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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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