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4. From the sworn statement of the said three partners on the search day, it is further clear that a partnership as contemplated under section 4 of the Indian Partnership Act has not been constituted. The definition of the partnership in section 4 of the Indian Partnership Act contains three elements, viz., (1) there must be an agreement entered into by all the partners concerned; (2) the agreement must be to share the profits of the business; and (3) the business must be carried on by all or any of the partners concerned acting for all. The third element is absent in the present case since the business was not carried on by all the partners. The said three alleged partners have stated that they had no knowledge whatsoever of the business carried on by the so-called partnership firm and each contended that he (she) was a sleeping partner. In law there may be some partners active and some inactive. Those inactive partners are called in commercial parlance as "sleeping partners". I do agree that the sleeping partners or inactive partners do not indulge or interfere in the day-to-day affair of the partnership business. But to admit or accept that the sleeping partners arc not even aware of their capital contributions; their own sharing ratios; the share ratio of other partners; the main business activity of the firm; the place from where firm's business is carried on and so on and so forth. Can it be said that a sleeping partner does not have any knowledge to such basic and rudimentary matters of the P.S. firm which affect and concern him? To my mind 'No'. And if it is so then it amply gives an indication or rather establishes that those persons are "not partners" but are "mere name lenders" for some third person or persons who is either a partner or an outsider.

10.1 The learned Judicial Member held that partnership was rightly held to be non-genuine on the basis of admission made on search date by the aforesaid three alleged partners which established beyond any shadow of doubt that all the other three partners were name lenders or benamidars of Shri H.J. Patel and they were not real partners of the firm stated to be constituted as per partnership deed dated 28-10-1995. All the three partners clearly and voluntarily confessed on search date that entire business was carried on and managed by Shri H.J. Patel only from his own business premises and they denied having any knowledge about the affairs and business activities of the firm. The learned Judicial Member further observed that an important ingredient of partnership that business must be earned on by all or by any of the partners acting for all, was absent in the present case since business was not earned on by all the partners. He disagreed with the contention that sleeping partners are inactive partners, did not indulge or interfere with the day-to-day affairs of the partnership business. It cannot be accepted that sleeping partners would not have knowledge of capital contribution; their names, profit sharing ratio of other partners; business activities of the firm, etc. If they do not have such knowledge, the indication is that those persons are "not partners" but are merely "name fenders". With the above observation, the learned Judicial Member upheld the conclusion of the Assessing Officer that the three other alleged partners were only benamidars of Shri H.J. Patel who was the real owner of the concern. In above view of the matter, refusal to grant registration was held to be fully justified. The learned Judicial Member, accordingly, set aside the order of learned CIT (Appeals) describing it as wholly fallacious in law. The appeal was directed to be allowed.

11.3 The above view of the Assessing Officer was reversed by the First Appellate Authority who held that partnership was genuine and was entitled to registration. On a further appeal by the Revenue before the Income-tax Appellate Tribunal, the two learned Members took divergent views and this is how the matter has come before me. However, before concentrating on divergence of views, I deem it necessary to state one point on which both the Members agreed. Both the learned Members agree that three partners other than Shri H.J. Patel were "sleeping partners" not actively engaged in the activities of the partnership. According to the learned Accountant Member, the three sleeping partners had contributed finance. They were found to be not well conversant with the affairs of the partnership business. That in his view was no ground for refusing registration because sleeping partners might be ignorant of the details of partnership. This would not constitute evidence for finding that partnership was not genuine. For above view, the learned Accountant Member relied upon decision of Hon'ble Madhya Pradesh High Court in the case of United Patel Construction Co. (supra) as also on decision of Hon'ble Supreme Court in the case of K.D. Kamath & Co. (supra) 11.4 The learned Judicial Member did not dispute that three partners were sleeping partners. He further agreed "that the sleeping partners or inactive partners do not indulge or interfere in the day-to-day affairs of the partnership business", but the learned Judicial Member did not agree "that the sleeping partners are not even aware of their capital contribution; their own sharing ratio; the sharing ratio of other partners; the main business activity of the firm; the place from where the firm's business is carried on and so on and so forth." He was not prepared to accept that sleeping partners did not have knowledge of basic or rudimentary matters of the partnership. These views led to the point of difference between the learned Members.

Further, as the other partner has not communicated in Form No. 12A to Assessing Officer that other partner is a benami though this fact was in his knowledge, the firm cannot be treated as genuine one. Further, the assessee has objected that Shri H. J. Patel cannot be treated as proprietor of Atul Shopping Centre...."

11.9 From the copy of statement of Shri Atul placed on record, it is clear from answer question No. 9 that he gave correct names and shares ratio in profit and loss of different partners in the partnership. Even from the observation of Assessing Officer, it is clear that none of the partners stated that he was not a partner in the partnership business or was not entitled to share as stated in the partnership deed. Of course, the three partners did not know much about the affairs of the partnership and have been termed by both the Members as "sleeping partners". The sleeping partner is one who is not actively engaged in the affairs of the partnership. The fourth partner Shri H.J. Patel has been held to be in control of affairs of the partnership, but the Assessing Officer has not held that such activities were repugnant to the terms of agreement between the partners. There is absolutely no material to hold that Shri H.J. Patel was not acting as agent of the other partners. In my considered view, the firm could not be treated as non-genuine if one partner was playing dominating or controlling role in the affairs of the partnership. The Assessing Officer has recorded no finding that what Shri Patel had violated any term or condition of the partnership agreement. In other words, there is no suggestion that agreement other than the one incorporated in the instrument of partnership was in operation. There is further no finding that Shri H.J. Patel was acting beyond the express or implied powers possessed by a partner to act for the partnership.