1973 (6) TMI 8 - HC - Income Tax

Partnership registration - Whether a partnership between karta of HUF and coparceners, wherein the coparceners contribute their separate capital is valid and is entitled to registration - (1) Whether, on the facts and in the circumstances of the case, there was a valid and/or genuine partnership amongst C.P. Shah, as representing the Hindu undivided family, and Anubhai Chimanlal and Rajnikant being the son and grandson respectively of C.P. Shah, in their individual or separate capacities ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Officer had jurisdiction to cancel the registration under rule 6B ? - Question No. 1 In the affirmative. Question No. 2 Not necessary to be answered

Summary

Issues Involved:
1. Validity and genuineness of the partnership.
2. Jurisdiction of the Income-tax Officer to cancel the registration under rule 6B.

Issue-wise Detailed Analysis:

1. Validity and Genuineness of the Partnership:
The primary issue was whether there was a valid and/or genuine partnership among the partners, specifically involving a Hindu undivided family (HUF) and its coparceners. The court examined the partnership agreement, which included Chimanlal P. Shah (karta of the HUF), his son Anubhai Chimanlal, and his grandson Rajnikant Anubhai in their individual capacities. The Income-tax Officer had canceled the registration of the firm on the grounds that the partnership was not lawfully constituted, arguing that coparceners could not enter into a partnership with the karta in their individual capacities without separating from the joint family.

The court referred to the principles established in Lachhman Das v. Commissioner of Income-tax and Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax, affirming that an individual coparcener could enter into a partnership with the karta of the HUF if he contributed his separate property. The court found that Anubhai and Rajnikant had their separate property, which they invested in the partnership, making the partnership valid and genuine. The court concluded that the partnership was legally constituted as the coparceners had contributed their separate property and retained their joint status.

2. Jurisdiction of the Income-tax Officer to Cancel Registration under Rule 6B:
The second issue was whether the Income-tax Officer had the jurisdiction to cancel the registration under rule 6B. The Appellate Assistant Commissioner had earlier held that rule 6B could only be invoked where a firm obtained registration by misrepresenting its genuineness. The Tribunal, however, concluded that the registration was validly canceled under rule 6B.

The court, having found the partnership to be valid and genuine, determined that it was unnecessary to address the second issue. The question of jurisdiction to cancel the registration under rule 6B would only arise if the partnership was found invalid.

Conclusion:
The court answered the first question in the affirmative, confirming the validity and genuineness of the partnership. Consequently, the second question regarding the jurisdiction of the Income-tax Officer to cancel the registration under rule 6B was deemed unnecessary to answer. The Commissioner was ordered to pay the costs of the reference to the assessee.