1940 (4) TMI 24 - HC - Income Tax

Summary

Issues Involved:

1. Whether the assessee, as donee under the deed of gift from Debi Prasad, is entitled to have the registration of a firm consisting of himself as the donee of the one part and the joint Hindu family of which he is a Karta of the other part.

Issue-wise Detailed Analysis:

1. Status of the Donee and the Existence of a Genuine Firm:

The primary question is whether Rai Bahadur Lokenath Prasad Dhandhania, as donee under the deed of gift from Debi Prasad, is entitled to have the registration of a firm consisting of himself as the donee of the one part and the joint Hindu family of which he is a Karta of the other part. The Commissioner of Income-tax and the Assistant Commissioner both concluded that no genuine firm existed, as a firm requires at least two independent persons capable of entering into contracts. The Commissioner emphasized that if the donee received the gift as the Karta of the Hindu undivided family, he could not enter into a partnership with himself in the same status.

2. Interpretation of the Deed of Gift:

The deed of gift executed by Rai Bahadur Debi Prasad on May 13, 1933, transferred his share in the business and properties to Lokenath Prasad Dhandhania. The Commissioner interpreted this deed as a gift to the Hindu undivided family, not to Lokenath in his individual capacity. The deed's language, stating that the donee would hold the properties "as full and absolute owner thereof in perpetuity and from generation to generation," indicated that the gift was intended for the family unit, including Lokenath's children and grandchildren.

3. Legal Implications of the Partnership Deed:

The partnership deed dated February 24, 1936, was between Lokenath in his individual capacity and the joint Hindu family of which he is the Karta. The Commissioner and the Assistant Commissioner both held that such a partnership could not be registered because it essentially involved the same person in two different capacities, which is legally untenable. The Commissioner cited the Indian Contract Act, which requires agreements or contracts to be between at least two separate independent persons.

4. Judicial Precedent:

The judgment referenced the decision of the Judicial Committee in P.K.P.S. Pichappa Chettiar and Others v. Chockalingam Pillai and Others, which stated that when a managing member of a joint family enters into a partnership with a stranger, the family as a unit does not become a partner. This principle was applied to the current case, leading to the conclusion that the partnership deed did not create a valid partnership under the law.

5. Conclusion and Judgment:

The court concluded that the partnership sought to be registered was between Lokenath in his individual capacity and the joint Hindu family of which he is the Karta, effectively involving the same person in two capacities. This does not constitute a valid partnership under the Indian Contract Act or the Indian Partnership Act. Therefore, the court answered the question in the negative, stating that the assessee is not entitled to have the registration of the firm.

Final Judgment:

The court held that the answer to the question is in the negative. The assessee will pay the costs of the reference, with the hearing fee fixed at one hundred and fifty rupees, exclusive of the amount already in deposit with the Commissioner.