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Issues: (i) Whether there was a valid partial partition of the Hindu undivided family business notwithstanding non-division of liabilities; (ii) whether the partnership firm was validly constituted and entitled to registration under section 26A of the Income-tax Act, 1922.
Issue (i): Whether there was a valid partial partition of the Hindu undivided family business notwithstanding non-division of liabilities.
Analysis: Partition in Hindu law depends on a definite and unequivocal intention to separate, and partial partition of a particular business is effected in the same manner. The omission to divide liabilities was only one circumstance and not a conclusive test. The Tribunal had considered the surrounding conduct and documentary material and had found that the business was taken over by the partnership from 1 April 1955. That finding rested on evidence and turned on intention, which is a question of fact.
Conclusion: The partial partition was valid notwithstanding the non-division of liabilities, in favour of the assessee.
Issue (ii): Whether the partnership firm was validly constituted and entitled to registration under section 26A of the Income-tax Act, 1922.
Analysis: Once the finding of valid partial partition and takeover of the business by the partners was upheld, the existence of a genuine partnership followed. The Tribunal's conclusion that the firm was genuinely constituted was a finding of fact based on evidence, and no question of law arose to displace it in reference proceedings.
Conclusion: The firm was validly constituted and was entitled to registration under section 26A, in favour of the assessee.
Final Conclusion: The reference was answered against the Revenue and the partnership's constitution and registration were upheld, with the business income excluded from the Hindu undivided family.
Ratio Decidendi: Where a Tribunal's conclusion on partial partition and constitution of a partnership is founded on evidence and turns on the intention of the coparceners, the finding is one of fact and will not give rise to a referable question of law merely because liabilities were not separately divided.
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