TMI Blog1980 (7) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... wo firms, namely, 3/28ths and 3/17ths, must be taken to consist of two halves, one half alone to be included in his personal assessment, the other half to be considered in the hands of the joint family. The ITO rejected this claim and continued to assess the whole of the 3/28ths share from one firm and the whole of the 3/17ths share from the other firm in the assessee's individual assessment. The officer ignored the assessee's deed of declaration dated October 20, 1969. The officer commented that the assessee's deed of declaration had not been followed up by a bifurcation of the assessee's capital accounts in the two partnerships. On appeal, the AAC agreed with the ITO. He gave another reason for not acting upon the assessee's deed of declaration. According to the Appellate Assistant Commissioner, a share in a partnership involved risk of loss and liability, and hence such an asset could not, under the Hindu law, be blended with joint family property. On further appeal by the assessee, the Tribunal reversed the decision of the I.T. authorities. According to the Tribunal, the assessee's declaration throwing into the joint family hotchpot one-half of his partnership interests i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. There is no bar to the transfer, or assignment, as it is familiarly called in legal discussion, of the partner's interest Where the partner assigns his interest in the partnership to a stranger to the firm, the assignment will not entitle the assignee to claim partnership rights by virtue merely of the assignment in his favour. This disability, however, can be cured by the remaining partners agreeing to take the assignee as a partner with the interest he had acquired under the assignment. In the event of a dissolution and winding up of the firm, the assignee, even if he is a stranger, would be entitled to the surplus assets to the same extent to which his transferor would have been entitled if there had been no assignment-vide s. 29 of the Indian Partnership Act, 1932. Where partner assigns his share to another partner, and not to a stranger, the only result of it would be a reduction in the personnel of the partnership and an augmentation of the share of the partner who happens to be the assignee. In every case, the assignment is of the partner's interest as such, and the assignment becomes complete as between the assignor and the assignee, irrespective of the consequences i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he owner of an interest in a partnership ? The legal position on this point is now well settled, although its application in individual cases might pose problems. For, it requires a wholesome understanding of the inter-action of partnership law and Hindu law. The legal position may be stated thus; when an undivided coparcener in a joint family becomes a partner in a partnership firm, contributing to the firm his share of capital which he finds either from the family funds or by some other means detrimental to the joint family, then both the interest of that partner and the share of income referable to that interest belong to the family, even though not all the members of the family, ipso jure, are to be regarded as partners in that firm. In such a case it is a matter of indifference to the other partners and to the firm as such, whether the partner's capital contribution comes from his joint family or to its detriment, or whether it is the partner's own separate property. As between the partner in question and his joint family, however, the interest in the partnership can by no means be regarded, in the circumstances, as his individual or separate share, but must only partake of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exhausted all the metaphors which writers on Hindu law employ in the discussion of this subject. In " blending","conversion","throwing into the joint family hotchpot " and " clothing the property with the character of joint family property ", we have a mixed bag of metaphors, which any one, writing on this, topic of Hindu law, cannot, perhaps, do without. But all of them mean only one thing ; that the coparcener concerned, as the individual owner of an asset, be it a partnership share or other property, gives up his separate and exclusive dominion over that property and intends and wills that property should thenceforth be treated and respected as part of the joint family estate with all the attributes which coparcenary property possesses. It is quite clear from the above discussion that the individual share of a coparcener in a partnership firm, as a species of property, is quite amenable to being converted into joint family property by the expression of unequivocal intention in that regard by the coparcener concerned. This position is not bereft of earlier examples in the law reports. In State Of Tamil Nadu v. Sadanandam [1978] 113 ITR 453 (Mad), which is an agricultural incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and its vulnerability to losses which is inherent in business. Learned counsel said that a partner subjects himself not only to the consequences of his own mistakes but also to the acts of commission and omission of his co-partners. These peculiar characteristics of partnership ventures and relationships would truly affect the nature and content of a partnership interest as a species of property. Since a firm may have its ups and downs in business, the interest of a partner too would necessarily and helplessly get involved in, those ups and downs. As a species of property, therefore, a partnership interest cannot always be a plus quantity. At times such an interest may cease to be an asset and degenerate into liability. According to Mr. Jayaraman, a partnership interest which always has a liability potential cannot be an acceptable subject, under the Hindu law, for the process of conversion into joint family property. Learned counsel went to the extent of saying that to apply the " hotchpot doctrine " to a coparcener's partnership interest would amount to accepting the position that it is open to a coparcener to throw his liability into the joint family hotchpot, and not merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. An examination of this case, however, shows that no question arose in that case of a transfer or assignment of a partnership, let alone conversion of a coparcener's separate partnership interest into joint family property. On the construction of the document which figured in that case, it was found that what was transferred was a mere right to share in the future profits of the firm, and not an out and out assignment of the partnership interest as such. This decision, therefore, is not of use to any party in the present discussion. Mr. Jayaraman then urged a submission with particular reference to the fact-situation in the present case. He said that it was quite odd that a partner should be in a position to assign a moiety, or other fractional share, of his interest in the partnership, retaining the balance with him. According to learned counsel, it would be odder still to hold that a partner who was a Mitakshara coparcener could purport to take not the whole, but only a moiety of his interest in the partnership and impress that moiety with the characteristic of joint family property. This argument is easily met by observing that if a partner's interest as a whole can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two firms. We do not think this step is necessary. Indeed, it may even be uncalled for. This is because, so far as the firms were concerned, it was a matter of supreme indifference whether the partner retained his interest in the partnerships as his separate property or whether he converted them, either in whole or in part, into the property of his joint family. The change in the nature of his holding as between the partner and his other coparceners does not affect the two firms or the other co-partners. Even otherwise, the presence of entries in the capital account does not have any legal significance; they may possess only evidentiary value, just to verify whether the assessee's declaration had been really acted upon. But even without such entries in the capital accounts or other folios a tribunal of fact might, on other evidence, be satisfied about the truth of the transaction and its having been acted upon by the parties concerned. In the present case, there has never been any doubt about the assessee's bona fides or about the reality of the transaction. The absence of entries in the partnership capital accounts cannot, therefore, be made much of. One other objection whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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