Partial partition of joint family business can stand without capital ascertainment where intent to sever and partnership formation are shown.

In a Hindu joint family business, absence of prior ascertainment or division of capital assets does not by itself negate a partial partition if the contemporaneous deed and surrounding conduct show an intention to sever joint status and transfer the business as a going concern. On those facts, the business can be treated as having passed out of the joint family into a valid partnership arrangement. The partnership's validity is not defeated merely because capital accounts were not formally worked out, provided the arrangement reflects real severance and formation of a partnership. The reference was answered in favour of the assessee, and registration under section 26A was upheld.

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Issues: (i) Whether absence of ascertainment of the capital assets of a Hindu joint family business on the relevant date necessarily negatived a partial partition of that business. (ii) Whether, on that footing, the members of the family could be regarded as having brought into existence a valid partnership entitled to registration under section 26A.

Issue (i): Whether absence of ascertainment of the capital assets of a Hindu joint family business on the relevant date necessarily negatived a partial partition of that business.

Analysis: The governing principle is that partition is concerned with severance of joint status, and a partition may be total or partial. Where the conduct and the contemporaneous instrument show an intention to sever and to treat the business as transferred from the joint family to the new arrangement, physical division or prior ascertainment of capital is not indispensable. The recital in the partnership deed, the surrounding conduct, and the transfer of the business as a going concern supported the conclusion that the family intended a disruption of the joint status in respect of the business.

Conclusion: No. Even if there was no evidence of ascertainment of the capital assets, it did not follow that there was no partial partition on the relevant date.

Issue (ii): Whether, on that footing, the members of the family could be regarded as having brought into existence a valid partnership entitled to registration under section 26A.

Analysis: Once the business had been treated as taken out of the joint family and transferred, lock, stock and barrel, to the partners, the mere absence of ascertainment of capital could not invalidate the partnership. The legal question was whether the facts showed a real severance and formation of a partnership, not whether the capital accounts had been formally worked out. On the facts accepted in the deed and the surrounding circumstances, the partnership was in existence and was competent to seek registration.

Conclusion: Yes. The partnership was validly brought into existence and was entitled to registration under section 26A.

Final Conclusion: The reference was answered in favour of the assessee, the Tribunal's contrary view was rejected, and the firm's entitlement to registration was upheld.

Ratio Decidendi: In a partial partition of a Hindu joint family business followed by formation of a partnership, ascertainment or division of capital is not a necessary precondition where the evidence shows an intention to sever and a transfer of the business as a going concern.

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