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TMI Blog1932 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity has not been referred to us. This would be clear if we see the grounds in the petition of the assessee for reference to the High Court. The first three grounds did not refer to this question at all. The fourth ground was confined to the proper construction of the instrument of partnership, and the fifth ground was "whether the income from the various partnership concerns mentioned in the assessment order referred to in the appellate order is the exclusive income of the applicant firm or the individual income of the partners of the applicant firm under the instrument of partnership read with the proviso to Section 55 of the Act?" The question of the impossibility of one firm being a partner in another firm was not asked to be referred to. It is, however, clear from the way in which the question has been put by the Commissioner, challenging, as it does, the legality and propriety of the Income-Tax Officer it may well be said to include the question of law as stated above. We have power to reframe the question so as to answer it correctly. But when refraining it we must take care that we do not answer the new question in a way which would lead the income-tax dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase was followed by a Division Bench of the Calcutta High Court in Brojo Lal Saha v. Budh Nath Pyare Lal & Co AIR 1928 Cal. 148., where it was held that a partnership entered into by two or more persons is not a legal person and that a firm is not a person within the meaning of Section 239, Contract Act. A Bench of our own High Court in Basanti Bibi v. Babu Lal Poddar AIR 1931 All 25 expressed a similar view that the owning of a five annas share in the factory could not be regarded as forming a separate partnership, but that there was only one partnership owning the whole factory. The facts of the last mentioned case were, however, peculiar. But it may be pointed out that the definition of the word "person" as given in the General Clauses Act, 1868, which was in force when the Contract Act was passed, and which definition has been reproduced in the Act of 1897, was not expressly considered in the above cases. According to that definition a person includes any company or association or body of individuals, whether incorporated or not: Section 2 (3) of 1868 and s. 3 (39) of 1897. In Kader Bax v. Bukl Behari AIR 1932 Cal. 768 another learned Judge of the Calcutta High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legally a partner in another firm so to be able to enforce all rights of a partner and be burdened with all the liabilities of a partner, is entirely different from the question whether the income received by a firm which was wrongly admitted as a partner and paid over to that firm is not legally money belonging to that firm. The question before us arises under the Income-tax Act. The firm Jai Dayal Madan Gopal of Benares is the assessee in this case. According to Section 2 (2) of that Act an assessee means a person by whom income-tax is payable. The present reference under Section 66 arises in the course of an assessment and has been made at the request of the assessee. We must for the purposes of the Income-tax Act regard the assessee, namely, the Benares firm, as a "person," otherwise the department cannot tax the assessee at all. Under Section 239, Contract Act, the firm of Benares is a partnership firm. It can own property and have its own income. It can have a manager authorized to act on its behalf and to dispose of its funds. The Income-tax Act recognizes a firm which got itself registered under Section 26-A, Income-tax Act. It therefore seems to me that the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the Benares firm is no part of its own income, I would answer the question referred by saying that even though the finding may be justified on evidence, the Benares firm cannot legally be a partner in the nine other firms. Mukerji, J.-This is a reference under Section 66, sub-section (2), Income-Tax Act, by the Commissioner of Income-tax, U.P. There is a firm in Benares known as Jai Dayal Madan Gopal. It consists of two partners with equal shares, one being Lala Jai Dayal and the other Rai Sahib Ram Ratan Das. There seems to be a slight clerical mistake in the name of the second partner in para 1 of the statement of the case. The firm has an extensive business. Besides owning this firm the two partners have an interest in numerous firms bearing the same name and carring on business at different parts of the country. In the year of which the income for the purpose of assessment was under investigation it was found that the firm made no profits. It was, however, calculated that the other firms in which the two partners at Benares were interested made considerable profits which after a slight correction was declared to be ₹ 1,81,338. On this amount the tax and super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered firm Jai Dayal Madan Gopal of Benares is in its corporate capacity a partner in nine other firms bearing the same name was a legal and proper finding". In framing this question for determination by the High Court the learned Commissioner has taken it for granted that the firm Jai Dayal Madan Gopal is a corporate body and it was possible, under the law as contained in the Contract Act, for a firm like this to be a partner of another firm. The assessee firm has always contended that the income of ₹ 1,81,338 and odd is their individual income and not the income of the firm of Jai Dayal Madan Gopal. The question was very prominently and very clearly put before the Commissioner of Income-tax in [paras. (4) and (5) at page 25 of the printed reference. The same questions were raised before the Assistant Commissioner of Income-tax in their appeal by the assessee firm in para. 7 at page 20 which runs as follows :- "Because the finding of the learned Income-tax Officer as treating the registered firm Jai Dayal Madan Gopal partners in other partnerships is illegal and is self-contradictory by treating the registered firm as capitalist partners". It has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something like this. Partnership is the relation which subsists between individual persons or a firm and another firm or a firm and individual persons who have agreed, etc. This way of defining a term of law is hardly satisfactory. Then if we look to the other sections of the Act, we shall find that Ch. II Contract Act, never contemplated that an incorporate body like a firm could be a partner. Take for example Section 254, which runs as follows:- "At the suit of the partner the court may dissolve the partnership in the following case: (1) when a partner becomes of unsound mind". Now can a firm become of unsound mind? Then again let us consider Section 253. Almost each of the rules regulating the relations of partners inter se presupposes that the partners are individuals and not an incorporate body like a firm. My own opinion therefore, is that a firm cannot be a partner in another firm. This opinion of mine was expressed by my brother Bennet, J., (sitting with me), in Basanti Bibi 's case (supra) . This view has also been taken in Calcutta : see Sheodayal Khemka's case (supra) which was approved in Brojo Lal Saha Banikya's case ( supra). The latest Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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