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TMI Blog1988 (1) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajnikant and Arunkumar. Sri C.M. Patel expired in 1974 but the family remained in tact. There was, however, a partial partition of the assets of the bigger HUF and some of the assets so partitioned fell to the share of Jayantilal C. Patel, who had his own smaller HUF consisting of his wife, Smt. Sadgunaben and sons Minesh, Vishnu and Manik. The original joint family of C.M. Patel got inducted into a partnership by a partnership deed dt. 1-1-1982 amongst 12 persons mentioned therein, three minors having been admitted to the benefits of partnership. For the sake of convenience, the partnership shares of the various persons are mentioned below : Name Share in Share in profit loss 1. Smt. Dahiben C. Patel 15% 15% 2. Shri Rajnikant C. Patel (As karta of the HUF of Shri Rajnikant C. Patel) 10% 10% 3. Shri Arunkumar C. Patel (As karta of the HUF of Shri Arunkumar C. Patel) 5% 10% 4. Smt. Sadgunaben J. Patel 5% 5% 5. Smt. Sulochanaben N. Patel 5% 10% 6. Shri Jayantilal C. Patel (As karta of the HUF of Shri Chhotabhai M. Patel) 10% 10% 7. Shri Minesh J. Patel (As karta of the HUF of Shri Minesh J. Patel) 5% 5% 8. Smt. Asmeetaben R. Patel 5% 5% 9. Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 100 ITR 246 followed by the Gujarat High Court in CIT v. Budhalal Amulakhdas [1981] 129 ITR 97, there is nothing wrong in the same person entering into partnership in two different capacities. According to the IAC, the question posed in this case gets complete answer in the Bombay High Court judgment in the case of Manilal Dharamchand v. CIT [1970] 78 ITR 96. Quoting from this judgment, the IAC held that if members of a coparcenary are to be regarded as having become partners in a firm with strangers they would also become under the partnership law persons inter se and it would cut at the very root of the notion of joint undivided family to hold that with reference to coparcenary properties, the members can at the same time be both coparceners and partners. Further, the principle is that there cannot be a partnership in law where the karta of Hindu undivided family has become a partner in a partnership firm in which another coparcener has also become a partner in his individual capacity in respect of the family property brought into the partnership. The IAC refused the registration. Aggrieved by the decision of the IAC the assessee filed an appeal before the CIT(A) who held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as coparceners in the HUF vis-a-vis the two kartas such as, for instance, in the matter of taking accounts and so on. As coparceners of the HUF they would have no right to ask for accounts from the kartas, whereas, as partners in the partnership firm, they would have the rights, at least so far as the profits of the firm are concerned which undoubtedly arose out of the property of HUF. The DR submitted that the principles laid down in this case apply to the facts of the present case also. The fact that there was a partial partition of the bigger HUF or that some persons whilst continuing to retain interest in HUF of C.M. Patel had brought in their own capital, would not change the situation. Again the fact that there are other contracting parties would also not change the situation as held by the Bombay High Court in Manilal Dharamchand's case. Thus, the issues to be decided were two-fold. The first one was whether one person can sign in two capacities and the second one was whether any members of the families and the kartas of the HUF in respect of family funds could enter into partnership. While the CIT(A) has taken note of the first aspect, he has not considered the second a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognised partial partition with reference to assets. This law is now finally established. Thus, the impact of partial partition with reference to assets is to be examined in the light of both Hindu law and Contract Act [vide Charandas Haridas v. CIT [1960] 39 ITR 202 (SC)]. In this connection, Shri Sathe referred to the observation of the Bombay High Court in Manilal Dharamchand's case (at page 114) as follows : " It was also held by the Privy Council in Sundar Singh Majithia v. CIT [1942] 10 ITR 457, that there was nothing in the IT Act to prohibit the members of a joint Hindu family from dividing some properties, while electing to retain their joint status, and carrying on business as partners in respect of those properties treating them as its capital." Shri Sathe then submitted that the question whether the karta of a HUF can enter into a partnership with a member who contributes his own capital is no longer a matter of dispute, the issue having been decided in Lachhman Das v. CIT [1948] 16 ITR 35 (PC). Their Lordships have held as below : " There can be a valid partnership between a karta of a HUF representing the family on the