Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, MADHYA PRADESH
Vs.
RESPONDENT:
SIR HUKUMCHAND MANNALAL & CO.
DATE OF JUDGMENT:
20/07/1970
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
HEGDE, K.S.
CITATION:
1971 AIR 383 1971 SCR (2) 846
1970 SCC (2) 352
CITATOR INFO :
RF 1992 SC 66 (17)
R 1992 SC 197 (17)
ACT:
Income-tax Act, 1922, S. 26-A--Partnership including two
partners representing interest of same H.U.F.--If can be
registered--Whether members of H.U.F. suffer from any
disability from entering into contract inter-se.
HEADNOTE:
H and his son R were two out of the five partners of the
respondent firm and represented the interest of a Hindu
undivided family. The Income-tax Officer granted
registration of the firm under s. 26A of the Income-tax Act,
1922. In 1954-55, he declined to grant such registration.
The Appellate Assistant Commissioner confirmed his order on
the ground that two coparceners could not represent the
interest of the H.U.F. in a partnership. The Tribunal
reversed this order and the High Court, upon a reference of
the question whether the respondent firm could be granted’
registration, answered it in the affirmative.
On appeal to this Court,
HELD : Dismissing the appeal,
That a partnership in which two members of a coparcenary
represent same beneficial interest of an H.U.F., may be
validly registered under the Income Tax. [648 C-D]
Ram Lax an Sugar Mills v. Commissioner of Income-tax, U.P.
and Anr. 66 I.T.R. 613, P. K, P. S. Pichappa Chittiar & Ors.
v. Chokalingam Pillai & Ors. A.I.R. (1934) P.C. 192 and
Charandas Haridas & Anr. v. Commissioner of Income-tax,
Bombay North, Kutch and Saurashtra, Ahmedabad & Anr. 39
I.T.R. 202, referred to.
The Indian Contract Act imposes no disability upon members
of a Hindu undivided family in the matter of entering into a
contract inter se or with a stranger. A member of a Hindu
undivided family has the same liberty of contract as any
other individual : it is restricted only ill the manner and
to the extent provided by the Indian Contract Act.[648 H]
It is now settled law that in considering an application for
registration of a firm, the Income-tax Officer is not
concerned to determine in whom the beneficial interest in
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the share in the partnership vests. [649 B]
Commissioner of Income-tax v. Abdul Rahim & Co. 55 I.T.R.
651 and Commissioner of income-tax, Madras v. Bagyalakshmi &
Co. 55 I.T.R. 660, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1774 of
1969.
Appeal from the judgment and order dated February 12, 1965
of the Madhya Pradesh High Court in Misc. Civil Case No.
112 of 1963.
647
S. Mitra, R. N. Sachthey and B. D. Sharma, for the
appellant.
M. C. Chagla, R. N. Banerjee, A. K. Verma and O. C. Mathur,
for the respondent.
The Judgment of the Court was delivered by
Shah, J. A firm styled Sir Hukumchand Mannalal & Company was
formed under a deed dated July 16, 1948 to carry on the
business of "managing and selling agents" of Hukumchand
Mills Ltd. Sir Hukumchand and his son Rajkumar Singh were
two of the five partners of the firm. They represented the
interest of the Hindu undivided family of Sir Hukumchand and
his sons. On March 31, 1950 the property of the Hindu
undivided family was partitioned and the interest of the
family in the partnership was taken over by a private
limited company styled Sir Sarupchand Hukumchand Ltd.
For the assessment years 1950-51, 1951-52, 1952-53 and 1953-
54 the Income-tax Officer granted registration of the firm
under s. 26A of the Indian Income-tax Act, 1922. In 1954-55
the Income-tax Officer declined to grant registration. In
appeal the Appellate Assistant Commissioner confirmed the
order on the ground that two coparceners could not represent
the interest of the Hindu undivided family in a partnership.
The Tribunal reversed the order. They held that Sir
Hukumchand and his son Rajkumar Singh were partners in the
firm on behalf of the Hindu undivided family and there was
nothing in law which prevented two or more coparceners of a
Hindu undivided family representing the family from entering
into a partnership with a stranger or strangers.
At the instance of the Commissioner of Income-tax the
following question was referred by the Tribunal :
"Whether in the facts and circumstances of the
case the firm Hukumchand and Mannalal Company
could be granted registration under s. 26A of
the Act ?"
The High Court answered the question in the affirmative.
The Commissioner of Income-tax has appealed to this Court
with certificate granted by the High Court.
In Ram Laxman Sugar Mills v. Commissioner of Income-tax,
U.P. and Anr.(1) this Court observed :
"A Hindu undivided family is x x x x a
"person" within the meaning of the Indian
Income-tax Act : it is however not a juristic
person for all purposes, and cannot enter into
an agreement of partnership with either
(1) 66 I.T.R. 613.
648
another undivided family or individual. It is
open to the manager of a joint Hindu family as
representing the family to agree to, become a
partner with another person. The partnership
agreement in that case is between the manager
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and the other person, and by the partnership
agreement no member of the family except the
manager acquires a right or interest in the
partnership. The junior members of the family
may make a claim against the manager for
treating the income or profits received from
the partnership as a joint family asset, but
they cannot claim to exercise the rights of
partners nor be liable as partners."
This position in law was not disputed on behalf of the
Commissioner. But it was urged that since two members of a
coparcenary represented in the firm the same beneficial
interest of a Hindu undivided family, and since they were
incompetent to enter into a contract inter se, the
partnership agreement could not be registered. There is no
substance in that contention. In P. K. P. S. Pichappa
Chattiar & Ors. v. Chokalingam Pillai & Ors.(1) the Judicial
Committee obsered, approving the observations made in
Mayne’s Hindu Law (9th Edn.) at p. 398 to the following
effect
"Where a managing member of a joint family
enters into a partnership with a stranger the
other members of the family do not ipso facto
become partners in the business so as to
clothe them with all the rights and
obligations of a partner as defined by the
Indian contract Act, in such a case the family
as a unit does not become a partner, but only
such of its members as in fact enter into a
contractual relation with the stranger the
partnership will be governed by the Act."
It is clearly enunciated that one or more members of a Hindu
undivided family may enter into a contractual relation in
the nature of a partnership with a stranger and they qua the
stranger become partners. The view expressed by the
Judicial Committee was approved by this Court in Charandas
Haridas & Anr. v. commissioner of Income-tax, Bombay North,
Kutch and Saurashtra, Ahmedabad & Anr. (2).
The Indian Contract Act imposes no disability upon members
of a Hindu undivided family in the matter of entering into a
,contract inter se or with a stranger. A member of a Hindu
undivided family has the same liberty of contract as any
other individual : it is restricted only in the manner and
to the extent provided by the Indian Contract Act.
Partnership is under s. 4
(1) A.I.R. (1934) P.C. 192.
(2) 39 I.T.R. 202.
649
of the Partnership Act the relation between persons who have
agreed to share the profits of a business carried on by all
or any of them acting for all : if such a relation exists,
it will not be invalid merely because two or more of the
persons who have so agreed are members of a, Hindu undivided
family. It is now settled law that in considering an
application for registration of a firm, the Income-tax
Officer is not concerned to determine in whom the beneficial
interest in the share in the partnership vests: Commissioner
of Income-tax v. A. Abdul Rahim & Co.(’); Commissioner, of
Income-tax, Madras v. Bagyalakshmi & Co.(’).
In our judgment, the High Court was right in answering the
question in the affirmative.
The appeal fails and is dismissed with costs.
R.K.P.S. Appeal dismissed.
(1) 55 I.T.R. 651.
(2) 55 I.T.R. 660.
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