Sudhindra Mohan Guha, J. - (1.) The present reference under Section 256(1) of the I.T. Act, 1961, relates to the assessment years 1968-69 and 1969-70. The assessee-firm was reconstituted by a deed of partnership dated May 20, 1967, w.e.f. April 1, 1967, by introducing a new partner, Sri K. K. Nijhewan. Prior to the reconstitution, there were two partners, Sri Basheshar Lal and Smt. Gayanwanti Devi, having equal shares and the firm had been allowed registration. The business of the firm was of road transport. Material clauses of the reconstituted partnership deed are as follows: " (a) The capital shall be Rs. 40,000 or more as would be mutually decided from time to time and the said capital to be contributed by the first and the second party in equal proportions. (b) The partnership firm is the owner of several lorries. The accounts of the said lorries would be kept separately and any income and/or losses from the business done by the said lorries would be divided between the first and the second party in the following proportions: 1. Sri Basheshar Lal (first party) 50% 2. Smt. Gayanwanti Devi (second party)50% The third party will not be entitled to share any income and/or loss from the aforesaid lorry business. (c) The net profit of other transport business shall be divided amongst the partners and the net losses of the partnership shall be borne by them in the following proportions: 1. Sri Basheshar Lal 45% 2. Smt. Gayanwanti Devi 35% 3. Sri K. K. Nijhewan 20% (d) The first party, Basheshar Lal, shall be the manager of the partnership business and shall devote his whole-time attention to the business. He may be paid a monthly salary as the parties may agree from time to time. Such salary shall be considered an expense of the business and shall bs deducted as such, before arriving at the divisible profit or loss amongst the partners.(e) The third party shall be in charge of the Durgapur and Asansol branches of this partnership and he shall send the copy of the day to day accounts to head office of this partnership for proper incorporation in the accounts of the firm in the head office.
(2.) The ITO made the assessments of the assessee-firm under Section 143 of the I.T. Act, with which we have got no concern in the present reference. He, however, passed a separate order for registration for the assessment year 1968-69. He considered the terms of the partnership deed and examined the partners, Sri K. K. Nijhewan and Smt. Gavanwanti Devi, and came to the conclusion that the firm was not a genuine one. The ITO, therefore, rejected the assessee's claim for registration for the assessment year 1968-69. He also refused the continuation of registration for the assessment year 1969-70.
(3.) The assessee came in appeal before the AAC who held that the conditions for a valid 'partnership and registration thereof were satisfied. He further directed the ITO to allow registration to the assessee for the assessment year 1968-69, and renewal of registration for the assessment year 1969-70.;