COMMISSIONER OF INCOME TAX Vs. S M BHATIYA ASSOCIATES

JUDGEMENT

(1.) HEARD learned counsel for the applicant and respondent on the application under Section 5 of the Limitation Act.

(2.) WE condone the delay in filing the reference application under Section 256(2) of the Income-tax Act, 1961, and it be posted for hearing.

(3.) IN Brijlal Madanlal v. CIT [1980] 121 ITR 364 (Bom), it was held that the essentials for the registration of a firm are : (1) whether on behalf of the firm an application should be made to the INcome-tax Officer by such person and at such times and containing such particulars and being in such form and verified in such manner as are prescribed by the rules ; (2) The firm should be constituted under an instrument of partnership; (3) The instrument must specify the individual shares of the partners ; and (4) The partnership must be valid and genuine and must exist in terms specified in the instrument. When an application for registration of a firm is made to the INcome-tax Officer, it is open to the INcome-tax Officer to verify whether the partnership is really a genuine partnership or whether the partnership is a sham one. Merely because the names of certain partners are specified in the deed of partnership and their shares are also specified, the partnership does not automatically become a genuine partnership and the INcome-tax Officer is entitled to examine whether each of the partners mentioned in the deed of partnership is a real partner and whether the shares specified are real and whether the profits which are sought to be distributed under the deed will truly be the profits of the individuals who have been shown as partners. If the INcome-tax Officer finds that there is no genuineness in respect of any one of these, it is open to the INcome-tax Officer to reject the application for registration on the ground that no genuine partnership has been brought into existence by the partnership document.