1997 (3) TMI 7 - SC - Income Tax

Death of partner - reconstitution of firm - One of the partner is both a surviving partner and a legal representative and he signs the deed into two capacities - registration cannot be rejected on ground that firm is not genuine

Summary

Issues Involved:
1. Validity of partnership registration under the Income-tax Act when a partner joins in dual capacities.
2. Legal implications of a partner signing a partnership deed in both individual and representative capacities.
3. Genuineness of the partnership firm for the assessment year 1972-73.

Issue-wise Detailed Analysis:

1. Validity of Partnership Registration under the Income-tax Act When a Partner Joins in Dual Capacities:
The primary issue was whether the partnership firm was genuine and eligible for registration under the Income-tax Act when one partner, Krishnadas, joined in dual capacities. The Income-tax Officer initially granted registration for the assessment year 1971-72 but later canceled it for the assessment year 1972-73, citing that Krishnadas joined the firm both individually and as a representative of the heirs of the deceased partner, Sudevan. The Tribunal and the High Court, however, found the partnership to be genuine. The Supreme Court upheld this view, stating that there is no legal bar to a legal representative of a deceased partner being admitted to the partnership by the surviving partners, even if the representative is also one of the surviving partners.

2. Legal Implications of a Partner Signing a Partnership Deed in Both Individual and Representative Capacities:
The court examined whether Krishnadas signing the partnership deed twice, once in his individual capacity and once as a representative of the heirs, invalidated the partnership agreement. The Supreme Court referenced several legal principles and previous judgments, including the law stated in Lindley and Banks on Partnership and previous Supreme Court decisions. It was held that a trustee or personal representative could enter into a partnership and that the dual signing by Krishnadas did not invalidate the partnership. The court noted that the partnership included four other partners, and there was no conflict of interest between Krishnadas's individual and representative roles.

3. Genuineness of the Partnership Firm for the Assessment Year 1972-73:
The court evaluated whether the partnership was genuine and met the requirements under sections 184 and 185 of the Income-tax Act. The Supreme Court reiterated that the genuineness of a firm should not be questioned merely because a partner joined in a representative capacity. The court cited previous cases such as CIT v. A. Abdul Rahim and CIT v. Bagyalakshmi and Co., which established that a firm could be genuine even if a partner represented others or was a trustee. The court concluded that the partnership agreement was valid and genuine, as there was no legal bar preventing such an arrangement, and Krishnadas held a power of attorney on behalf of the other legal heirs.

Conclusion:
The Supreme Court affirmed the decision of the Kerala High Court, holding that the partnership was genuine and valid for the assessment year 1972-73. The appeal was dismissed, and there was no order as to costs. The court also dismissed related civil appeals and special leave petitions, reiterating the principles laid down in the judgment.