9911796707
TMI Blog1968 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... Hindu undivided family with reference to their share of the income from the family firm, Manilal Dharamchand. At the end of the Samvat year 2009 (ending on 6th November, 1953), Mangalji retired from the partnership in the firm of Manilal Dharamchand. On 12th November, 1953, a new partnership deed came to be executed consisting of four partners who were given shares as follows: (a) Manilal Dharamchand representing his H.U.F. 5 annas share. (b) Keshavlal Dharamchand representing his H.U.F. 5 annas share. (c) Rasiklal Manilal 3 annas share. (d) Champalal Keshavlal 3 annas share. There was no separation between the families of Manilal and Keshavlal and their respective sons and that is why Manilal and Keshavlal represented their respective undivided families. As regards the capital, the document is silent, but it has been found as a fact that no capital was introduced by any of the partners and the whole capital had come in by way of a loan from the firm of Manilal Dharamchand at Pimpalgaon. Thus, the entire capital brought into the new partnership were the funds of the Hindu undivided family of Manilal Dharamchand. In paragraph 4 of the statement of the case it has also been sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natures to the deed and the application were mere surplus age. They, therefore, set aside the findings of the Appellate Assistant Commissioner and held that the firm could not be registered. At the instance of the assessee two questions were referred to this court on 23rd March, 1962, as follows : " (1) Whether, on the facts of this case, a valid partnership firm was constituted by the deed dated November 12, 1953 (annexure " A"), consisting of the two kartas and the coparceners without any separate property belonging to the coparceners being brought into the firm ? (2) Whether, on the facts of this case, the assessee-firm is entitled to registration under section 26A for the assessment year 1955-56 ? " When the matter had come before us on a previous occasion it was pointed out on behalf of the department that the question whether the firm was a genuine firm or not was a question which had been raised and decided by the Appellate Assistant Commissioner and the Tribunal and that the question therefore arose upon the order of the Tribunal but there was no reference to that question in the statement of the case, dated 23rd March, 1962. We passed an order on the 1st November, 1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the firm and in the preamble it is also made clear that the two fathers, Manilal and Keshavlal, became partners in the firm not in their individual capacity, but as the representative managers of their Hindu undivided families. This is further made clear from clauses (a) and (b) of paragraph 4 of the terms and conditions of the document. In clause (4) itself, moreover, the contrast in stating the shares is remarkable. In the case of Manilal and Keshavlal it is clearly added " representing his Hindu undivided family ", but so far as the sons, Rasiklal and Champalal, are concerned, the document merely mentions their names and nothing else. It is clear, to our minds, therefore, that the document indicates that the two fathers, Manilal and Keshavlal, joined the partnership as the respective kartas of their Hindu undivided families, while Rasiklal and Champalal joined the firm in their individual capacity. There is also no doubt that the entire capital of this firm came from the Hindu undivided family, Manilal Dharamchand, and in the accounts Rs. 50,000 were credited to the share of Manilal and Rs. 44,500 to the share of Keshavlal. No capital has been introduced into the firm by any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their respective Hindu undivided family, but Rasiklal and Champalal joined the firm only in their individual capacity and not as representing their respective Hindu undivided family. If so, the question arises whether such a partnership would be valid in law. In Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax the Supreme Court found it difficult to visualise a situation where a joint Hindu family enters into a joint venture with strangers through its kartas and the junior members of the family also become at the same time partners in their personal or individulal capacity. In that case the circumstances were almost similar to the circumstances here. On 23rd August, 1940, a firm known as Bhagat Ram Mohanlal was constituted and registered under section 26A of the Indian Income-tax Act. Its partners were (1) Bhagat Ram Mohanlal, Hindu undivided family, (2) Richpal and (3) Gajadhar, who were strangers to the Hindu undivided family. The respective shares given to the so-called partners were 8 annas to Bhagat Ram Mohanlal and 4 annas each to Richpal and Gajadhar. Mohanlal was the karta of the Hindu undivided family, Bhagat Ram Mohanlal, which consisted of himself and his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant contends for, of a Hindu joint family entering into a partnership with strangers through its karta and the junior members of the family also becoming at the same time its partners in their personal capacity. In Lachhman Das v. Commissioner of Income-tax it was held by the judicial Committee that the karta of a joint Hindu family could enter into partnership with an individual member of the coparcenary quoad his separate property. It was also held by the Privy Council in Sundar Singh Majithia v. Commissioner of Income-tax that there was nothing in the Income-tax Act to