Sub-partnership registration upheld where the arrangement was genuine and separately financed the partner's share in the main firm.

A genuine sub-partnership formed by a partner to finance his share in the main firm, and to share the profits and losses attributable to that share, is a recognised and separate entity in partnership law. Its members do not become partners of the main firm absent privity of contract. The sub-partnership's financing activity is sufficient business for registration purposes, and no bar arises under the Income-tax Act merely because section 14 of the Abkari Act is said to be contravened. The sub-partnership was therefore entitled to registration under the Income-tax Act, 1961.

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Issues: Whether a sub-partnership formed by a partner to finance his share in the main firm, and sharing the profits and losses accruing to that share, is entitled to registration under the Income-tax Act, 1961, notwithstanding the alleged contravention of section 14 of the Abkari Act.

Analysis: A partner may, in law, either enjoy the income from his share in the main firm himself or enter into a sub-partnership with others and divert a portion of that income or loss to them, so long as they agree to be partners of the sub-partnership. Such a sub-partnership is a recognised concept in partnership law and is a separate and distinct entity from the main firm. The members of the sub-partnership do not become partners of the main firm unless privity of contract exists between the two. The business of the sub-partnership, namely financing the partner's capital share, is sufficient to constitute business for registration purposes, and if the sub-partnership is genuine, there is no legal bar to registration under the income-tax law.

Conclusion: The sub-partnership was entitled to registration under the Income-tax Act, 1961, and the reference was answered in the affirmative in favour of the assessee.

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