State giving reasons whether the following are partnerships as per the provisions under the Indian Partnership Act, 1932. (i) X, Y, and Z agree to…
CA Foundation · Business Laws · RTP · May 2025
State giving reasons whether the following are partnerships as per the provisions under the Indian Partnership Act, 1932. (i) X, Y, and Z agree to divide the profits equally, but the loss, if any, is to be borne by X alone. Is it case of partnership? (ii) X, a publisher, agrees to publish a book at his own expense written by Y and to pay Y, half of the net profit. Does this create a relationship of partnership between X and Y? (iii) A and B purchase a tea shop and incur additional expenses for purchasing utensils etc. each contributing half of the total expense. The shop is leased out on daily rent which is divided between both. Does this arrangement constitute a partnership between A and B?
Suggested Answer and Working Notes:
(i) Yes, it is a case of partnership. Reason: As per Section 4 of the Indian Partnership Act,1932, "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The sharing of profits is an essential feature of partnership. There can be no partnership where only one of the partners is entitled to the whole of the profits of the business. Partners must agree to share the profits in any manner they choose. But an agreement to share losses is not an essential requirement. It is open to one or more partners to agree to share all the losses. (ii) No, it is not a case of partnership. Reason: Sharing of profit, which is prima facie evidence, exists but mutual agency among X and Y, which is an essential element, does not exist here. (iii) No, it is not a case of partnership. Reason: Persons who share amongst themselves the rent derived from a piece of land are not partners, rather they are co-owners. Because there is neither existence of business, nor mutual agency is there.
Topics: The Indian Partnership Act, 1932
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