1987 (8) TMI 67 - HC - Income Tax

Summary

Issues: Validity of partnership involving karta of Hindu undivided family, a family member, and a stranger for registration under section 185 of the Income-tax Act, 1961.

In this case, the primary issue revolves around the validity of a partnership involving the karta of a Hindu undivided family, a family member, and a stranger for registration under section 185 of the Income-tax Act, 1961. The assessee, comprising Ratanlal, Gulabchand, and Ratanlal's son, Vimal Kumar, applied for registration as a firm. The Income-tax Officer rejected the application, citing Vimal Kumar's status as a member of the Hindu undivided family without capital investment. However, the Appellate Assistant Commissioner allowed the appeal, recognizing the validity of the partnership. Subsequently, the Tribunal, siding with the Income-tax Officer, disallowed the registration, leading to the reference for decision of the legal questions arising from the Tribunal's order.

The court examined whether a valid partnership could be formed by the karta of a Hindu undivided family, a family member, and a stranger. It was established that such a partnership is legally permissible, as both the karta and a family member can engage in a separate business while the Hindu undivided family continues. The court referenced precedents to support this notion, emphasizing that the absence of capital contribution by every partner does not invalidate the partnership. Therefore, the court found the Tribunal's view unjustified, as the lack of capital contribution by Vimal Kumar, a working partner, did not render the partnership invalid.

Consequently, the court ruled in favor of the assessee, stating that the partnership in question, involving the karta, a family member, and a stranger, was indeed valid for registration under section 185 of the Income-tax Act, 1961. The court rejected the Tribunal's reasoning that the partnership was not valid due to the absence of capital contribution by one of the family members. No costs were awarded in this judgment.