1970 (3) TMI 1 - HC - Income Tax

Whether the sub-partnership constituted under the deed of partnership is a valid partnership entitled to registration under section 26A of the Income-tax Act 1922 - Held yes - partnership was genuine and it was entitled to registration

Summary

Issues: Validity of sub-partnership for registration under section 26A of the Income-tax Act, 1922.

Analysis:
The High Court was tasked with determining the validity of a sub-partnership for registration under section 26A of the Income-tax Act, 1922. The case involved a partnership formed by R. B. Jodhamal Kuthiala, comprising himself, his two major grandsons, and two minor grandsons admitted to the benefits of the partnership. The sub-partnership was created concerning R. B. Jodhamal's share in a company. The partnership was registered with the relevant authorities, and the sub-partnership filed an income tax return seeking registration under section 26A. The Income-tax Officer initially rejected the application for registration, citing the partnership as sham and not genuine, and for not carrying on any business. However, the Appellate Assistant Commissioner upheld the partnership's genuineness and reversed the rejection based on the lack of business activity. The Tribunal also found the partnership to be genuine and ordered its registration under section 26A, leading to the department's dissatisfaction and subsequent appeal to the High Court.

The High Court referred to a Supreme Court decision in Murlidhar Himatsingka v. Commissioner of Income-tax, where it was held that a sub-partnership was entitled to registration under section 26A. The Court emphasized that the genuineness of a partnership is a question of fact, and since no appeal was made regarding this aspect, it was not considered by the Tribunal. The Court dismissed the contention that the sub-partnership was merely an alienation of income by R. B. Jodhamal, noting that this argument was not raised before the Tribunal and did not form part of the Tribunal's order. Therefore, the Court did not allow the counsel to raise this new argument under section 66 of the Act.

In conclusion, the High Court answered the question referred to it affirmatively, in favor of the assessee, upholding the validity of the sub-partnership for registration under section 26A of the Income-tax Act, 1922. The Court made no order as to costs, thus concluding the judgment.