G.P. Singh, C.J.

This is a reference made by the Income Tax Appellate Tribunal referring for our answer the following questions of law :

"1. Whether, on the facts and in the circumstances of the case, a legal and valid partnership could be constituted between Ramchand Nawalrai and his undivided son, Jai Kumar, as evidenced by the deed of partnership dated 5-9-1969, in spite of the fact that Jaikumar had not contributed any capital out of his separate and individual property ?

If the answer to the first question is in the affirmative and in favour of the assessee, whether the assessee is entitled to registration for the assessment year 1970-71 u/s 185(1)(a) of the Income Tax Act, 1961?"

The facts briefly stated are that a HUF consisting of Ramchand, the karta, and his four sons, namely, Jaikumar, Kailashkumar, Anilkumar and Sunilkumar, carried on business in commission agency and purchase and sale of confectionary at Satna up to and inclusive of the assessment year 1969-70. The income from business was assessed in the status of a HUF. For the assessment year 1970-71, it was claimed that a partnership was constituted between Ramchand, acting as karta, and his adult son, Jaikumar, with effect from 1st April, 1969. The partnership is evidenced by a deed of partnership dated 5th September 1969. According to the terms contained in the partnership deed, Ramchand and Jaikumar were ,to share the profits and losses of the business in the ratio of 70 and 30 percent., respectively. It was claimed that the business of the HUF was carried on in the relevant previous year by the partnership. An application for registration of the partnership was filed u/s 185 of the Act. The ITO held that there was no division in the HUF and as all the funds invested in the so-called firm had flowed from the joint family funds, there was no genuine and valid partnership. The application for registration was, therefore, rejected. In appeal, the AAC set aside the order of the ITO and held that the partnership was valid and genuine and that it was not necessary to effect a partition when the coparcener entering into a partnership with the karta is only a working partner. The AAC was of the view that there was a valid partnership between the karta, representing the HUF, and Jaikumar, in his individual capacity, as a working partner. In appeal, the Tribunal set aside the order of the AAC. In the opinion of the Tribunal as Jaikumar did not bring in anything for getting his share in the firm out of his separate and individual property and was described merely as a working partner, there could be no valid partnership in law between him and the karta.

A reading of the order of the Tribunal goes to show that the Tribunal assumed the alleged partnership to be genuine, but came to the conclusion that there could be no valid partnership between a karta of a HUF and one of its members when the member is merely a working partner and does not bring in for obtaining a share in the business, his individual property. The memorandum of appeal filed by the department before the Tribunal against the order of the AAC goes to show that the finding that the firm was genuine was also challenged. The Tribunal gave no finding on the genuineness of the firm presumably because it held that even on the assumption that the firm was genuine, there could be no valid partnership in law. We will, therefore, proceed upon the assumption that the firm was genuine and that Jaikumar who was inducted as a partner in the business was a real working partner in the sense that he contributed his skill and labour for the business to be carried on by the partnership.

It is no longer in dispute that a HUF acting through its karta can enter into a valid partnership with a stranger. In such a case the karta alone becomes the partner and not the individual members of the family. It cannot also be in dispute that contribution of capital by a person is not necessary to make him a partner. What is necessary is