Genuine partnership in partitioned family business supports firm registration and defeats HUF assessment on the facts found.

Members of a Hindu undivided family may constitute a genuine partnership in respect of business allotted for separate enjoyment under a partition deed, even if the family is not otherwise completely disrupted. Registration cannot be refused where the instruments, bank dealings, capital contributions, and accounts show the firm was real and not a pretence, and minor discrepancies do not negate that effect. On the same footing, the business income could not continue to be assessed in HUF status once the partition of the business was accepted on the facts. An unequal partition was not treated as invalid, and the absence of a partition-recording order did not sustain the HUF assessment.

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Issues: (i) whether the refusal to register the firm of Hotchand Chattaram was justified; (ii) whether the assessment made in the status of a Hindu undivided family was justified.

Issue (i): whether the refusal to register the firm of Hotchand Chattaram was justified.

Analysis: The facts disclosed a partition deed under which the business was allotted for separate enjoyment and a partnership was thereafter constituted and acted upon by registration with the Registrar of Firms, a bank account in the firm's name, separate capital contributions, separate accounts, and commercial dealings treated as those of a firm. A partnership between members of a Hindu undivided family is not invalid merely because the family is not completely disrupted, so long as the business in question has been partitioned and the firm is genuine. The discrepancies relied upon by the revenue did not negate the real effect of the instruments or establish that the partnership was a pretence.

Conclusion: The refusal to register the firm was not justified and the issue is answered in favour of the assessee.

Issue (ii): whether the assessment made in the status of a Hindu undivided family was justified.

Analysis: The revenue's premise that a partition must be exactly proportionate and formally recognised before any firm could exist was rejected. An unequal partition is not unknown to law, and the materials supported a genuine partition of the business. Once the firm was held to be genuine, the income from the business could not continue to be assessed in the status of a Hindu undivided family merely on the basis of the rejected assumption that no valid partition had taken place. The absence of an order under the partition-recording provision did not sustain the family assessment in these circumstances.

Conclusion: The assessment in the status of a Hindu undivided family was not justified and the issue is answered in favour of the assessee.

Final Conclusion: The references were answered against the revenue, with the result that registration of the firm and assessment in the firm status were held to be warranted on the facts found.

Ratio Decidendi: Members of a Hindu undivided family may form a genuine partnership in respect of family business that has been partitioned, and a valid partition is not defeated because the division of assets and liabilities is unequal or because the family is otherwise not completely disrupted.

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