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Registration of a partnership firm under section 26A of the Income-tax Act based on the constitution of the firm and sharing of profits. Analysis: The case involved a partnership firm constituted under a deed of partnership dated September 15, 1944, with two partners, each having an eight annas share. Later, another partnership deed was executed on November 23, 1945, involving six additional partners, affecting the sharing of profits. The Income-tax Officer rejected registration applications for the firm for the assessment years 1945-46 to 1948-49, citing discrepancies in partner names and profit sharing. The Appellate Assistant Commissioner allowed registration, emphasizing the independence of the two partnership agreements. The Income-tax Department appealed, arguing that the second partnership deed retroactively altered profit-sharing. However, the High Court found that the second partnership did not involve all original partners, thus not affecting the first partnership. The judgment delved into legal principles governing partnerships, emphasizing the necessity of privity of contract for partnership existence. Referring to the Indian Partnership Act and relevant sections, it highlighted that partnership arises from contract, not status, and no person can be introduced as a partner without consent. The judgment cited legal authorities and previous cases to support the distinction between a partnership and sub-partnership, clarifying that agreements to share profits do not automatically create a partnership. It also differentiated cases where registration was refused due to incomplete partner details, which was not applicable in the present scenario. Ultimately, the High Court held that the first partnership deed remained unaffected by the second agreement, as it did not involve all original partners. The judgment concluded that the firm was registrable under section 26A of the Income-tax Act for the relevant assessment years. Both judges concurred with this decision, ruling in favor of the assessee firm against the Income-tax Department's contentions.
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