TMI Blog1952 (3) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in the circumstances of the case, there was a valid partnership in respect of the cloth business which could be registered under Section 26A of the Income-tax Act ? Up to June, 1942, the assessee was a Hindu undivided family. During the assessment year 1943-44 the assessee claimed that there was a partition of the family properties in June, 1942, and the Income-tax Officer after examining the evidence adduced by the assessee held that there was a division of the family properties on 4th April, 1943. On the strength of this decision the assessee claimed during the assessment year now under consideration that the business carried on during the accounting year was the business belonging to a firm consisting of the erstwhile members of the Hindu undivided family, and that the firm should be registered under Section 26A of the Act, and the assessment should also be remade from that date. These two claims were rejected by the Department and also by the Appellate Tribunal. Hence these two references. The family consisted of three brothers, Lakshminarayana, Krishna-murthi and Subba Rao who was a minor. On the 24th June, 1942, an unregistered partition list was drawn up betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately entered. The whole stock was valued. In the partnership deed, the shares of the three sharers were fixed at one-third each, and as there was no fixed capital for the business during the time when the business was joint family business, it is stated in the document that they had invested amounts standing to the credit of each in their individual accounts as well as the amount credited in the name of Jakka Devayya and Sons as capital. If any further amount was required for the business it was provided in the deed that it should be borrowed either in cash or in kind. It has been found by the Appellate Assistant Commissioner-and there is no dispute-that there was division of the profits during the years 1942-43 and 1943-44, and that the profits of the first year were entered in the books on 4th April, 1943, and of the second year on 24th March, 1944, and that the mutation of the family account was effected by transferring the balance to the credit of the business to the ledger folios opened for the three sharers. Apparently they did not wish to discontinue the business as a result of the partition arrangement, as it ended in profit but agreed to continue it though as a partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint family to enter into a partnership thereafter in respect of the family business which they have divided by specified shares in the accounts among themselves. The property so held in partnership is taken out of the joint family, and thereafter the income derived from the partnership would not be the income of the joint family. In other words, it ceased to be an asset owned by a Hindu undivided family. That this is permissible follows, in our opinion, from Meyyappa Chettiar' s case (supra) and from the decision in Sundar Singh Majithia' s case (supra) . The rest of the properties and the status of the family regarding them may continue to be joint. The only effect of taking out an asset from and out of the assets of the joint family is not to attract Section 25 A of the Act but to make it an asset whose income cannot be taken into consideration in computing the income of the joint family for the purpose of assessment. It has to be assessed separately. It therefore follows from this, whether in fact the family houses and house-sites were divided or not physically, if it is established that the joint family business was partitioned in definite portions, then it will be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and that in the name of Jakka Devayya and Sons as capital was taken. The Appellate Tribunal and the Appellate Assistant Commissioner thought that the recitals in the documents that the business was not divided, as there was no possibility of dividing it, and that they agreed to carry it on in the name of Jakka Devayya and Sons precluded an inference of division of the business into definite portions. The intention to carry on the business jointly, in the context and reading the recital in the partnership deed, can only be that they intended to carry on the business as a separate firm Joint in the context does not mean as joint family property . Apart from other difficulties which would be dealt with presently, on a plain reading of the two documents together it stems to us obvious that there was a division of the business into definite portions, and that the asset was effectively taken out of the joint family properties by constituting it a partnership after division. It is no doubt true that in the matter of partition under the first document of 1942 Lakshminarayana, the eldest brother, represented Subba Rao. In the latter document, the registered partnership deed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enough to enable the assessee to insist that the assessment should be made on the various members separately, for unless they establish that there was a valid partnership they cannot achieve this result. If there is no valid partnership, the business carried on by the members would be assessed as an association and not as individuals: Vide Section 3, which refers to other association of persons Subba Rao was a minor on the date on which the partnership deed was entered into, and it is undoubted law that a minor cannot be made a partner even by a natural guardian acting on behalf of the minor. There can be no partnership between an individual and a minor represented by a person as a guardian. Such a contract does not bind the minor. But it is open to partners to admit a minor into the benefits of a partnership. (Vide Section 30 of the Partnership Act). If he is so admitted, under Section 2 (6B) of the Income-tax Act he becomes a partner for the purpose of the Act, for it says :- 'Partner' includes any person who being a minor has been admitted to the benefits of partnership . If he is not admitted to the benefits of the partnership but the assets in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by Section 30 is that there should be a consent of all the partners for the time being to admit the minor to the benefits of the partnership. Lakshminarayana and Krishnamurti were willing to admit the minor to the benefits of the partnership, and in fact in the accounts they opened a ledger page in his name and entered the profits earned on his behalf for the two years. We think therefore that too rigid a construction of the document need not be placed, and that the real intention of the parties can be gathered from the document and from their conduct in crediting the profits in the accounts. The father-in-law certainly must have had enough knowledge that the business was a profitable one and not a losing concern. The case which is analogous to the present is, in our opinion, the decision in A. Khorasany v. C. Acha and Others [1928] ILR 6 Rang. 198. There a Mahomedan who was carrying on business in partnership with another died leaving his widow and minor children. After the death of the husband, the widow entered into a contract of partnership on behalf of herself and also on behalf of the minor children. She had no power to enter into such a contract so as to bind the mino ..... X X X X Extracts X X X X X X X X Extracts X X X X
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