Joint family business cannot be converted into a valid individual partnership without separate property, keeping income taxable to the family.

A karta cannot, in respect of ancestral joint family business, validly form a partnership with coparceners in their individual capacities where no separate property is brought in and the arrangement is inconsistent with the family character of the business. The governing principle is that coparceners cannot simultaneously claim rights as members of the Hindu undivided family and as individual partners in the same joint family business. If the purported partnership is invalid, the business remains joint family property and its income is attributable to the Hindu undivided family as a whole.

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Issues: (i) Whether a karta of a Hindu undivided family can, in respect of joint family business, enter into a valid partnership with his coparceners in their individual capacities; (ii) whether the income from such business is taxable wholly in the hands of the Hindu undivided family or only to the extent of the karta's share.

Issue (i): Whether a karta of a Hindu undivided family can, in respect of joint family business, enter into a valid partnership with his coparceners in their individual capacities

Analysis: The business in question was found to be ancestral and an asset of the Hindu undivided family. The purported partnership proceeded on the assumption that the karta owned the business absolutely and that the sons entered with separate funds, but that assumption was rejected. The governing principle drawn from the Supreme Court authority was that coparceners cannot, in respect of joint family business, simultaneously claim rights as coparceners and as partners in their individual capacities where no separate property is brought in and the arrangement would prejudice the joint family estate.

Conclusion: No valid partnership could be formed in law.

Issue (ii): Whether the income from such business is taxable wholly in the hands of the Hindu undivided family or only to the extent of the karta's share

Analysis: Once the partnership was held invalid, the business continued to belong to the Hindu undivided family. The attempted allotment of partnership shares to the coparceners did not alter the character of the business as joint family property, and the entire income from that business remained attributable to the family.

Conclusion: The whole of the income was taxable in the hands of the Hindu undivided family.

Final Conclusion: The reference was answered against the assessees, and the business income was held assessable in full in the hands of the Hindu undivided family.

Ratio Decidendi: Coparceners cannot be treated as individual partners in joint family business where the arrangement is inconsistent with the joint family character of the property and no separate property of the coparceners is brought into the partnership.

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