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Entitlement of sub-partnerships to registration benefits under the Income-tax Act, 1961 for the assessment year 1971-72. Analysis: The case involved the question of whether sub-partnerships are entitled to the benefits of registration under the Income-tax Act, 1961, for the assessment year 1971-72. The facts revolved around a sub-partnership, Uppala Rameswar Rao and Company, Nizamabad, constituted by a partnership deed dated December 28, 1969. The sub-partnership arose due to Rameswar Rao's difficulty in contributing the required capital towards his share in the main firm, K. Narasa Reddy and others, Warangal. Consequently, Rameswar Rao entered into an agreement with eight others who agreed to provide him with necessary funds and become partners in the sub-partnership firm. The Income-tax Officer initially rejected the registration of the sub-partnership, treating it as an association of persons, citing a contravention of section 14 of the Abkari Act. However, on appeal, the assessees succeeded, leading to the Revenue challenging the decision before the Tribunal. The Tribunal upheld the Income-tax Officer's decision, relying on a previous judgment of the Andhra Pradesh High Court. The High Court concurred with the Tribunal's decision, referencing a similar case involving a sub-partnership firm. The court highlighted that a partner of a registered firm can divert a portion of income or loss to strangers by forming a sub-partnership firm, as long as privity of contract is established between the main firm and the sub-partnership firm. The court emphasized that a sub-partnership firm is a distinct entity entitled to registration under the Income-tax Act if found genuine. Therefore, the court rejected the reference, affirming the entitlement of the sub-partnership to registration benefits under the Income-tax Act, 1961.
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