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TMI Blog1967 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers died fresh partnership deeds were subsequently drawn up. The one with which we are concerned in this case is dated July 7, 1950, a copy whereof has been made a part of the statement of the case. According to this document, there were in all 18 partners. The assessee-firm applied for registration under section 26A in all the three years. The Income-tax Officer refused registration every time on the finding that the partnership consisted of more than 20 persons which was violative of section 4 of the Indian Companies Act and for that reason could not be registered as a partnership. The orders passed in each year were affirmed on the assessee's appeals by the Appellate Assistant Commissioner and the Tribunal. It is clear from the statement of the case that some of the partners of the assessee-firm had joined it only in their representative capacity being kartas of their respective Hindu undivided families. The appellate order of the Tribunal has been made a part of the statement of the case and has been marked as annexure "E" in the referring order. In paragraph 4 of the appellate order the Tribunal has clearly stated that : "As already mentioned, the number of partners as me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, Kshetra Mohan-Sannyasi Charan Sadhukhan v. Commissioner of Excess Profits Tax. Commissioner of Income-tax v. Kalu Babu Lal Chand, Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax, Commissioner of Income-tax v. Nandlal Gandalal, Jitmal Bhuramal v. Commissioner of Income-tax, Commissioner of Income-tax v. Sivakasi Match Exporting Co., Commissioner of Income-tax v. A. Abdul Rahim and Co., Commissioner of Income-tax v. Bagyalakshmi and Co. and Charandas Haridas v. Commissioner of Income-tax. As a bald proposition of law and in strict technical sense it is true that a Hindu undivided family cannot constitute a partnership firm but it is well settled and fully recognized that, even though the partner may be the karta of a Hindu undivided family, the Hindu undivided family has an interest in the partnership business. It was clearly pointed out in Ram Kumar Ramniwas of Nanpara, In re that when the karta acting within his right under the Hindu law enters into a partnership he makes the entire joint family liable for the debt of the partnership and entitled to receive the benefits thereof. It was also pointed out in Commissioner of Income-tax v. Nandlal Gandalal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw) form a partnership, the consequences given in section 4 of the Companies Act would ensue. There is a difference between an actual state of affairs and the legal sanctity to those state of affairs. As a matter of fact, two or more Hindu undivided families may constitute a partnership business but it will not be recognised by law of partnership. The purpose of sub-section (3) is to meet even those cases where, in effect, two or more joint families form a partnership though, in law, they should not or could not form such a partnership. It is a matter of common knowledge that even though in the technical and strict sense of the law when a karta enters into partnership on behalf of the Hindu undivided family in his representative capacity the members of the Hindu undivided family do not become partners of the firm but nonetheless the firm is "popularly described as one between two Hindu undivided families". See Kshetra Mohan-Sannyasi Charan Sadhukhan v. Commissioner of Excess Profits Tax. It is in order to bring such cases of partnerships popularly called "the Partnership of Hindu undivided families" within the clutches of section 4 of the Indian Companies Act that the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividually upon contracts made and whether each would have rights accruing to him upon such contracts." This decision is of 1930 and cannot throw any light on the words that came into existence for the first time in 1936. Mr. Jagdish Swarup also placed reliance upon Commissioner of Income-tax v. Roopnarain Ramchandra. He contends that this case is an authority so far as this court is concerned on the interpretation of section 4(3) of the Act. I have very carefully perused this judgment. Even though their Lordships have not accepted the Calcutta view expressed in Shymlal Roy v. Madhusudan Roy, on which the Tribunal relied, they have not interpreted the provisions of section 4(3) of the Act. Besides, the facts in the case are very different from those before us. The question there was not the one before us, i.e., if a partnership is formed with several kartas of Hindu undivided families joining it in their representative capacities would or would not the number of all the adult members constituting those Hindu undivided families be totalled up for the purposes of section 4(3) of the Act ? They were dealing with the case of sub-partnership. That case is, therefore, clearly distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners as representatives or delegates of joint families. The partnership deed is, prima facie, between individuals who are not even described as kartas or representatives of their respective Hindu joint families. However, the statement of the case makes the appellate order of the Tribunal a part of the statement. The appellate order says : "It is common ground that most, if not all, of them were kartas and represented their respective families in the partnership." But, can the partners, who admit that they are kartas representing their respective Hindu undivided families, make the Hindu undivided families "partners", as that term is understood in law, by such an admission ? This is the simple question of some difficulty which we have to answer. I find it very difficult to accept a distinction between partnership in law and a partnership in popular understanding or in fact. When a legislative provision, such as section 4 of the Companies Act, contemplates a partnership it must be deemed to refer to "partnership" as it is understood in law. As has been pointed out by my learned brother, the added provision 4(3) of the Companies Act, which we have to interpret, was enacted after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch joint families form a partnership, in computing the number of persons for the purposes of this section, minor members of such families shall be excluded." It will be noticed that the object of section 4(2) is to limit the number of persons carrying on business as a company, association, or partnership to twenty unless the company, association, or partnership is registered under the Act. The object of section 4(3), which was added by Act XXII of 1936, was to exempt a joint family carrying on joint family trade or