TMI Blog1980 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... i Pradeep Kumar did not bring any capital of his own for investment in the, firm. The deed recited that Mata Prasad and Lakhan Lal shall continue to be partners on behalf of their respective HUFs having a share of 40% each, and Pradeep Kumar, who was being taken in as a working partner, was given 20% share. The reconstituted firm applied for registration under s. 185 of the Act. The ITO rejected the application following the decision of the Bombay High Court in the decision in Manilal Dharamchand v. CIT [1970] 78 ITR 96. The assessee appealed, but the AAC held that Pradeep Kumar could not become a partner in the firm in which his HUF was already a partner through its karta. In his view this would amount to an agreement of partnership by Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(d) defines" consideration". It says " When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise." Now, as s. 2(d) does not specifically say that consideration must take the form of money and property. It is thus not necessary that in order to constitute a partnership each partner must bring in some money or property. As observed by vice Chancellor Wigram in Dale v. Hamilton [1846] 5 Hare 369 at p. 393 : " if one man has skill and wants capital to make that skill available, and another has capital and wants skill, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Ram Mohanlal v. CIT [1956] 29 ITR 521 (SC), a partnership consisted of the karta of the HUF and two other persons. The joint family disrupted, and the firm was reconstituted on October 17, 1944. Under the new deed, the kartas of the erstwhile HUFs 'B' and 'C' and erstwhile partners 'D' and 'E' became partners. D and E were members of the joint family of which A continued to be the karta. One of the questions that arose was as to whether the junior members could become partners in the firm of which the karta was also one of the partners. The Supreme Court referred to the decision of the Privy Council in the case of Lachhman Das v. CIT [1948] 16 ITR 35, wherein it was held that the karta of an HUF could enter into a partnership with an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is avoided. In Shah Prabudas Gulabchand's case [1970] 77 ITR 870 (Bow) Chandra Kant Prabudas, a junior coparcener, was taken as a partner in the business of the HUF. The court took the view that it was necessary for the junior member to bring separate property in the firm, but held that the partnership was valid as the coparceners had brought their separate property in the firm. The court left open the question as to whether a valid partnership is created when a junior member contributes labour and skill only. In Manilal Dharamchand's case [1970] 78 ITR 96 (Bom) a partnership was formed by four persons, Manilal, Keshavlal, and their respective sons, Rasiklal and Champalal. In the preamble to the deed Manilal Dharamchand was described ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip. But as all that is required under the Contract Act is that there should be consideration for the reciprocal promises, the Privy Council's decision should not be taken as imposing any limitation for formation of a partnership contract between a karta and a junior member, other than as contained in the Contract Act or the Partnership Act. The observations of the Privy Council that a partnership can be formed with a junior member by the karta qua his separate property is by way of illustration of a particular eventuality when the separate property constitutes consideration for the induction of a junior member into the partnership. It cannot be read as being exhaustive of cases where consideration may take other forms. Now, as labour and s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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