Genuineness of family partnership supports registration where capital is validly separated and the arrangement is acted upon.

A partnership between members of a Hindu undivided family is not invalid merely because the family remains joint; the department may only test whether the arrangement is genuine or a colourable device. On the facts, the capital allotted to the adult son and two daughters had been separated from family assets by entries, supported by release deeds and partition documents, and the business was thereafter carried on as a partnership. Mere book entries did not defeat genuineness. The alleged defects in the gifts to the daughters were not decisive because the transfers were accepted and acted upon, so the firm remained entitled to registration under section 26A.

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Issues: Whether there were materials for the Tribunal to hold that the partnership firm was not genuine so as to disentitle it to registration under section 26A for the assessment year 1953-54.

Analysis: A partnership between members of a Hindu undivided family is not prohibited merely because the family continues in joint status. The department is entitled only to examine whether the arrangement is genuine or a mere pretence to avoid tax. On the facts, the capital introduced in the names of the adult son and the two daughters had been separated from the family assets by appropriate entries, the subsequent release deeds and partition documents supported the severance of the family assets, and the business was thereafter carried on as a partnership concern. Mere book entries did not, by themselves, invalidate the arrangement. The authorities relied on the alleged invalidity of the gifts to the daughters, but the surrounding circumstances showed that the gifts were accepted and acted upon, and the transfer of capital to their accounts was sufficient to support the partnership arrangement.

Conclusion: The finding of lack of genuineness was not justified and the firm was entitled to registration.

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