JUDGMENT JUDGMENT This reference under section 256(1) of Income-tax Act, 1961, is at instance of assessee for answering following questions of law: " 1. Whether, on facts and in circumstances of case, finding of Tribunal that partnership constituted by karta and another member of same Hindu undivided family and stranger was not valid partnership, so as not to be entitled to registration under section 185 of Income-tax Act, is correct and justified in law? 2. Whether, on facts and in circumstances of case, Tribunal was justified in law in holding that partnership formed by karta of Hindu undivided family, member of same Hindu undivided family and stranger was not partnership valid in law merely because funds of Hindu undivided family were all shown in name of karta as capital, and none shown in names of other members, and as such not entitled to registration under section 185 of Income-tax Act, 1961?" relevant assessment year is 1972-73. Ratanlal and Gulabchand were brothers who had separated in 1959. Vimal Kumar is son of Ratanlal. Initially, there existed joint family business comprising of two brothers, Ratanlal and Gulabchand. On April 3, 1971, fresh partnership deed was executed showing Ratanlal, his son, Vimal Kumar, and Gulabchand as partners. There was no partition between Ratanlal and his son, Vimal Kumar, and they continued to comprise smaller Hindu undivided family of which Ratanlal as father was karta. There was no investment of capital by Vimal Kumar in this partnership. assessee-firm comprising of Ratanlal, Gulabchand and Vimal Kumar, as partners, applied to Income-tax Officer for registration of firm. Income-tax Officer rejected application on ground that Vimal Kumar, being member of Hindu undivided family of which Ratanlal as father was karta, could not be partner of firm more so when there was no investment of any capital by him. Registration was accordingly refused by Income-tax Officer. assessee's appeal to Appellate Assistant Commissioner, however, succeeded inasmuch as Appellate Assistant Commissioner held that valid partnership could be constituted by these three partners. Revenue's appeal to Tribunal has thereafter been allowed. Tribunal has taken same view as Income-tax Officer in favour of Revenue that no valid partnership could be constituted in these circumstances. This has led to reference for decision of above questions of law arising out of Tribunal's order. point for decision is, whether valid partnership can be constituted by karta of Hindu undivided family along with stranger and another member of that Hindu undivided family. It is well-settled that there is no illegality in formation of such partnership inasmuch as it is open to karta of Hindu undivided family as well as member of Hindu undivided family to undertake separate business during continuance of Hindu undivided family to which they belong. It is obvious that there can be no objection to stranger also being inducted as partner in partnership, or, in other words, there can be no objection to partnership between stranger and karta of Hindu undivided family and/or another member of same Hindu undivided family. (See Gulraj Poonamchand v. CIT [1984] 148 ITR 326 (Raj), Addl. CIT v. Curious House [1987] 163 ITR 573 (Raj) and Ratanchand Darbarilal v. CIT [1985] 155 ITR 720 (SC)). It is equally obvious that for constitution of valid partnership, it is not necessary that each and every member should contribute to capital. This being so, mere fact that one of partners, Vimal Kumar, did not contribute to capital and was working partner could not invalidate otherwise validly constituted partnership. Tribunal was, therefore, not justified in taking contrary view. Consequently, reference is answered in favour of assessee and against Revenue as under: 1. Tribunal was not justified in holding that partnership constituted by karta and another member of same Hindu undivided family with stranger was not valid partnership entitled to registration under section 185 of Income-tax Act, 1961. 2. Tribunal was not justified in holding that such partnership was not validly constituted merely because no contribution to capital was shown in name of one of its partners who was member of Hindu undivided family. No costs. *** CHHAGAN LAL GULABCHAND v. COMMISSIONER OF INCOME TAX