1973 (2) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Genuineness of the partnership deed.
2. Validity of the application for registration under section 26A of the Indian Income-tax Act, 1922.
3. Requirement of signatures by all partners on the partnership deed and application for registration.
4. Compliance with procedural rules for registration.

Issue-wise Analysis:

1. Genuineness of the Partnership Deed:
The primary issue was whether the partnership deed was genuine, given that Shri Rabinder Kumar's signatures were allegedly forged. The Income-tax Officer (ITO) conducted an elaborate inquiry and concluded that the signatures were not genuine. Consequently, the ITO refused the registration of the firm for the assessment year 1960-61. The Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) upheld this finding, stating that forged signatures on the partnership deed invalidated the document, rendering the firm non-genuine.

2. Validity of the Application for Registration:
The second issue was whether the application for registration under section 26A, which also allegedly contained forged signatures of Shri Rabinder Kumar, was valid. The assessee argued that even if the signatures were forged, the subsequent application signed in the presence of the ITO should be considered valid. The AAC dismissed this contention, stating that the genuineness of the firm itself was in question, making the application for registration irrelevant. The ITAT agreed, concluding that a forged document cannot constitute a genuine partnership, thus invalidating the application for registration.

3. Requirement of Signatures by All Partners:
The legal contention revolved around whether it was mandatory for all partners to sign the partnership deed and the registration application. The assessee argued that a genuine partnership could exist even if not all partners signed the deed, provided they consented to the partnership terms. The court examined precedents and concluded that the law did not require all partners to sign the partnership deed for it to be valid. The primary requirement was the existence of a genuine firm as depicted in the instrument of partnership.

4. Compliance with Procedural Rules for Registration:
The procedural compliance with rules 2, 3, and 4 of the Indian Income-tax Rules, 1922, was scrutinized. The court noted that the ITO's duty was to ensure a genuine firm existed as per the instrument of partnership and that the application was properly made. The court found that the ITO and the ITAT failed to conduct a genuine inquiry into whether a valid partnership existed, focusing instead on the forged signatures. The court emphasized that a partnership could be valid even if the deed was not signed by all partners, provided the firm existed as shown in the partnership instrument.

Conclusion:
The court concluded that the ITAT misdirected itself by focusing solely on the forged signatures without verifying the existence of a genuine partnership. The court held that the registration of the firm was not rightly refused, answering the referred question in the negative, in favor of the assessee and against the revenue. The court emphasized that the ITO should have conducted a thorough inquiry to verify the existence of the firm as constituted in the partnership deed, rather than solely relying on the authenticity of the signatures.