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TMI Blog1967 (11) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is common to all the three years. The assessee-firm was constituted in 1934. A deed of partnership was drawn up on January 24, 1936, but as some of the members died fresh partnership deeds were subsequently drawn up. The one with which we are concerned in this case is dated July 7, 1950, a copy whereof has been made a part of the statement of the case. According to this document, there were in all 18 partners. The assessee firm applied for registration under section 26A in all the three years. The Income-tax Officer refused registration every time on the finding that the partnership consisted of more than 20 persons which was violative of section 4 of the Indian Companies Act and for that reason could not be registered as a partnership. The orders passed in each year were affirmed on the assessee's appeals by the Appellate Assistant Commissioner and the Tribunal. It is clear from the statement of the case that some of the partners of the assessee-firm had joined it only in their representative capacity being kartas of their respective Hindu undivided families. The appellate order of the Tribunal has been made a part of the statement of the case and has been marked as annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of partners would go on varying according to the deaths and births in the two families. He has placed reliance upon the following cases : In re Ram Kumar Ramniwas of Nanpara [1952] 22 ITR 474 , Kshetra Mohan-Sannyasi Charan Sadhukhan v. Commissioner of Excess Profits Tax [1953] 24 ITR 488(SC) , Commissioner of Income-tax v. Kalu Babu Lal Chand [1959] 37 ITR 123; [1960] 1 SCR 320 , Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax [1956] 29 ITR 521, 526; [1956] SCR 143, Commissioner of Income-tax v. Nandlal Ganialal [1960] 40 ITR 1; [1960] 3 SCR 620, Jitmal Bhuramal v. Commissioner of Income-tax [1962] 44 ITR 887 (SC) , Commissioner of Income-tax v. Sivakasi Match Exporting Co. [1964] 53 ITR 204 (SC), Commissioner of Income-tax v. A. Abdul Rahim and Co. [1965] 55 ITR 651 (SC) , Commissioner of Income-tax v. Bagyalakshmi and Co. [1965] 55 ITR 660 (SC) and Charandas Haridas v. Commissioner of Income-tax [1960] 39 ITR 202; [1960] 3 SCR 296. As a bald proposition of law and in strict technical sense it is true that a Hindu undivided family cannot constitute a partnership firm but it is well settled and full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... families, the partnership would be subject to the provisions of section 4(3) of the Companies Act. The words used in the section are "where two or more such joint families form a partnership". It is not possible to say that because under the Contract Act and the Partnership Act two or more joint families as such cannot form a partnership, therefore, the words mentioned above are surplusages. As pointed out earlier by me, those words clearly mean that, when two or more joint families, in effect, or as a fact (quite apart from the law) form a partnership, the consequences given in section 4 of the Companies Act would ensue. There is a difference between an actual state of affairs and the legal sanctity to those state of affairs. As a matter of fact, two or more Hindu undivided families, may constitute a partnership business but it will not be recognised by law of partnership. The purpose of sub-section (3) is to meet even those cases where, in effect, two or more joint families form a partnership though, in law, they should not or could not form such a partnership. It is a matter of common knowledge that even though in the technical and strict sense of the law when a karta enters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the interpretation put by Mr. Jagdish Swarup were to be accepted an anomalous and difficult position wholly inconsistent with the Hindu law would come into existence. Mr. Jagdish Swarup also placed reliance upon Senaji Kapurchand s case ( supra ) , and cited the following passage from that report for my consideration: "We think that under section 4, Companies Act, what we have to see is whether, where an association or partnership is formed for purposes of carrying on a business, each of the members will be liable individually upon contracts made and whether each would have rights accruing to him upon such contracts". This decision is of 1930 and cannot throw any light on the words that came into existence for the first time in 1936. Mr. Jagdish Swarup also placed reliance upon Commissioner of Income-tax v. Roopnarain Ramchandra [1966] 60 ITR 314 . He contends that this case is an authority so far as this court is concerned on the interpretation of section 4(3) of the Act. I have very carefully perused this judgment. Even though their Lordships have not accepted the Calcutta view expressed in Shyamlal Roy v. Madhusudan Roy AIR 1959 Cal. 380 , on which the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the joint families are meant to function as partners ? If the former position is correct, the partnership is legal and not struck by section 4 of the Companies Act. If the latter position was sought to be achieved by the partnership deed, the so called partnership would be struck by section 4(2) of the Act. The partnership deed which had to be interpreted, embodying the agreement of the partnership alleged to be between "joint families" and not between individuals, certainly does not mention that the joint families are partners at all. It does not assign any role to joint families or to any partners as representatives or delegates of joint families. The partnership deed is, prima facie , between individuals who are not even described as kartas or representatives of their respective Hindu joint families. However, the statement of the case makes the appellate order of the Tribunal a part of the statement. The appellate order says : "It is common ground that most, if not all, of them were kartas and represented their respective families in the partnership". But, can the partners, who admit that they are kartas representing their respective Hindu undivided families, make t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) read as follows: "(2) No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of an Act of Parliament or some other Act of the Governor-General in Council or of Royal Charter or Letters Patent. (3) This section shall not apply to a joint family carrying on joint family trade or business and where two or more such joint families form a partnership, in computing the number of persons for the purposes of this section, minor members of such families shall be excluded". It will be noticed that the object of section 4(2) is to limit the number of persons carrying on business as a company, association, or partnership to twenty unless the company, association or partnership is registered under the Act. The object of section 4(3), which was added by Act XXII of 1936, was to exempt a joint family carrying on joint family trade or business from the restriction contained in section 