Capital contribution is not a necessary requirement of a genuine partnership.

Om Prakash, J.

1. At the instance of the assessee, the Income-tax Appellate Tribunal (Allahabad Bench) has made this reference to this court under Section 256(1) of the Income-tax Act, 1961, for seeking our opinion on the following questions :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in refusing registration to the assessee-firm ?

2. Whether the Tribunal was legally correct in holding that the capital contribution of the partners was a necessary requirement of the partnership?"

2. The facts, in brief, are that a partnership firm in the name and style of M/s. Virendra Kumar Avinash Kumar was constituted by Sri Jagat Narain with his two sons, namely, Sri Virendra Kumar and Sri Avinash Kumar, under the partnership deed dated October 17, 1972. The share of each partner in the profit and loss was 1/3rd. The said partnership applied for registration by filing Form No. 11 before the Income-tax Officer on June 14, 1973. The original partnership deed was filed with the Income-tax Officer. It is stated in the partnership deed that Sri Jagat Narain constituted a joint Hindu family with his two sons and his wife, Smt. Chanda Devi, that Sri Jagat Narain had been carrying on business on a small scale for several years, in which funds belonging to the Hindu undivided family were invested ; that, for the first time on October 17, 1972, when the aforesaid partnership came into existence, the members of the Hindu undivided family prepared the statement of the family investment; that the statement showed that the total investment of the Hindu undivided family in the business was to the tune of Rs. 26,960.32; that the members of the Hindu undivided family effected a partial partition in respect of the Hindu undivided family capital in the business ; that the said capital was divided into four equal shares; that Sri Jagat Narain and both his sons invested the amount which they received on partial partition of the capital of the Hindu undivided family in the partnership business.

The Income-tax Officer was of the view that the erstwhile business was the individual business of Sri Jagat Narain and that was not the business of the Hindu undivided family. A view was, therefore, taken that the entire capital in the business was the capital of Sri Jagat Narain and his two sons were not entitled to any share in the said capital. The case of partial partition of the capital of the Hindu undivided family was thus rejected. It was held by the Income-tax Officer that the two sons of Sri Jagat Narain were benamidars of their father and the partnership business was not genuine. The claim for registration was, therefore, refused.

3. The dispute was carried in appeal to the Appellate Assistant Commissioner and further to the Appellate Tribunal. The Appellate Tribunal was, however, of the view that the partnership could not be said to be not genuine merely on the ground that the erstwhile business was the business of Sri Jagat Narain, that no capital of the Hindu undivided family was invested therein and that no partition of such capital was possible since the business belonged to Sri Jagat Narain individually. The Tribunal was of the view that even if the business belonged to Sri Jagat Narain individually, he could have made a gift of the amount, invested by his two sons in the partnership business, to them and at the most their contribution to the capital of the partnership firm could be brought to tax in the hands of Sri Jagat Narain as deemed gift under the provisions of the Gift-tax Act. The Appellate Tribunal, therefore, remanded the case to the Appellate Assistant Commissioner with a direction that the assessee might produce any other evidence to support its case. After remand, the Appellate Assistant Commissioner repeated his view, as he was of the opinion that despite the direction having been given by the Appellate Tribunal, no fresh evidence was produced by the assessee to support the the