TMI Blog1940 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... executed a will dated 9th August 1899, by which he created a trust, the trustees being among others his wife and one of his sons Debi Prasad. The beneficiaries thereunder were his three sons and two grandsons, one of whom is Rai Bahadur Lokenath Prasad Dhandhania and the other his younger brother Radhakrishna, whose father Chandi Prasad was of unsound mind. The will directed that the trust would terminate when the youngest son Lakhi Prasad attained the age of 25. On his attaining this age on 3rd November 1920, the trustees executed deeds of release and transfer. By these deeds, Rai Bahadur Lokenath Prasad Dhandhania together with his brother Radhakrishna (who is now deceased) and his uncle Debi Prasad, each got-4-share and the other two brothers of Debi Prasad (Durga Prasad and Lakhi Prasad) also each got-4-share. But the business continued jointly in the same name and style as before of Bhudarmal Chandi Prasad and a deed of partnership on a contractual basis was executed on 26th January 1921. Later on in 1923, two of the four partners (sons of Durga Prasad and Lakhi Prasad) withdrew from the joint business and the business continued to be carried on jointly by the other two, viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the 16th December 1938 made under Sections 33 and 66(2) of the Indian Income-tax Act, 1922. Relevant extract from his order is Exhibit C. An application before the Court against that order having been filed, a mandamus has been issued, requiring me to state a case upon the following question:- Question.- Is the assessee as donee under the deed of gift from Debi Prasad, dated the 13th of May 1933, entitled to have registration of a firm consisting of himself as the donee of the one part and the joint Hindu family of which he is a Karta of the other part? 3. Commissioner's Opinion.-At the outset, it may be stated that the assessee in the present case is the Hindu undivided family of Rai Bahadur Lokenath Prasad Dhandhania. The words Rai Bahadur Lokenath Dhandhania may therefore be substituted for the words the assessee in the first line of the above question. For the purpose of answering the question whether Rai Bahadur Lokenath Prasad Dhandhania is entitled to have the registration of the alleged firm, it is necessary to determine at first whether there was really a genuine firm. It has repeatedly been held by various High Courts that the Income-tax authorities have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted by the donor and the donee (Rai Bahadur Debi Prasad and Rai Bahadur Lokenath Prasad) continued to remain joint and though one of them (the donor) later on retired from the business by executing a deed of gift in favour of the other, yet he lived jointly with the donee till his death. Though they were separate in the eyes of law, as a matter of fact they were to all intent and purposes members of a joint family. Their business, which had been founded by their common ancestor, continued in the same name and style of Bhudarmal Chandi Prasad, and its profits and other benefits were enjoyed by them jointly. Most of the items of properties referred to in the Schedule of the deed of gift, Exhibit D, related to undivided share in them. This fact denoted that there was no actual division of all the properties. 5. The circumstances under which the deed of gift was executed and its terms also indicate that the donor and the donee treated themselves as members of a Hindu undivided family. Rai Bahadur Debi Prasad, the donor, had become a childless widower and due to serious and long protracted illness had retired from business and was treating the donee, his nephew, as his own son. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hania himself, but also to his children and grandchildren.Thus in this view of the facts of the case, viz., that the gift was made to Rai Bahadur Lokenath Prasad Dhandhania along with his children and grandchildren, I am of opinion that there could be no firm consisting of the donee (viz., Rai Bahadur Lokenath Prasad Dhandhania and his sons) of the one part and also Rai Bahadur Lokenath Prasad Dhandhania as the Karta of the Hindu undivided family of the other part. 6. Even if it be conceded for a moment, though not admitted, that Rai Bahadur Lokenath Prasad Dhandhania got the estate of the donor in his individual capacity, I doubt very much if a firm could be constituted with Rai Bahadur Lokenath Prasad Dhandhania in his individual capacity of the one part and again himself as the Karta of the joint family (with his two sons) of the other part. To constitute a partnership or a firm, there must be an agreement and all agreements or contracts must be entered into between at least two separate independent persons. Section 19 of the Partnership Act requires that the mutual rights and duties of the partners of a firm may be determined by contracts. Rai Bahadur Lokenath Prasad D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bi Prasad and Lakhi Prasad. Chandi Prasad was the father of Lokenath and Radha Krishna. Lokenath has two sons Badribishal, a major, and Kishorilal, a minor. It appears that on the 26th of January, 1920, Chandi Prasad had become of unsound mind and the other members of the family, that is to say Lokenath, Durga Prasad, Debi Prasad and Lakhi Prasad entered into a deed of partnership on a contractual basis having a four annas share each in the family properties. In 1923 Durga Prasad and Lakhi Prasad withdrew from the partnership and the business then became the business of Rai Bahadur Debi Prasad and Lokenath in equal shares. On the 21st of February 1930, a fresh deed in confirmation of this situation was drawn up between Rai Bahadur Debi Prasad and Lokenath, and the firm as such was registered by the Income-tax Officer. On the 13th of May 1933, Rai Bahadur Debi Prasad made a gift of his interest in favour of Lokenath absolutely. The recitals in the deed of gift are that the property will go to Lokenath and his sons generation after generation. This has been treated by the Income-tax Department as meaning that the donee was not Lokenath in his absolute capacity but that the donee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined by the Indian Contract Act. In such a case the family as a unit does not become a partner, but only such of its members as in fact enter into a contractual relation with the stranger: the partnership will be governed by the Act . The Act referred to in this passage was the Indian Contract Act. but the sections referring to partnership in that Act have been repealed and are now embodied in the Indian Partnership Act, 1932. It seems to me that this observation of their Lordships when applied to the facts found in the present case which I have reproduced above, lead inevitably to the conclusion that the question formulated should be answered in the way suggested by the Commissioner. The recitals in the deed of partnership at page 23 are very clear and show that the partnership was being entered into between Lokenath on the one hand and the joint Hindu family of which Lokenath was the Karta on the other hand. The question which has been formulated was formulated upon this assumption of facts. The learned Advocate for the assessee contended, however, that the partnership was not entered into between Lokenath as Karta of the joint Hindu family but between Lokenath Badri- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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