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TMI Blog1970 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... refused to register the appellant firm under section 26A. All the partnership deeds are, we are told, similar in terms. We have before us the deed executed on July 7, 1950. It shows that the firm consists of 18 partners. Ex facie that deed does not show that any of the partners had joined the deed as representatives of their Hindu undivided families. From the tenor of the document, they appear to be partners in their own right. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal have come to the conclusion that some of them had joined the partnership as kartas of their respective Hindu undivided families. All the authorities under the Act as well as the High Court have opined that the partnership in question is not lawful in view of section 4(3) of the Indian Companies Act, 1913. The material portion of that provision reads : " 4. (2) No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned. According to the learned counsel, for the purpose of working out the rights and liabilities of the partners inter se one cannot go behind the partnership deed. Proceeding further he urged that in considering whether a partnership should be registered under section 26A or not, the Income-tax Officer has merely to see whether the requirements of section 26A of the Act and the relevant rules are complied with or not. He is not entitled to investigate into the question as to who are beneficially interested in the partnership. According to him if the requirements of section 26A and the relevant rules are complied with, the Income-tax Officer is bound to register the partnership. The counsel urged that the second limb of section 4(3) of the Indian Companies Act, 1913, proceeds on the erroneous impression that a joint Hindu family can enter into a partnership, which in law it cannot as it has no legal personality. Mr. B. Sen, learned counsel for the department, did not contest the position that when a karta or a member of a Hindu joint family joins a partnership the other members of his family do not become partners ipso facto. But according to him it is open to the department to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax and for other cognate matters. On the basis of certain observations of the Judicial Committee in Lala Lachhman Das v. Commissioner of Income-tax it was contended on behalf of the department that a joint Hindu family can enter into a partnership. Those observations have to be read in the context in which they were made. The department in that case had requested the Tribunal to refer the question, " can there be a partnership within the meaning of section 2, sub-section 6(B), of the Indian Income-tax Act, 1922, between a Hindu undivided family as such on the one part and one of its undivided members in his individual capacity on the other part ? " But that question was ultimately not referred as being unnecessary on the facts of the case. But the following observations of the Judicial Committee in its judgment are relevant : " It is unnecessary to consider in this case the question relating to the validity of a partnership between a Hindu undivided family as such of the one part and one of its undivided members in his individual capacity of the other. With reference to the latter kind of partnership, there seems to be some authority favouring the view that such a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip, though popularly known as one between two Hindu undivided families, in the eye of the law, is a partnership between the two kartas, and the other members of the families do not ipso facto become partners ; there is, however, nothing to prevent the individual members of one Hindu undivided family from entering into a partnership with the individual members of another Hindu undivided family and in such a case it is a partnership between the individual members and it is wholly inappropriate to describe such a partnership as one between two Hindu undivided families. In Firm Bhagat Ram Mohan Lal v. Commissioner of Excess Profits Tax this court ruled that when the karta of a joint family enters into a partnership with a stranger, the members of the family do not ipso facto become partners in that firm. They have no right to take part in its management or to sue for its dissolution. The creditors of the firm would no doubt be entitled to proceed against the joint family assets including the shares of the non-partner coparceners for realisation of their debts. But that is because under the Hindu law, the karta has the right when properly carrying on business to pledge the credit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative in accordance with law or in accordance with the terms of the agreement, as the case may be. The law of partnership and Hindu law function in different fields. A divided member or some of the divided members of the erstwhile joint family can certainly enter into a partnership with third parties under some arrangement among the members of the divided family. Their shares in the partnership depend on the terms of the partnership ; the shares of the members of the divided family in the interest of their representative in the partnership depend upon the terms of the partition deed. From these decisions it follows that for the purpose of finding out as to who are all partners of a firm, one has only to look to the partnership deed and not to go behind it. Another contention urged Mr. Chagla was that the scope of the enquiry under section 26A is a limited one ; if the application made for registration complies with the requirements of that section and the rules framed thereunder, then it is not open to the Income-tax Officer to refuse to register the firm. Section 26A says : " (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other firms combining together to form a separate partnership to carry on a different business. The fact that such a partner entered into sub-partnership with others in respect of his share did not detract from the validity of the partnership nor was the manner in which he dealt with his share of the profits of any relevance to the question of the validity of the partnership. In Commissioner of Income-tax v. A. Abdul Rahim and Co., this court ruled that registration of a partnership deed under section 26A of the Act could not be refused on the ground that one of the partners was a benamidar for someone else. Therein this court observed that it is settled law that if a partnership is a genuine and valid one, the Income-tax Officer has no power to reject its registration if the other provisions of section 26A and the rules framed thereunder are complied with. When a firm makes an application under section 26A for registration, the Income-tax Officer can reject the same if he comes to the conclusion that the partnership is not genuine or the instrument of partnership does not specify correctly the individual shares of the partners. But once he comes to the conclusion that the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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