Partnership registration upheld where HUF representation and private profit-sharing arrangements did not negate the firm's genuineness.

A partnership remained registrable even though two partners represented a Hindu undivided family, because membership of the family is a matter of status while partnership is contractual; the family itself was not treated as a partner, and the firm's validity was not affected. Registration also could not be refused because one partner had separate arrangements to share his profits, since such sub-partnership or private profit-sharing operated only inter se and did not alter the genuineness of the original firm. Post-accrual diversion of profits was relevant, if at all, to assessment, not to registrability. The firm was held entitled to registration under section 26A.

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Issues: (i) Whether a firm was invalid for registration purposes because two partners represented the interest of their Hindu undivided family. (ii) Whether registration could be refused because one partner had entered into separate arrangements for sharing his profits and because the shares shown in the partnership deed were said not to reflect the real beneficial enjoyment of profits.

Issue (i): Whether a firm was invalid for registration purposes because two partners represented the interest of their Hindu undivided family.

Analysis: Membership of a Hindu undivided family is a matter of status, whereas partnership arises from contract. The fact that a karta or other adult coparcener enters a firm as representing the family does not make the family as a unit a partner, but it does not prevent such coparcener from becoming a contractual partner with strangers. The mere circumstance that two coparceners of the same family represented the family interest in the firm did not destroy the validity of the partnership.

Conclusion: The firm was not invalid on this ground and was entitled to registration.

Issue (ii): Whether registration could be refused because one partner had entered into separate arrangements for sharing his profits and because the shares shown in the partnership deed were said not to reflect the real beneficial enjoyment of profits.

Analysis: An agreement by a partner to share his own profits with third parties operates only inter se between them as a sub-partnership or private arrangement. It does not make those third parties partners in the original firm, nor does it affect the genuineness of the firm or the partner's contractual status. Likewise, the subsequent partition of the family and the later diversion of the partner's profits to another entity was relevant, if at all, to assessment and not to the firm's registrability.

Conclusion: Registration could not be refused on these grounds.

Final Conclusion: The question referred was answered in favour of the assessee, and the firm was held entitled to registration under section 26A for the assessment year 1954-55.

Ratio Decidendi: A firm remains registrable where partners enter as contractual partners, even if some of them represent a Hindu undivided family or later deal privately with their share of profits, because such representative or post-accrual arrangements do not by themselves negate the existence or genuineness of the partnership.

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