TMI Blog1955 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets or profits of the firm without the consent of the other partner. Later on, on the 23rd of November, 1945, there was another deed of partnership executed as Between Ratilal Manishankar Dave and five other persons who were Deochand A. Mehta, Raja Khengarji, Shamji Mandan, Mulji Goabhai and Talewar Ram. By this document it was agreed that eight annas share in the profits of the first partnership would be divided between the six partners who are mentioned in the second partnership deed. It was agreed that Ratilal Manishankar Dave would get two annas share and Deochand A. Mehta would get another two annas share, and the other four partners would be granted share of one anna each. We are concerned in this case with the four assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assistant Commissioner on the ground that there was nothing to show that Renu Bala Devi was a party to the second deed of partnership, or that she had knowledge thereof. In these circumstances, the Income-tax Appellate Tribunal has referred the following, question of law for the determination of the High Court: Whether in the circumstances, the assessee firm constituted under the deed of partnership dated 15th September, 1944, was registrable under section 26A of the Indian Income-tax Act, in the assessment years 1945-46, 1946-47, 1947-48 and 1948-49 respectively ? On behalf of the Income-tax Department, Mr. R. J. Bahadur put forward the argument that the second deed of partnership was retrospective in effect and one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a minor has been admitted to the benefits of partnership. Therefore, the legal conception of partnership in the income-tax law is essentially the same as in the Indian Partnership Act. Now, section 5 of the Indian Partnership Act provides that the relation of partnership arises from contract and not from status. It follows that there can be no partnership in the eye of law unless there is privity of contract between the parties. The position is made still more clear by the terms of section 29 (1) of the Partnership Act. Section 29 (1) states : A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm. The result of such an agreement is to constitute what is called a sub-partnership, that is to say, it makes the parties to it partners inter se; but it in no way affects the other members of the principal firm. In the language of civilians, socius met socii, socius meus non est. In Ex parte Barrow 2 Rose 252, Lord Eldon has explained the law on the point in a very clear manner : I take it to have been long since established, that a man may become a partner with A where A and B are partners and yet not be a member of that partnership which existed between A and B. In the case of Sir Chas. Raymond, a banker in the city, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon these facts that the disruption of the joint family had no effect at all on the constitution of the firm or the manager's status as a partner of the firm and that the partnership firm should be registered under section 26A of the Income-tax Act. Counsel on behalf of the Income-tax Department relied upon P. A. Raju Chettiar and Brothers v. Commissioner of Income-tax [1949] 17 ITR 51 . In that case two brothers A and B constituted a Hindu undivided family and carried on a business. B died leaving behind him a widow and two minor sons. In August, 1940, there was a partition in the family and a partnership was entered into between A and the two minor sons of B, the minors being represented by their mother. Subsequently it was reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss were to be shared between M.K.N. Sons and the other partners R and G. But the application did not specify the shares of the partners of the smaller firm of M.K.N. Sons. The Income-tax authorities refused to register the firm of M. K. N. Co., and it was held by the Madras High Court that the action of the Income-tax authorities was justified. The legal principle underlying this case is that a firm as such cannot enter into a partnership with other persons. The reason is that in the eye of law a firm is not a legal entity but it is a mere collective name for individuals constituting the firm. It is, therefore, clear that the individuals constituting the smaller firm of M.K.N. Sons were in the eye of law the partners of the larg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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