1964 (11) TMI 10 - SC - Income Tax

Whether the Income-tax Officer can refuse to register a genuine partnership entered into between more than two persons on the ground that one of them is only a benamidar for another? Held that - When a firm makes an application under section 26A of the Act for registration the Income-tax Officer can reject the same if he comes to the conclusion that the partnership is not genuine or the instrument of partnership does not specify correctly the individual shares of the partners. But once he comes to the conclusion that the partnership is genuine and a valid one he cannot refuse registration on the ground that one of the partners is a benamidar of another. If the partnership is genuine and legal the share given to the benamidar will be the correct specification of his individual share in the partnership. The beneficial interest in the income pertaining to the share of the said benamidar may have relevance to the matter of assessment but none in regard to the question of registration. In the result for the aforesaid reasons we hold that the answer given by the High Court is correct. Appeal dismissed.

Issues Involved:
1. Whether the Income-tax Officer can refuse to register a genuine partnership if one partner is a benamidar for another.
2. Whether the partnership deed correctly specifies the individual shares of the partners when one partner is a benamidar.

Issue-wise Detailed Analysis:

1. Refusal to Register a Genuine Partnership with a Benamidar Partner:
The primary question in this appeal was whether the Income-tax Officer can refuse to register a genuine partnership on the ground that one of the partners is a benamidar for another. The court examined the relevant facts and legal provisions under section 26A of the Indian Income-tax Act, 1922. The court reiterated that if a partnership is genuine and complies with the formalities prescribed by the rules, the Income-tax Officer cannot refuse registration simply because one partner is a benamidar. The court noted that the partnership in question was found to be genuine by the Appellate Assistant Commissioner and the Tribunal, and all necessary formalities were complied with. The court emphasized that the internal arrangement between the benamidar and the real owner does not affect the partnership's validity or its eligibility for registration under the Act.

2. Correct Specification of Individual Shares in the Partnership Deed:
The second issue raised was whether the partnership deed correctly specifies the individual shares of the partners when one partner is a benamidar. The court referred to the essential conditions for registration under section 26A, as established in previous judgments, including the necessity for the partnership to be constituted under an instrument specifying the individual shares of the partners. The court held that the share allotted to the benamidar in the partnership deed is a correct specification of his individual share, as long as the partnership is genuine and the deed complies with the legal requirements. The court clarified that the beneficial interest of the benamidar's share pertains to assessment matters and does not affect the registration process.

Conclusion:
The court concluded that the Income-tax Officer has no power to reject the registration of a genuine and valid partnership if all provisions of section 26A and the rules are complied with, even if one partner is a benamidar. The court dismissed the appeal, upholding the High Court's decision that the partnership was genuine and the individual shares were correctly specified in the partnership deed.

Final Judgment:
The appeal was dismissed with costs, affirming the High Court's answer that the partnership constituted under the instrument of partnership dated March 6, 1956, could be registered under section 26A of the Indian Income-tax Act.

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