business from the restriction contained in section 4(2) itself. But, as soon as "two or more such joint families form a partnership" the restriction becomes operative again. The term "partnership" when used in a legislative provision must necessarily be given its legal connotation. I do not think that what could not be a partnership in the eye of law could have been referred to in section 4(3) of the Companies Act. In Mulla's Principles of Hindu Law, XIII edition, we find the following definition : "A joint Hindu family consists of all persons lineally decended from a common ancestor and includes their wives and unmarried daughters." Thus, the term "joint Hindu fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause they happen to be members of joint Hindu families carrying on business through coparceners, will not be counted as partners when the number of partners is determined for the purposes of section 4(2) of the Act. In my opinion, the provisions of section 4(3) must be read in the context of and in harmony with sections 4 and 30 of the Partnership Act. It may also be mentioned that section 6 of the Partnership Act lays down the mode of determining whether a group of persons does or does not form a partnership firm. It enables the authority which has to determine the question to go behind the deed of partnership. In the present case, the department tried to make out that, as the partners mentioned in the deed were not the real partners but the real partners were the Hindu undivided families, the ostensible partnership was not genuine. The argument seemed to be that the state of affairs apparent form the deed was not the real state of affairs as regards the parties to the partnership. Curiously, this argument was rejected on the ground that this was a new stand which could not be taken up by the department. If this was so, the logical inference was that the partnership deed represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain joint families and certain firms was determined on an interpretation of the deed and on the facts of that particular case. In the course of his judgment, Desai C.J., keeping in view the provisions of section 4 of the Indian Companies Act, observed : "There would have been no sense in prohibiting a Hindu undivided family's being a partner if there was no such thing as distinct from its karta's being a partner, i.e., if its being a partner were the same as its karta's being a partner. In Lachhman Das v. Commissioner of Income-tax the Supreme Court held that there can be a partnership between a karta and a coparcener and did not consider the validity of a partnership between a Hindu undivided family and a coparcener. A partnership between a karta and a coparcener was recognised because it is not a partnership between the Hindu undivided family and its coparcener. It was pointed out that when a karta is a partner, the Hindu undivided family does not become a partner. Here, though nominally the three kartas were said to be the partners, really the three Hindu undivided families were the partners." On the facts of that case, it was held to be an attempt to make joint families partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner is an attempt to import members of the whole group as partners. Such a partnership would be a most unusual and extraordinary kind of partnership. In cases where the karta functions purely as an individual with a will and mind of his own, unaffected by any obligation to consider the views of other members of the joint family, I do not think the members of the joint family can be deemed to be partners even in what may be regarded as the "popular" sense of the term partnership. It appears to me that the findings recorded by the Tribunal in the case before us amount only to making out two sets of jural relationships, one between partners as individuals who are the only partners in the eye of law and, another, which the partners who, as kartas of their respective families, may have towards the members of their respective joint families. I do not find it possible to make the two findings given by the Tribunal, one, that the partners are kartas of their respective families, and, another, that the partnership deed cannot be held to conceal some ulterior object or set of conditions, consistent with each other in any other way. Therefore, I am inclined to take the view that, upon the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its members as in fact enter into a contractual relation with the stranger ; the partnership will be governed by the Act." In the above-mentioned case a Division Bench of this court expressed dissent from the view taken by the Calcutta High Court in Shyamlal Roy v. Madhusudan Roy. The Tribunal, in rejecting the assessee's appeal, has purported to rely upon the view taken by the Calcutta High Court. As I find myself, very respectfully, in complete agreement with the view taken by Desai C.J. in Commissioner of Income-tax v. Roopnarain Ramchandra, I do not think it is necessary to embark on a discussion of the Calcutta case relied upon by the Tribunal ; I consider myself bound by the ratio decidendi of Roopnarain Ramchandra's case. If I had held a contrary view I would have considered this case to be a fit one for decision by a larger Bench. Apart from the fact that, with great respect, I entirely agree with the view taken by this court in Roopnarain Ramchandra's case, I would like to point out, incidentally, that the rule of practice in such matters, which the Tribunal sought to circumvent, has been laid down by the Supreme Court in Mahadeo Lal v. Administrator-General This rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as follows by their Lordships of the Supreme Court : "When two kartas of two Hindu undivided families enter into a partnership agreement the partnership is popularly described as one between the two Hindu undivided families but in the eye of the law it 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." I find it very difficult to hold that the result of this pronouncement is that a partnership between the kartas of undivided Hindu families could be appropriately described as a partnership of joint families as contemplated by section 4(3) of the Companies Act. In any event, the question of counting the number of members of a joint family among partners could not arise if the kartas only are the partners in the eye of law. In Commissioner of Income-tax v. