1970 (7) TMI 1 - SC - Income Tax

Partnership deed - validity - Two coparceners partners representing interest of family - deed cannot be said invalid merely because two or more of the persons who have so agreed are members of a HUF

Summary

Issues:
1. Registration of a firm under section 26A of the Indian Income-tax Act, 1922.
2. Representation of a Hindu undivided family in a partnership by two coparceners.
3. Interpretation of the Indian Contract Act and the Partnership Act regarding partnerships involving members of a Hindu undivided family.
4. Determination of beneficial interest in a partnership for the purpose of registration.

Analysis:
The case involved the formation of a firm, Sir Hukumchand Mannalal and Company, to manage and sell for Hukumchand Mills Ltd. The firm had two partners representing the Hindu undivided family's interest. Initially, registration under section 26A of the Income-tax Act was granted, but later, it was declined by the Income-tax Officer for subsequent years. The issue arose whether two coparceners could represent the family's interest in a partnership. The Appellate Assistant Commissioner held that they could not, but the Tribunal disagreed, stating that there was no legal barrier for coparceners to enter into a partnership with strangers.

The High Court affirmed that the firm could be granted registration under section 26A. The Commissioner of Income-tax appealed to the Supreme Court, arguing that since coparceners represented the same beneficial interest, the partnership agreement could not be registered. However, the Court cited precedents to establish that members of a Hindu undivided family could enter into a partnership with a stranger, becoming partners in the business. The Court emphasized that the Indian Contract Act did not restrict Hindu undivided family members from entering into contracts, including partnerships.

The Court clarified that the beneficial interest in the partnership need not be determined for registration purposes. It was held that the Income-tax Officer's role in registering a firm did not extend to deciding the ownership of the partnership shares. Ultimately, the Court upheld the High Court's decision, affirming that the firm could be granted registration. The appeal was dismissed with costs, concluding the matter in favor of the firm.