The judgment established the legal permissibility of a partnership between a Hindu joint-family and its coparceners without a prior division of assets, emphasizing the need for a genuine partnership constitution for registration under Section 185 of the Income-tax Act, 1961.

( 1 ) THIS reference at the instance of the assessees is made by the Income- tax Appellate Tribunal under Section 256 (1) of the Income-tax Act, 1961. The father I. P. Munavalli and the son C. I. Munavalli are the assessees and the ass'essment year is 1963-64. The Hindu undivided family of which i. P. Munavalli was the karta, was carrying on a business in foodgrains and pulses and on November 9, 1961, according to the statement of the case submitted to us, the father and the son entered into an agreement of partnership under which the son became a wotking partner and the other partner was the joint family of which the father was the karta. The profits and losses had to be shared equally by the two partners.

( 2 ) WHEN the assessees made an application for registration of the firm under Section 185 of the Act, the Income-tax Officer refused registration on the ground that there was no partition between the members of the family, and there was no genuine partnership which came into being between the members of the family.

( 3 ) THE appellate assistant commissioner was of a different view. In his opinion, a partnership between the Hindu Joint-family represented by the karta and a member of the coparcenary who' became a working partner was a good partnership and that there was no legal impediment to such a partnership coming into being. He was of the further opinion that the partnership was a genuine partnership. So, he granted the registration sought by the assessees.

( 4 ) BUT in the further appeal preferred by the department, the registration granted by the appellate assistant commissioner was vacated and the refusal of such registration by the income-tax officer was restored. The question of law referred to this Court reads:"whether, on the facts and in the circumstances of the case the agreement dated 9-11-1961 between Shri I. P. Munavalli and C. I. Munavalli brought into existence a valid partnership entitled to registration under section 185 of the Income-tax Act, 1961?"

( 5 ) THE Tribunal very rightly placed before itself the two questions which had to be decided in the appeal preferred by the department from the order made by the appellate assistant commissioner. The first was whether the assessees had established the genuineness of the partnership, and the second was whether the partnership such as the one which had been entered into between the Hindu joint-family through its karta the father and the son who became a working partner was in law permissible. The finding of the tribunal on the legal question was adverse to the assessees. It had no doubt in its mind that no partnership of this kind can come into being between the Hindu-joint-family through its karta on the one hand and the coparceners on the other until after there was a division of the assets and the properties of the coparcenary. The Tribunal thought that until there was such a division, no partnership between the family and its coparceners could come into being. Having reached that conclusion, the Tribunal allowed the appeal without however recording any finding on the question, which it was its duty to decide, namely, the question whether the finding of the appellate assistant commissioner that the partnership was a genuine partnership was or was not supportable.

( 6 ) MR. Desai for the assessee asked our attention to the decision of the privy Council in Lachman Das v. Commissioner of Income-tax, 16 ITR. 35 in which the Privy Council made the enunciation that an individual coparcener while remaining joint, can possess, enjoy and utilise, in any way he likes, property which was his individual property, not acquired with the aid of or with any detriment to the joint family property, and that it thenefore followed that to be able to utilise that property at his will, he must be accorded the freedom to enter into contractual relations with others including his family so long as it is represented in such transaction by a definite personality l