one hand and a member of that family in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s did derive some wealth at the time of partial partition but once such partial partition is complete with reference to any particular asset the same should be taken as separate giving rise to no conflict with the interests of the bigger joint family of C.M. Patel. Thus, rights of the members who received assets on the partial partition do not get expanded to cover rights of asking for accounts from the bigger joint family merely because they have entered into a partnership along with such bigger HUF in the firm. Their rights as partners extend to the accounts of the firm and not of the account of the HUF which had shares from those firms as only one of the many sources of income shown in its return. Thus, the ratio of Manilal Dharamchand's case is clearly inapplicable to the facts of the case. 10. Regarding the DR's view about the impact of the ratio of Ratanchand Darbarilal's case Shri Sathe submitted that this is a distinction without a difference. Firstly, whether the firm is genuine or not is a question of fact. There is no dispute that the contracting parties were capable and have actually entered into a contract to share the profits of the business. The only question is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their Lordships held that there can be exercise of option by the ITO who assessed the individual (partner) even though he has no jurisdiction to assess the association as such. Shri Bathe submitted that although this ground of appeal was raised before the CIT(A) there is no adjudication on this issue. However, as the issue is quite clear he would seek adjudication directly for us although he has not come in appeal or C.O. 13. In reply to the new contention above, the D.R. submitted firstly that in departmental appeal, the assessee cannot make up any issue of this type. Without prejudice, the D.R. submitted that even assuming for the sake of argument, one ITO can exercise option on behalf of others, in fact there is no such option exercised. The ITO ' A ' Ward's order dated 29-9-1984 u/s 143(1) taking the share as declared subject to rectification does not amount to an overt act amounting to exercise of option with knowledge about the existence of such option. In this respect, reference was made to decision of this Bench in ITO v. Babulal Tulsiram Burud [1985] 13 ITD 70 (Pune). Without prejudice, the D.R. further contended that as held by the Supreme Court in M.M. Ipoh v. CIT [196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Majithia v. CIT [1942] 10 ITR 457 (PC) quoted in para 6 above would show clearly that the ratio of Manilal Dharamchand's case can apply only when a member of undivided family is made a partner without bringing any capital. For this and the other reasons canvassed by Shri Sathe, we hold that the assessee is entitled to the benefits of registration. 15. Coming now to the ground of appeal raised before the CIT(A) but not considered by him, we agree that the same cannot be the subject-matter of decision by the Bench side-tracking the prescribed procedure and skipping one stage of appeal. The assessee cannot raise an issue of this type, without a formal cross-objection in departmental appeal where we have to consider only the grounds of appeal raised by the revenue. Nevertheless as it has been held in CIT v. Kartikey V. Sarabhai [1981] 131 ITR 42 (Guj.) in the part not reversed by the Supreme Court that the Tribunal should decide all interlocutory matters, we give our decision without prejudice to our stand that the ground is not maintainable. We agree with the D.R. on facts, that it cannot be held that the ITO,' A ' Ward was aware of the existence of option or that he has in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ----------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 7 8 ------------------------------------------------------------------------------------------------------------------------------------------------------ Rs. Rs. Rs. Rs. Rs. Rs. 1. Smt. Dahiben C. 60,000 15,000 60,000 15,000 40,948 70,974 Patel 2. Smt. Sadguna- 48,000 25,000 48,000 25,000 27,251 56,779 ben J. Patel 3. Smt. Sulochna- 48,000 30,000 48,000 30,000 27,261 56,779 ben N. Patel 4. Shri Rajnikant C. 48,000 30,000 48,000 30,000 33,558 56,780 Patel (Karta of R.C. Patel HUF) 5. Shri Ashok- 48,000 --- 48,000 --- 33,559 56,779 kumar C. Patel (Karta of Ashok C. Patel HUF) 6. Shri Arunkurnar 48,000 35,000 48,000 35,000 33,559 56,779 C. Patel (Karta of Arun C. Patel HUF) 7. Shri Jayantilal --- 10,000 --- 10,000 --- --- C. Patel 8. Shri Minesh J. --- 10,000 --- 10,000 Patel (Karta of M.J. Patel HUF) 9. Smt. Sunitaben --- 25,000 --- 25,000 --- --- R. Patel 10. Shri Ashok --- 55,000 --- 55,000 --- --- kumar C. Patel 11. Smt. Yasumati --- 20,000 --- 20,000 - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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