1954 (9) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income derived by Indra Chand Kejriwal as a partner of the partnership firm was rightly included in the assessment of the Hindu undivided family (HUF).
2. Whether the karta of a Hindu undivided family can be a partner in a firm in his individual capacity or as a representative of the HUF.
3. The legal implications of a Hindu undivided family entering into a partnership through its karta.

Issue-Wise Detailed Analysis:

1. Whether the income derived by Indra Chand Kejriwal as a partner of the partnership firm was rightly included in the assessment of the Hindu undivided family (HUF):
The question in the present reference is whether the one-fourth share of the managing agency income, derived by Indra Chand Kejriwal from the partnership, was rightly included in the assessment of the Hindu undivided family in its assessments for the assessment years 1940-41 to 1942-43. The Income-tax authorities and the Tribunal found that Indra Chand was a partner of the managing agency firm not in his individual capacity but as the representative of the Hindu undivided family. On this basis, they concluded that the income derived by Indra Chand Kejriwal really belonged to the Hindu undivided family, whose books also showed it as a receipt.

2. Whether the karta of a Hindu undivided family can be a partner in a firm in his individual capacity or as a representative of the HUF:
The controversy before the authorities below had always been on the basis that the karta of a Hindu undivided family could be a partner in a firm either in his individual capacity or as a representative of the HUF. The only question raised was in which of the two capacities Kejriwal was a partner of the firm of Indra Chand Hariram. The case made before the authorities was that Indra Chand was a partner in his individual capacity and not as a representative of the HUF. The Tribunal, however, found that Indra Chand was a partner as a representative of the HUF, and the income derived by him was rightly included in the assessment of the HUF.

3. The legal implications of a Hindu undivided family entering into a partnership through its karta:
Mr. Gupta, representing the assessee, argued that a Hindu undivided family could not in law enter into a partnership and that any income derived by the karta as a member of a partnership could only be his individual income. However, the court referred to the Judicial Committee's decision in P.K.P.S. Pichappa Chattiar v. Chokalingam Pillai, which held that while a Hindu undivided family could not directly enter into a partnership, it could do so through its karta. The karta could enter the partnership as the family's agent and on its behalf. The court concluded that the income derived by the karta as a partner could be treated as the income of the Hindu undivided family.

Conclusion:
The court held that the income derived by Indra Chand Kejriwal from the partnership firm was rightly included in the assessment of the Hindu undivided family. The karta of a Hindu undivided family can enter into a partnership on behalf of the family, and the income derived from such a partnership can be treated as the income of the family. The court answered the reference in the affirmative and awarded costs to the Commissioner of Income-tax, West Bengal.