1. This reference arises out of the refusal of the Income-tax authorities to register a partnership deed under Section 26A of the Income-tax Act. It is open to the authorities to refuse to register a partnership deed, if there is no partnership in law and even if there is a partnership in law if the partnership is not a genuine partnership. Sir Jamshedji has emphasized the fact that it is open to person to enter into a legal partnership in order to avoid payment of tax. That may be so; but there must be contractual relationship between the persons which in law would constitute a partnership. If there is no partnership in law then the further question whether although the document was executed it was merely an ostensible document and it fact the parties never acted as partner would not arise.
2. Now, in this case the partnership is between Mahomed Umar and his two sons, and the question is whether on the terms of the document itself it can be stated that in law there was a partnership. Now there are two essential condition before it could be stated that by contract a relationship of a partnership; and the two condition are that the partners must agree to share the profits of the business and the business must be carried on by all or any of them for all of them. Therefore, not only must there be a sharing of profits but there must be also the principle of agency. This particular document seems to offend against both principles. It is unnecessary to go into the details, but taking the two outstanding points it is clear that whatever contractual relations existed between the father and the sons the result was certainly not a partnership in law. The father has been given the right to exclude either or both the sons from the management of the firm wholly in part, or to entrust the management tp any persons. Sir Jamshedji relies on cases where there are dormant partners or arrangement it is made that a particular partner shall be in management thereof; but they are all cases where partners agree that particular partner shall manage and that another person should get a share in the profit without being under an obligation to work for the partnership. But where we have a case where a partner who is willing to work is excluded and where he has no power to work as an agent of the business clearly it is a case where the partner so excluded would not be a partner at all. The other outstanding feature of this case is that even with regard to the sharing of profit it is left to the father tp determine what quantum of any profit should be distributed and it also left to his after such distribution what should be done with the remaining profits. Therefore, under this document there is not even sharing of profits contemplated. It is left to the father whether profits should be shared or not, when they should share them and to what extent. Clearly an arrangement like this cannot be considered in law to be partnership.
3. Sir Jamshedji says that the Tribunal did not consider the evidence, which the assessee had, to show the partnership deed was in fact acted upon. But that question would only have been relevant if we had come to the conclusion that the document constituted a partnership in law. Then undoubtedly subsequent conduct would have been relevant to find out whether the partnership was acted upon in order to determine whether the partnership was a genuine partnership. In our opinion the question of the subsequent conduct of the parties to the document does not arise.
4. Although four questions have been framed by the Tribunal as directed by us, on a consideration of the matter and on a consideration of various provisions of the partnership deed, it is clear that really only one question arises, viz. :-
'Whether on true construction of the various provisions of the partnership deed a partnership deed a partnership in law has been formed between Mahomed Umar and his two sons.'
5. Having raised this question the answer we give to it is in the negative. The assessee to pay the costs of the reference.
6. The notice of motion is also dismissed with costs.
7. Reference answered accordingly.