Revenue's application under section 256(2), deeming the issue as a question of fact rather than law. In conclusion, the High Court dismissed the Revenue's application, emphasizing that the genuineness of a firm is a factual determination. The judgment underscored the importance of factual analysis in assessing partnership authenticity under the Income-tax Act, ultimately upholding the Tribunal's decision and denying the reference sought by the Commissioner of Income-tax.
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