Judgment

TULZAPURKAR, J.:- This appeal raises the question of granting registration to the appellant-firm (the assessee) under S. 26-A of the Income-tax Act, 1922 for the Assessment Year 1961-62. The taxing authorities, the Tribunal and the High Court have refused registration sought by the appellant-firm and hence this appeal.

2. Prior to the Assessment Year 1961-62 the appellant-firm was a partnership concern consisting of two partners, Shri Pal Singh and Shri Sadhu Singh, each having 50% share in the profits & losses of the firm and it was being granted registration. It appears that the two partners met with an accident on 19-10-1958 in which Shri Pal Singh suffered a serious head injury and lost his memory for quite some time while Shri Sadhu Singh suffered an injury to the spinal cord which rendered him invalid for quite a long time and the case put forward was that as the business was on extensive scale and the two partners were physically handicapped (they recovered during the meantime) they entered into a fresh Deed of Partnership on 1-4-1960 by virtue of which Pal Singh and Sadhu Singh of the one part and Sarvashri Surjit Singh, Gulzar Singh, Hari Singh and Harbans Singh of the second part became partners with the following share ratio in the profits and losses, namely, Pal Singh and Sadhu Singh the original two partners retained 25% share each while Surjit Singh, Gulzar Singh, Hari Singh and Harbans Singh were given 12 1/2% share each. Admittedly two of the new incoming partners, namely Surjit Singh and Gulzar Singh were related to Pal Singh being his son and brother respectively who were obviously accommodated within the 50% share originally owned by Shri Pal Singh while the other two incoming partners Hari Singh and Harbans Singh were related to Shri Sadhu Singh both being his brothers who were accommodated within the 50% share originally owned by Sadhu Singh. Moreover, prior to April 1, 1960 Hari Singh and Harbans Singh were already working as employees in the original firm.

3. At this stage it will be convenient to indicate some of the salient clauses of the Partnership Deed entered into between the parties on 1-4-1960. Under Cl. 1 the partnership was declared to be one at will determinable by one months notice in writing and under Cl. 3 the parties of the second part (i.e. the four new incoming partners) were not required to contribute any capital but the original two partners were to do so in equal shares. Cl. 4 provided that Shri Hari Singh and Shri Harbans Singh shall continue to draw their salaries or other remuneration from the firm as was being drawn by them along with any increment as agreed to by the parties of the first part (the original two partners) from time to time. Cl. 5 was significant as it provided that the four new incoming partners "shall not interfere in the management or the affairs or the accounts of the partnership business." Under Cl. 7 it was provided that none of the four new incoming partners shall sell, mortgage, hypothecate, gift or will away or alienate in any way whatsoever his share to any third person and that in case of need they shall alienate their shares in favour of the parties of the first part (the two original partners) only and not even to any one amongst them. It was further provided that in case of a dispute among the partners regarding any of the clauses of the deed the decision of the partners of the first part (two original partners) shall be final and conclusive and binding and shall not be called into question in any Court of law.

4. For the Assessment Year 1961-62 (the relevant accounting year in respect whereof ended on March 31, 1961) an application duly signed by all the partners seeking registration of the firm under S. 26-A on the strength of the aforesaid Deed of Partnership was made on 15th Sept. 1960 and the original Partnership Deed was annexed thereto. The four new incoming partners were examined by the I.T.O. and their statements were recorded which, the