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when he is the karta, entering into partnership with others in carrying on a business is equally well settled. The partnership that is created is a contractual partnership and will be governed by the provisions of the Indian Partnership Act, 1932. The partnership is not between the family and the other partners ; it is a partnership between the coparcener individually and his other partners (see Kshetra Mohan-Sannyasi Charan Sadhukhan v. Commissioner of Excess Profits Tax). The coparcener is undoubtedly accountable to the family for the income received, but the partnership is exclusively one between the contracting members, including the individual coparcener and the strangers to the family. On the death of the coparcener the surviving members of the family cannot claim to continue as partners with the strangers nor can they institute a suit for dissolution of partnership ; nor can the stranger partners sue the surviving members as partners for the coparcener's share of the loss. Therefore, so far as the partnership is concerned, both under partnership law and under Hindu law, the control and management is in the hands of the individual coparcener who is the partner and not in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t follows that where a statutory provision speaks of a partnership formed of two or more joint families the reference must be to individual members of joint families forming a partnership and not to joint families as partners or legal entities or persons acting through kartas. Section 4(3) of the Companies Act does not appear to me to deal with cases in which partners will be fictitiously deemed to be joint families even though this is not possible either in fact or under the law as it stands today. It appears to me to denote what is an actual partnership of individuals capable of being recognised by law as a partnership. I, therefore, very respectfully, dissent from the view adopted by my learned brother. My answer to the question is in the negative and in favour of the assessee. I, however, concur with my learned brother that the parties may be left to bear their own costs of this reference as the provision to be interpreted does present a rather difficult problem of interpretation on which there has been no clear authority so far. BY THE COURT May 19, 1967 In view of the difference of opinion between us it is ordered that this case be listed before a third judge. Put up the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 Act, or is formed in pursuance of an Act of Parliament of the United Kingdom or some other Indian Law or Royal Charter or Letters Patent. (3) This section shall not apply to a joint family carrying on joint family trade or business and where two or more such joint families form a partnership, in computing the number of persons for the purposes of this section, minor members of such families shall be excluded . . . . . . . ." Sri Jagdish Swarup, the learned counsel for the assessee-firm, conceded as I thought he was bound, to do that if the partnership in question was invalid under section 4(2) and (3) of the Indian Companies Act, the Income-tax Officer would be justified in refusing to register it under section 26A of the Income-tax Act. He, however, urged a three-fold contention in favour of the assessee-firm. His first contention was that as a partnership between two joint families was unknown to law, the latter part of section 4(3) was liable to be ignored as a superfluous provision which the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aforesaid view was also taken by the Supreme Court in Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax, Commissioner of Income-tax, Bombay City v. Nandlal Gandalal, and last of all in Bajrang Lal Tantai and others v. Smt. Gomti Devi and others. In the last case the Supreme Court observed thus : "It is true that when a karta enters into a partnership contract he is merely one of the persons constituting the total number of partners. Behind his back there may be a joint Hindu family or he may be acting in his personal capacity ; but as partnership arises only from contract, in either case it is only the member who makes the contract of partnership with strangers who can be considered to be a partner. Likewise, where the kartas of two joint Hindu families enter into partnership the other members of the joint families do not ipso facto become partners." Thus the latest decision of the Supreme Court makes it abundantly clear that two or more joint families can enter into a partnership through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes, those partnerships remain subject to the Indian Partnership Act and the law as laid down in the authorities cited above. Thus interpreted section 4(3) presents no difficulty in the way of partnership constituted of two or more joint families, getting itself registered under section 26A of the Indian Income-tax Act, and an application which is signed only by the kartas and which specifies their shares only, i.e., the shares of the joint families represented by them only, cannot be refused registration under that section for want of the signatures, and the details of the shares, of all the adult members of those joint families. Thus, the second and third contentions of Sri Jagdish Swarup have no force and are rejected. This leaves us with the first contention only. That contention, however does not need any consideration as it has become redundant in view of the opinion expressed by me on the last two contentions of Sri Jagdish Swarup. Sri Jagdish Swarup also sought to argue that as in the opening part of section 4(3), the joint family referred to was a joint family which carried on joint family trade or business, the partnership referred to in the latter part of that sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a self-contained code exhaustive of the matters dealt with therein, and its provisions show an intention to depart from the common rule qui facit per alium facit per se. Its intention again is that a firm should be given the benefit of section 23(5)(a), only if it is registered under section 26A in accordance with the conditions laid down in that section and the Rules framed thereunder. And as the word 'personally' in rule 6 requires the application to be signed by the partners in person, the signature by an agent on his behalf is 'invalid'." made the observation relied upon by Sri Gupta. It will therefore be seen that the passage relied upon by Sri Gupta does not even remotely purport to support his contention. Thus, for the reasons stated above, I am of the opinion that as the number of persons constituting the partnership in question exceeds 20, in all the three years with which we are concerned in this reference, the Income-tax Officer was right in treating it as invalid under section 4(2) read with section 4(3) of the Indian Companies Act, and in refusing registration to it under section 26A of the Income-tax Act, I would, therefore, in agreement with Jagdish Sahai J., answ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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