More than one coparcener representing a Hindu undivided family can enter into a valid partnership with strangers.

( 1 ) THIS is a reference under Section 66 (1) of the Income-Tax Act, 1922. The question referred for decision is in the following terms: "whether on the facts and in the circumstances of the case the firm of Ramakrishna Transports, Kalabasthi was entitled to registration under Section 26-A of the Act. "

( 2 ) THE dispute relates to the assessment year 1950-60, the relevant accounting year being the year ending on 31-3-1959

( 3 ) THE assessee is a partnership firm constituted under an instrument of partnership dated 27-3-1955. It carries on business in bus transport. Two of the partners in this firm (1) Sri Venugopala Reddy and (2) Rama-krishna Reddy, holding 3 annas share each are the co-parceners of a Hindu undivided family, the Kartha being Sri A. Balarama Reddy. The only other two partners Sri Venku Reddy and Sri M. Veerabhadravya holding 5 annas share each are strangers The firm was duly registered under Section 26a of the Income-tax Act. The share income of Sri Venugopala Reddy and Ramkrishna Reddy were being offered for assessment as the income of the Hindu undivided family and assessed by the Income Tax Officer accordingly Some years later the assessee came with the contention that there was a family partition as a result of which the two partners of the family became separated with effect from 1-4-1958 and that thereafter these two families held their shares on behalf of their respective branches of the family to which they belong. This case, advanced for the first time for the assessment year 1959-90 did not find favour with the Department. The assessee went in appeal, but without success, up to the stage of the Appellate Tribunal. The two partners of the firm were recognised as before only as co-parceners of Hindu undivided family. The Income-tax Officer. Tirupati renewed the registration of the firm in the year 1959-60 by his order dated 30-10-1960. Thereupon the Commissioner of Income-lax took exception as he was of the view that two coparceners representing the Hindu undivided family cannot enter into a valid partnership with strangers. He served a notice under Section 33b of the Indian Income-lax Act on 12-10-1962. Then after hearing the assessee, he cancelled the registration by his order, dated 29-10-1962. Aggrieved by this order, the assessee went in appeal before the income-tax Appellate Tribunal. On failure to get a favourable decision, he moved the Appellate Tribunal under Section 66 (1) of the Income-tax Act to state the case. That is how the matter has come before us for decision.

( 4 ) THE controversy turns mainly on the question of registration under Section 26a of the Indian Income-tax Act. The question of registration is of vital importance to an assessee in view of certain special benefits accruing therefrom. An unregistered firm is invariably charged as a unit. But registration makes all the difference for in that event the tax is levied on each individual partner in respect of his share in the firms profits. The gain to the assessee thereby is not inconsiderable. In order to be entitled to this privilege it is however essential that a firm should conform to the conditions prescribed by Section 26a and rules 2 to 6 (B) made under Section 59 of the Act. Further the authority concerned should be satisfied that the partnership is not only genuine but also a valid one. It is settled law that if a partnership is a genuine and valid one and the provisions of Section 26 and rules connected therewith are complied with, the Income-tax authority shall have no power to reject its registration We are in this proceeding concerned with the question of the validity alone for it is only on that basis that the registration of the firm has been cancelled, Partnership being purely a creature of contrad, the validity and legality must of course depend upon a number of factors. A partnership would be illegal and invalid if its object is forbidden by law or is opposed to public policy. The same would be the consequence if

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