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1965 (3) TMI 24 - SC - Income TaxStatus of the assessee - Status of partnership firm after the demise of a Partner, the Karta of HUF - association of persons or a firm within the meaning of section 16(1)(b) of the Income-tax Act, 1922 - Who can be Karta of HUF - whether the widow of Nandlal could under Hindu law be a karta of the joint Hindu family consisting of three widows and two minors. Held that - In the case of a partnership consisting of only two partners, no partnership remains on the death of one of them - In law and in fact there is an interregnum between the death of one and the succession to him. We accept the view of the Allahabad 1951 (9) TMI 49 - ALLAHABAD HIGH COURT and Madras High Courts 1958 (12) TMI 46 - MADRAS HIGH COURT and reject the view expressed by the Nagpur and Calcutta High Courts. - The partnership between Nandlal and Bachhulal came to an end on the death of Nandlal on December 9, 1945 Widow as Karta of HUF - HELD THAT - The Madras 1949 (12) TMI 36 - MADRAS HIGH COURT and Orissa High Courts 1957 (9) TMI 78 - ORISSA HIGH COURT held that coparcenership is a necessary qualification for the managership of a joint Hindu family and as a widow is not admittedly a coparcener, she has no legal qualifications to become the manager of a joint Hindu family. - We are clearly of the opinion that the Madras view is correct. Status of HUF and Firm after the minor son becomes major - HELD THAT - After Venkatlal became a major, there was no obstacle in his representing his branch of the family in the partnership. Indeed, it was conceded in the High Court that there was a partnership from December 13, 1949, when Venkatlal attained majority. Having regard to the said circumstances and the concession, we must hold that from December 13, 1949, the business was carried on in partnership between Venkatlal, representing his branch of the family, and Bachhulal, representing his branch of the family. For the assessment year 1950-51 the status of the assessee was that of a firm within the meaning of section 16(1)(b) of the Income-tax Act, 1922.The Tribunal misdirected itself in law in reaching the conclusion that the parties could not be regarded as partners. Appeal dismissed.
Issues Involved:
1. Status of the assessee as an association of persons or a firm under section 16(1)(b) of the Indian Income-tax Act, 1922. 2. Legality of the Appellate Tribunal's order due to alleged errors of record and omission of relevant material. Issue-wise Detailed Analysis: 1. Status of the Assessee: The primary issue was whether the status of the assessee, "Seth Govindram Sugar Mills," for the assessment year 1950-51 was that of a firm or an association of persons. The court examined the partnership deed dated September 28, 1943, between Nandlal and Bachhulal, which included a clause stating that the death of any partner would not dissolve the partnership and that the legal heir or nominee would take the deceased partner's place. The court analyzed Section 42 of the Indian Partnership Act, 1932, which states that a firm is dissolved by the death of a partner unless there is a contract to the contrary. The court rejected the appellant's argument that Section 42 applies only to partnerships with more than two partners, holding that if one of the two partners dies, the firm automatically dissolves, and any new partnership formed thereafter would be a new entity. The court cited various judicial decisions, including the Allahabad High Court's ruling in *Mt. Sughra v. Babu* and the Madras High Court's decision in *Narayanan v. Umayal*, which supported the view that a partnership between two partners dissolves upon the death of one partner. The court concluded that the partnership between Nandlal and Bachhulal ended with Nandlal's death on December 9, 1945. 2. Legality of the Appellate Tribunal's Order: The second issue was whether the Appellate Tribunal committed an error of record and omitted relevant material in its decision. The court examined whether a new partnership was formed after Nandlal's death between the representatives of the two families. The court noted that no fresh partnership deed was executed between Banarsibai, acting as the guardian of the minors in Nandlal's family, and Bachhulal. The court found no evidence in the accounts or other documents to suggest that Banarsibai acted as a partner or was treated as such by customers. The court also observed that Banarsibai and Shantibai had applied for the appointment of guardians for the minors, indicating that Banarsibai was not acting as a partner. However, the court acknowledged that Venkatlal, who became a major on December 13, 1949, signed an application for registration of the partnership with Bachhulal, indicating that a partnership existed from that date. The court thus concluded that from December 13, 1949, the business was carried on in partnership between Venkatlal and Bachhulal, representing their respective branches of the family. Conclusion: The court set aside the High Court's finding that the partnership business was carried on by the representatives of the two families after Nandlal's death but confirmed that such a partnership came into existence only after December 13, 1949. The court answered the two questions referred to the High Court as follows: 1. For the assessment year 1950-51, the status of the assessee was that of a firm within the meaning of section 16(1)(b) of the Indian Income-tax Act, 1922. 2. The Tribunal misdirected itself in law in concluding that the parties could not be regarded as partners. The appeals were dismissed, with each party bearing its own costs.
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