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TMI Blog1965 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... mily which owned extensive property in Jaora State and a sugar mill called " Seth Govindram Sugar Mills " at Mahidpur Road in Holkar State. In the year 1942 Bachhulal filed a suit for partition against Govindram and obtained a decree therein. In due course the property was divided and a final decree was made. We are concerned in these appeals only with the sugar mills at Mahidpur Road. After the partition Govindram and Bachhulal jointly worked the sugar mills at Mahidpur Road. After the death of Govindram in 1943, Nandlal, the son of Govindram, and Bachhulal, as kartas of their respective joint families, entered into a partnership on September 28, 1943, to carry on the business of the said sugar mills. Nandlal died on December 9, 1945, leaving behind him the members of his branch of the joint family, namely, the three widows and the two minor sons shown in the genealogy. After the death of Nandlal, Bachhulal carried on the business of the sugar mills in the name of "Seth Govindram Sugar Mills ". For the assessment year 1950-51, the said firm applied for registration on the basis of the agreement of partner ship dated September 28, 1943. The Income-tax Officer refused to register th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke it clear that the question of registration could not be agitated in these appeals as that question was not referred to the High Court. We shall, therefore, only consider the points raised by the questions referred to the High Court and held by the High Court against the appellant. Indeed, the only effective question is whether during the assessment year 1950-51 the assessee was a firm or an association of persons. The first question raised by the learned Attorney-General is that on the death of Nandlal the firm of Seth Govindram Sugar Mills was dissolved and thereafter the income of the said business could only be assessed as that of an association of persons. To appreciate this contention some necessary facts may be stated. The deed of partnership dated September 28, 1943, was executed between Nandlal and Bachhulal. It is not disputed that each of the said two partners entered into that partnership as representing their respective joint families. Under clause (3) of the partnership deed. " The death of any of the parties shall not dissolve the partnership and either the legal heir or the nominee of the deceased partner shall take his place in the provisions of the partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership, therefore, is that the relation of partnership arises out of contract and not out of status. To accept the argument of the learned counsel is to negative the basic principle of the law of partnership. Section 42 can be interpreted without doing violence either to the language used or to the said basic principle. Section 42(c) of the Partnership Act can appropriately be applied to a partnership where there are more than two partners. If one of them dies, the firm is dissolved ; but if there is a contract to the contrary, the surviving partners will continue the firm. On the other hand, if one of the two partners of a firm dies, the firm automatically comes to an end and, thereafter, there is no partnership for a third party to be introduced therein and, therefore, there is no scope for applying clause (c) of section 42 to such a situation. It may be that pursuant to the wishes or the directions of the deceased partner the surviving partner may enter into a new partnership with the heir of the deceased partner, but that would constitute a new partnership. In this light section 31 of the Partnership Act falls in line with section 42 thereof. That section only recognizes the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner joins in the business later, it should be referable to a new partnership between them. " But Chatterjee J. in Hansraj Manot v. Gorak Nath Pandey struck a different note. His reasons for the contrary view are expressed thus: " Here the contract that has been referred to is the contract between the two partners, Gorak Nath and Champlal ... Therefore, it cannot be said that the contract ceased to have effect because a partner died. The contract was there. There was no new contract with the heirs and there was no question of a new contract with the heirs because of the original contract, and by virtue of the original contract the heirs become partners as soon as one of the partners died ... As soon as there is the death, the heirs become the partners automatically without any agreement between the original partners by virtue of the original agreement between the partners while they were surviving. There is no question of interregnum. As soon as the death occurs the right of somebody else occurs. The question of interregnum does not arise. The heirs become partners not because of a contract between the heirs on the one hand and the other partners on the other but because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u family and as a widow is not admittedly a coparcener, she has no legal qualifications to become the manager of a joint Hindu family. The decision of the Orissa High Court in Budhi Jena v. Dhobai Naik followed the decision of the Madras High Court in V. M. N. Radha Ammal v. Commissioner of Income-tax, wherein Satyanarayana Rao J. observed : " The right to become a manager depends upon the fundamental fact that the person on whom the right devolved was a coparcener of the joint family ... Further, the right is confined to the male members of the family as the female members were not treated as coparceners though they may be members of the joint family." Viswanatha Sastri J. said : " The managership of a joint Hindu family is a creature of law and in certain circumstances, could be created by an agreement among the coparceners of the joint family. Coparcenership is a necessary qualification for managership of a joint Hindu family." Thereafter, the learned judge proceeded to state: " It will be revolutionary of all accepted principles of Hindu law to suppose that the seniormost female member of a joint Hindu family, even though she has adult sons who are entitled as coparce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts of the parties. Thereafter, the accounts were closed as on 31st March, 1950, when the capital account was squared up by transferring that much loss from the profit and loss account and balance in the profit and loss account was transferred in the ratio of 10 : 6 to the current accounts of the two parties. Thus the profit and loss account showed: Rs. Net debit balance including current year's loss ... 17,51,992 Loss set off against capital account ... 10,78,666 ---------------------- 6,73,326 Transferred to partners' accounts: Rs. Messrs. Kalooram Govindram ... 4,20,829 Messrs. Gangaprasad Bachhulal ... 2,52,497 6,73,326 ---------------- ------------------ Balance Nil The accounts only establish that Bachhulal was doing the business of Govindram Sugar Mills. But Banarsibai's name was not found in the accounts. If she was a partner, her name should have found a place in the accounts. Not a single document has been produced on behalf of the assessee which supports the assertion that Banarsibai acted as a partner or was treated by the customers of the firm as a partner. There is not a tittle of evidence of conduct of Bachhulal, Banarsibai or even of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er into a partnership with Bachhulal. But Venkatlal became a major on December 13, 1949, i.e., during the accounting year 1949-50. On October 17, 1951, an application for registration was received by the Income-tax Officer signed by Venkatlal and Bachhulal who are shown as partners representing their respective joint families. The return of income submitted along with the application for registration was signed by Venkatlal on August 29, 1951. After Venkatlal became a major, there was no obstacle in his representing his branch of the family in the partnership. Indeed, it was conceded in the High Court that there was a partnership from December 13, 1949, when Venkatlal attained majority. Having regard to the said circumstances and the concession, we must hold that from December 13, 1949, the business was carried on in partnership between Venkatlal, representing his branch of the family, and Bachhulal, representing his branch of the family. In the result we set aside that part of the finding of the High Court holding that the partnership business was carried on by the representatives of the two families after the death of Nandlal, but confirm the finding to the extent that such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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