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Issues: (i) Whether a karta of a Hindu undivided family can validly enter into a partnership with a coparcener of the same family by the coparcener contributing skill and labour instead of separate capital. (ii) Whether cancellation of registration under section 186(1) of the Income-tax Act, 1961, was justified on the facts.
Issue (i): Whether a karta of a Hindu undivided family can validly enter into a partnership with a coparcener of the same family by the coparcener contributing skill and labour instead of separate capital.
Analysis: The governing legal position recognises that a coparcener may enter into a partnership with the karta of the family if the arrangement is genuine and the coparcener contributes labour and skill, even without contributing separate property. On the facts found, the partner concerned was held to be genuine and had contributed labour and skill to the firm.
Conclusion: The question was answered in the negative, in favour of the assessee and against the Revenue.
Issue (ii): Whether cancellation of registration under section 186(1) of the Income-tax Act, 1961, was justified on the facts.
Analysis: Since the partnership was held to be valid in law and the finding of genuineness of the partner was accepted, the foundation for cancellation of registration did not survive. The order cancelling registration therefore could not be sustained.
Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.
Final Conclusion: The reference was answered entirely in favour of the assessee, upholding the validity of the partnership arrangement and rejecting the basis for cancellation of registration.
Ratio Decidendi: A coparcener of a Hindu undivided family may validly be a partner with the karta of the family where the arrangement is genuine and the coparcener contributes labour and skill, and registration cannot be cancelled merely because no separate capital was contributed.
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