The genuineness of a firm for the purpose of registration under section 26A of the Income-tax Act is not affected by the fact that the profits are not divided according to commercial principles or that the income-tax payable by the partners is debited to the firm's accounts and not to the partners' individual accounts.

MAHAJAN, J.

1. This is a petition by the department under section 66(2) of the Income-tax Act. We are asked to issue a mandamus to the Income-tax Tribunal, Delhi Bench, requiring it to state the following three questions of law for our opinion :

"(1) Whether the Tribunal was justified in law in accepting the appeal without deciding the other grounds on which the Income-tax Officer and the Appellate Assistant Commissioner of Income-tax had rejected the application for registration ?

(2) Whether the Tribunal has not misunderstood the ground relating to division of profits on which the Income-tax Officer and the Appellate Assistant Commissioner of Income-tax rejected the application for registration ?

(3) Whether there is any material for the finding that the partners decided to estimate the divisible profits which estimate was arrived at and the divisible sum so determined was divided amongst the partners ?"

2. The Income-tax Appellate Tribunal on being moved, in the first instance, for the purpose refused to state these questions on the ground that the only question argued before it was one of fact from which no question of law arose. It was further observed by the Tribunal in this very order that "the other questions mentioned in the application refer to matters which were not argued before the Tribunal or relied upon by the departmental representative while defending the order of the Appellate Assistant Commissioner."

3. The facts out of which this matter has arised may now be stated. For the assessment year 1953-54, the partnership (Messrs. Sat Ram Gian Chand) was constituted by five partners under an instrument of partnership dated April 2, 1952. This firm was registered with the Department under section 26A of the Indian Income-tax Act. On April 1, 1953, a sixth partner, namely, Jhanda Ram, joined the partnership and consequently, a few instrument of partnership was drawn up on September 27, 1953, and an application under section 26A of the Act was filed on September 29, 1953. This application was refused by the Income-tax Officer on the following grounds :

"(1) As has been observed above, the firm is now constituted by six partners since April 1, 1953. Prior to this L. Jhandaram was not a partner in the business of the firm. As such any of his personal liabilities could not possibly be met by the firm as a whole. On scrutiny of the account books I found that the income-tax which had been levied on five partners individually and on Jhandaram (who was not a partner then) for the assessment year 1953-54, had not been debited to the individual partners accounts but to the joint account of the firm. If the firm were genuine income-tax amounting in all to Rs. 3,247-2-0 levied on the five partners in their individual capacities should have been debited to the personal accounts of the partners separately and not to the joint partnership accounts in lump sum. What is most surprising is the fact that the income-tax amounting to Rs. 1,724-9-0 levied on Jhandaram for the assessment year 1953-54 when he was not a partner in the assessee firm was found debited to one of the joint accounts. This conduct of the assessee clearly shows that the provision in the instrument of partnership regarding division of profits was not acted upon.

(2) According to the revised form of application for registration under section 26A, Part B of the Schedule is not to be completed if the application is made before the close of the previous year. In this case, the application was made before the close of the previous year but Schedule B was duly completed by the assessee. This error of commission was further aggravated by giving wrong particulars in Schedule B of the application under section 26A. share allocation as stipulated in the instrument of partnership dated September 27, 1953, should have been given, if at all, and not that given in the original instrument of partnership dated April 2, 1952. The granting of registration is more of a concess