Partnership requires agreement and mutual agency; a government-regulated profit-sharing arrangement alone is not enough.

A partnership under section 4 of the Partnership Act, 1932 requires an agreement between the persons concerned, an agreement to share profits, and business carried on by all or any of them acting for all. A government-controlled distribution arrangement, where members are selected by Government, work is regulated by Government, and the nominee has no independent volition, does not by itself create a partnership. Mere division of net profits is insufficient without agreement or mutual agency inter se, so such a group cannot be treated as an unregistered firm for tax assessment.

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Issues: Whether the Wholesale Cloth Dealers' Importers' Group constituted a partnership liable to be assessed as an unregistered firm.

Analysis: A partnership under section 4 of the Partnership Act, 1932 requires an agreement between the persons concerned, an agreement to share the profits of a business, and business carried on by all or any of them acting for all. The arrangement in question arose from a Government-controlled distribution scheme, the members were selected by Government, the manner of carrying on the work was fixed by Government, and the nominee appointed for distribution had no independent volition. Mere division of net profits did not establish the existence of a partnership in the absence of an agreement or agency inter se.

Conclusion: The group did not form a partnership and could not be assessed as an unregistered firm; the answer to the referred question was in the affirmative, in favour of the assessee.

Ratio Decidendi: A partnership cannot be inferred merely from a government-regulated profit-sharing arrangement unless there is an agreement between the parties and business is carried on by them or any of them acting for all.

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