prohibit the members of a joint Hindu family from dividing some properties, while electing to retain their joint status, and carrying on business as partners in respect of those properties treating them as its capital. But, in the present case, the basis of the partnership agreement of 1940 is that the family was joint and that Mohanlal was its karta and that he entered into the partnership as karta on behalf of the joint family. It is difficult to reconcile this position with that of Chhotelal and Bansilal being also partners in the firm in their individual capacity, which can only be in respect of their se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, Rasiklal and Champalal must be treated as strangers. In principle, we are quite unable to see how the ratio of the decision of the Supreme Court would be affected or altered by the fact that strangers were also partners in a firm so long as the karta representing his Hindu undivided family was a. partner and an individual coparcener in his individual capacity was also a partner. The principle is that there cannot be a partnership in law where the karta of a Hindu undivided family has become a partner in a partnership firm in which another coparcener has also become a partner in his individual capacity in respect of the family property brought into the partnership. If that is the principle then the question whether there are one or more stranger partners in addition will, in our opinion, not make the slightest difference to the application of the principle. Reliance was placed in this respect upon a decision of a Division Bench of the Madhya Pradesh High Court in Commissioner of Income-tax v. Hukumchand Mannalal & Co. In that case, no doubt, the Division Bench held that a partnership between more than one coparcener of a Hindu undivided family and strangers would be valid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative of his Hindu undivided family. In that case, both Sir Hukumchand Sarupchand and his son, Rajkumar Singh, represented the interest of their respective Hindu undivided families and Rajkumar Singh was not a partner in his individual capacity at all. That crucial fact serves to distinguish that case from the present one. The principle of Firm Bhagat Ram Mohanlal's case was held to be inapplicable in that case for this very reason as can be seen from the remarks of the Division Bench at page 234 : " Shri Chitale supplemented the arguments of Shri Palkhivala by adding that there was a distinction between the case of Firm Bhagat Ram Mohanlal v. Commissioner of Income-tax and the present case, as here, there was no partnership in any coparcenary property. It seems to us unnecessary to consider this contention when the case of the assessee-firm has all along been that Sir Hukumchand and his son, Rajkumar Singh, became partners of the assessee-firm on behalf of a Hindu undivided family and the share and interest in the firm held by them beneficially belonged to the Hindu undivided family." The principle, therefore, laid down in Firm Bhagat Ram Mohanlal's case was not applied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether a coparcener can join a firm in his individual capacity when the karta of his Hindu undivided family is also a partner in respect of the joint family property. The principle in the case of A. Abdul Rahim & Co. therefore, does not apply in the present case. Lastly, it was urged that even assuming that we find, as we have done in the present case, that Rasiklal Manilal and Champalal Keshavlal became partners and thereby the firm is liable to be rendered illegal upon the principle of the decision in Firm Bhagat Ram Mohanlal's case, we should ignore the illegal part and give effect to the deed in so far as it is otherwise valid. Reliance was placed in this respect upon a decision of the Supreme Court in Ram Laxman Sugar Mills v. Commissioner of Income-tax S. It was urged that a construction should be put upon the partnership deed in the present case which would give it validity rather than invalidity and, therefore, although the names of Rasiklal and Champalal are mentioned without anything more we must understand by the mention of those names alone that these two persons joined the firm as kartas representing their respective Hindu undivided families. There is no doubt tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resenting his Hindu undivided family. The only question involved in that case was what was the effect of the disruption of the family of L upon execution of the document which remained the same as before. The Commissioner had taken the view that having regard to the document the entire joint Hindu family had become a partner and as soon as the joint family status was severed the partnership deed became inoperative. The Tribunal had confirmed the order of the Commissioner but upon different grounds. They held that though all the members of the joint family had become partners they had not signed the instrument of partnership nor the application for renewal of registration, and since all the members of the partnership had not signed the application for renewal of registration, registration could not be granted. The High Court virtually affirmed the decision of the Tribunal. The Supreme Court reversed the decision holding that the partnership agreement between L on the one hand and the other partners named on the other, would not be affected by the fact that the joint family of which L was originally the karta had been disrupted. They held that the fact that, "... that joint family ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
