TMI Blog1954 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... of the proposed mill according to his share specified in the deed and that one-third of the share money was to be paid within a month and the remaining two-thirds on such dates as might be decided later. Clause 7 of the deed provided that the profits of the partnership would be ascertained and distributed between the partners according to their shares on the 30th September of each year. Indra Chand's share in the partnership was one-fourth. On the 11th May, 1935, a second deed of partnership was executed which in substance confirmed the earlier partnership. By that time the mill had been established and it appears from articles 135 and 136 of the articles of association of the mill company that the firm of managing agents was to get allowances and commission at certain scales. The partnership deed of 1935 dealt with the managing agency profits in clause 2 and it was provided that the profits would be divided among the partners in accordance with their shares--the share of Indra Chand Kejriwal being still one-fourth. The question in the present reference is whether the one-fourth share of the managing agency income, derived by Indra Chand Kejriwal from the partnership, was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been raised before the taxing authorities, it might have been possible for the Department to make an alternative case that, in any event, the income having been found to have been received by the Hindu undivided family could be rightly included among its assessable income and taxed as such. It was said that if the extreme question of law now sought to be raised was entertained and answered in favour of the assessee, it would succeed on a case never made before the authorities below and the Department would be deprived of the opportunity of taxing the income which it might have done on another basis. The case made before the authorities below appears sufficiently from the orders respectively recorded by them. Nothing appears to have been said before the Income-tax Officer in course of the assessment for the assessment year 1940-41. The case made before the Income- tax Officer in the course of the assessment for the year 1941-42 is thus stated in the assessment order: It is claimed by the assessee that Babu Indrachand who is a karta of the assessee Hindu undivided family styled Kaniram Hazarimall, is the partner in the unregistered firm of Indrachand Hariram in his individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question as to whether Indra Chand was a partner on his own account or whether he was a partner as a representative of the family, but this question was debated and considered not on the footing that the karta of a Hindu undivided family could not in law be a partner on the family's behalf and the partnership income derived by the karta could not in law be the family income. The controversy appears to have been conducted on the basis that in fact Indra Chand did not represent the family in the partnership, but was there in his own personal interest. In those circumstances it does not seem to be in order that the assessee should try to raise a new point which the Tribunal was not asked to consider and to which the case stated does not refer. Dealing with an attempt to raise a new point before them in support of the assessment, the Judicial Committee observed in the case of Commissioner of Income- tax, Punjab v. Demon Krishna Kishore [1941] 9 I.T.R. 695 as follows: It is neither convenient, nor conducive to accuracy that new and important points of law should be raised for the first time at their Lordships' Board or that decisions should be given on matters not duly sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family, he would be satisfied. An affirmative answer would necessarily exclude the extreme contention of Mr. Gupta. The argument of Mr. Gupta was short and simple. He said that the Income-tax Act might have, if it so wished, given a new definition of partnership and created a type of partnership not known to the general law, but it had not done so. Instead it said specifically in section 2(6B) that the terms partner and partnership had the same meaning in the Act as they had in the Partnership Act. If the concept of a partner and of partnership under the Indian Income-tax Act was the same as those concepts under the Partnership Act, a Hindu undivided family could not obviously be or become a partner as such and it could not derive any income as partnership income. Mr. Gupta drew our attention to the fact that what had been taxed in the hands of the Hindu undivided family was a certain amount, said to be not merely so much money or an income receipt, but to be partnership income. His contention was that a Hindu undivided family could not in law enter into a partnership and if a member of the family or its karta did so, he could do so in law only in his individual capacity and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principle, as I understand it, is that when the managing member of a Hindu undivided family enters into a partnership, the family cannot be said to have entered into the partnership as such, that is to say, directly and in the capacity of the family. There is, however, another aspect of the question which was dealt with by the Judicial Committee in the later case of Lola Lachhman Das v. Commissioner of Income-tax, Punjab. N.W.F. and Delhi Provinces, Lahore [1948] 16 I.T.R. 35 ; L.R. 74 I.A. 277. The question referred in that case was whether in the circumstances of the case there could be a valid partnership between one Lachhman Das as representing a Hindu undivided family on the one hand and one Daulat Ram, a member of that undivided Hindu family in his individual capacity, on the other. The High Court of Lahore answered that question in the negative in disagreement with the Appellate Tribunal, but their Lordships of the Judicial Committee reversed the High Court. They said that they were not concerned in that case with the questions relating to the validity of a partnership between a Hindu undivided family as such and one of its undivided members in his individual capacity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch cannot be an immediate contracting party to a contract of partnership, it can nevertheless act through its karta who may enter the partnership as its agent and on its behalf. If a Hindu undivided family thus sends its karta to enter into a partnership on its behalf and can legally do so, I am unable to see why the income derived by the karta as such partner cannot be treated as the income of the Hindu undivided family, just as much as the income earned by the karta on the family's behalf through ventures or undertakings of other kinds. It is true that the Hindu undivided family cannot itself be a partner, not being a juristic person, for the purposes of the Contract Act and not possessing the requisite contractual capacity; but it does not seem to be violent notion to think that a Hindu undivided family can still act through the karta even in matters of partnership and, if I may use the expression, can invest the karta, together with such family funds as may be necessary, in the partnership for the purpose of earning an income for its own benefit. It has always been regarded correct under the Income-tax law to treat the partnership income of the karta of a Hindu undivided f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shankar Sugar Mills; that the first deed of partnership provided that each of the partners was to provide capital in accordance with his share; that the capital so contributed was to be employed in the purchase of shares of the Sugar mills; that so far as Indra Chand was concerned, his share of the capital was not supplied from his individual funds but was provided out of the funds of the family; that the shares of the mill company which were purchased with Indra Chand's contribution to the capital of the managing agency firm were purchased not in his personal name, but in the name of the family; and, lastly, that the books of the family showed the partnership income as its own receipt. The contention of the assessee that the entries in the books merely showed that Indra Chand had passed on the money after having earned it on his own account was held to have not been established, because the assessee failed, in spite of repeated adjournments being granted, to produce the books of the company, the partnership firm and of Indra Chand himself. What the family books showed, therefore, stood. On the above facts as found by the Tribunal, I am entirely unable to say that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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