Commissioner of Income-Tax, Madhya
Pradesh Vs. Sir Hukumchand Mannalal & Co. [1970] INSC 143 (20 July 1970)
20/07/1970 SHAH, J.C.
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 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.
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 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 observed, 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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