Validity of partnership with coparceners depends on use of separate property, not coparcenary assets, in the firm

A partnership between a karta of a Hindu undivided family and coparceners in their individual capacities is valid where the coparceners contribute separate property acquired without aid of family funds. The legal vice arises only when coparceners are treated as partners in respect of coparcenary property while retaining their joint character. On the facts discussed, the coparceners had separate remuneration balances and the deed permitted investment of those personal funds in the firm, so the arrangement was a genuine partnership and not a colourable continuation of the joint family business.

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Issues: Whether the partnership between the karta of a Hindu undivided family and two coparceners in their individual capacities was legally valid and genuine.

Analysis: A coparcener who remains joint may nevertheless deal with property that is his separate and individual property, if it has been acquired without aid or detriment to the family funds, and may contract with the karta in respect of such property. The authorities considered establish that the vice lies in attempting to treat coparceners as partners in respect of coparcenary property while still retaining their joint character, but not where they bring in their separate property into the business. On the facts, the two coparceners had accumulated remuneration from separate employment, those sums stood as their individual balances, and the partnership deed contemplated their liberty to invest those separate funds in the firm and enjoy the fruits of such investment. The transaction, viewed as a whole, was therefore one of a lawful partnership in respect of separate property and not a colourable continuation of the joint family business in the guise of partnership.

Conclusion: The partnership was valid and genuine, and the answer was in favour of the assessee.

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