Partnership between Karta of HUF and Coparceners or Members

It is a well settled proposition applicable to Hindu law that members of the joint family and even co-partners can, without disturbing the status of the joint family or the coparcenary, acquire separate property or run independent business for themselves.

Ratanchand Darbarilal vs Commissioner Of Income Tax
AIR 1985 SC 1572, (1985) 48 CTR SC 349, 1985 155 ITR 720 SC

There can be a valid partnership between a karta of a Hindu undivided family representing the family on the one hand and a member of that family in his individual capacity on the other.

Lachhman Das v. CIT [1948] 16 ITR 35 (PC)

The Supreme Court of India in the case of Rashik Lal & Co. v. CIT [1998] 229 ITR 458 (SC) clarifies the position of a Hindu undivided family in partnerships:

1. The HUF (directly or indirectly) cannot become of a partner of a firm because the firm is an association of individuals;

2. All the provisions regarding mutual rights and liabilities are only applicable to the partners who are members of the firm;

3. The only right of HUF is possibly to call upon the nominee partner to render accounts for the profits that he has made from the partnership business;

4. The nominee partner of HUF does not act in a representative capacity in the partnership. The nominee simply functions in his personal capacity like any other partner;

5. The HUF or its representative does not have any special status in the Indian Partnership Act, 1932.

6. The HUF is not and cannot be a partner in a partnership firm as it is not being a ‘person’ who can enter into an agreement of partnership;

7. If the Karta enters into partnership, upon the death of the Karta, the partnership will stand dissolved. In the absence of a contract to the contrary, another member of the HUF cannot step into the shoes of the Karta;