Partnership registration cannot be denied merely because capital came from HUF funds when the firm is otherwise genuine.

Registration of a firm cannot be refused merely because partners introduced capital from a Hindu undivided family, if the partnership is genuine, valid and constituted in accordance with the deed. A partnership depends on the parties' agreement, their profit-sharing arrangement, and the real relation disclosed by the instrument and surrounding facts. Where partners entered in their individual capacity, specified their shares, and the business was otherwise real, the source of capital did not negate the firm's existence. Use of Hindu undivided family funds may be relevant to income assessment, but it does not by itself justify denial of registration.

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Issues: Whether registration of the firm could be refused on the ground that the partners had introduced funds from the Hindu undivided family and were acting contrary to the partnership deed, thereby rendering the partnership unreal or benami.

Analysis: A partnership is determined by the agreement between the parties and by the real relation shown from the instrument and surrounding facts. Under the Partnership Act, the essential requirements are an agreement to share profits or losses and carrying on of business by all or any acting for all. Where the deed shows that the partners entered in their individual capacity, specified their shares, and the partnership is otherwise genuine and valid, the source of the capital used in the business is not decisive for registration. Utilisation of Hindu undivided family funds may be relevant at the stage of assessment of income, but it does not by itself invalidate the firm or justify refusal of registration when the partnership actually exists in terms of the deed.

Conclusion: The refusal of registration was not justified; the firm was a genuine partnership and was entitled to registration.

Final Conclusion: The departmental appeal was rejected because the alleged use of Hindu undivided family funds did not negate the existence or validity of the partnership for registration purposes.

Ratio Decidendi: Registration of a firm cannot be refused merely because the partners introduced capital from a Hindu undivided family, so long as the partnership is genuine, valid, and constituted in accordance with the deed; the source of capital may bear on assessment but not on registration.

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