4(2) itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible under our law. Hence, we must interpret section 4(3), consistently with the law, to denote a partnership of individuals who belong to two or more joint families. That is all we can reasonably do as we cannot, by a "sidewind", create a new kind of partnership not recognised by law. It may be mentioned here that, according to section 30 of the Partnership Act, a minor cannot be a partner although he may be admitted to the benefits of a partnership. Therefore, the object of the inartistically worded section 4(3) of the Companies Act may well be to make it clear that minors thus admitted to the benefits of a partnership, simply because they happen to be members of joint Hindu families carrying on business through coparceners, will not be counted as partners when the number of partners is determined for the purposes of section 4(2) of the Act. In my opinion, the provisions of section 4(3) must be read in the context of and in harmony with sections 4 and 30 of the Partnership Act. It may also be mentioned that section 6 of the Partnership Act lays down the mode of determining whether a group of persons does or does not form a partnership firm. It enables the authority which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brings the joint family funds into partnership and may have separate obligations towards other family members under the personal law for those assets of the joint family, he remains an individual for the purposes of the Partnership Act and also for the purposes of section 4(3) of the Companies Act. Another case relied upon on behalf of the department was Banares Cloth Dealers Syndicate v. Income-tax Officer, Banares [1964] 51 ITR 507, 511 . Here, the provisions of section 4 of the Indian Companies Act were held to have been contravened by the partnership found in the case. The question whether there was a partnership between certain individuals and certain joint families and certain firms was determined on an interpretation of the deed and on the facts of that particular case. In the course of his judgment, Desai C. J., keeping in view the provisions of section 4 of the Indian Companies Act, observed : "There would have been no sense in prohibiting a Hindu undivided family's being a partner if there was no such thing as distinct from its karta 's being a partner, i.e. , if its being a partner were the same as its karta 's being a partner. In Lachhman Das v. Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, I believe, a distinction between these two differing sets of circumstances. In a case in which the karta is a representative of his joint family, only in the sense that he shares with other members of the joint family the benefits of the partnership, the joint family itself cannot be said to be a partner at all. In such cases another jural relationship, governed by the personal law applicable to the karta and members of the joint family, inter se, exists in addition to the vinculum juris or the legal bond which is embodied in the contract of partnership. On the other hand, in those cases where the karta is merely a vehicle for the assertion of the wills of the members of the joint family, it may be said that his position as a partner is an attempt to import members of the whole group as partners. Such a partnership would be a most unusual and extraordinary kind of partnership. In cases where the karta karta functions purely as an individual with a will and mind of his own, unaffected by any obligation to consider the views of other members of the joint family, I do not think the members of the joint family can be deemed to be partners even in what may be regarded as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner is a karta of a Hindu undivided family is the same as that of a sub-partnership entered into by him. If D and E, who is a karta of a Hindu undivided family, enter into an agreement to share the profits of a business carried on by them only D and E are the partners and the coparceners of E are not partners". His Lordship then quoted the following passage from Mayne on Hindu Law and Usage: " Where a managing member of a joint family enters into a partnership with a stranger, the other members of the family do not ipso facto become partners in the business so as to clothe them with all the rights and obligations of a partner as defined by the Indian Partnership Act. In such a case, the family as a unit does not become a partner, but only such of its members as in fact enter into a contractual relation with the stranger ; the partnership will be governed by the Act". In the above-mentioned case a Division Bench of this court expressed dissent from the view taken by the Calcutta High Court in Shyamlal Roy s case ( supra ) . The Tribunal, in rejecting the assessee's appeal, has purported to rely upon the view taken by the Calcutta High Court. As I find myself, very r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act could only be groups of partners belonging to joint families who can, taken together, be described as "joint families". Such an interpretation of section 4(3) of the Companies Act appears to be more in conformity with this ruling than the view that kartas of undivided Hindu families, merely by representing their families in the partnership or by bringing the joint family properties into the partnership, make other coparceners automatically partners. The question of counting the number of the whole body of members of an undivided family could only arise where the whole body is sought to be included among the partners. Otherwise, the question of counting the members of the joint family would not arise at all. In Kshetra Mohan-Sannyasi Charan Sadhukhan s case ( supra ) , it was clearly held as follows by their Lordships of the Supreme Court : "When two kartas of two Hindu undivided families enter into a partnership agreement the partnership is popularly described as one between the two Hindu undivided families but in the eye of the law it is a partnership between the two kartas and the other members of the families do not ipso facto become partners. There is, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognised by law, the fact that a karta represents an undivided Hindu family has nothing to do with the jural relationship constituted by the partnership. The jural relationship covering the rights and liabilities between the karta and the other members of a joint undivided family is different. The result is that the fact that the karta is a partner together with the fact that he represents, as between himself and other coparceners, his undivided Hindu family, does not make the other members of the coparcenary body partners automatically. If the other members of a joint family are not partners at all the question of counting their number does not arise. In Nandlal Gandalal s case ( supra ) it was again held by the Supreme Court: "The position in Hindu law with regard to a coparcener, even when he is the karta, entering into partnership with others in carrying on a business is equally well settled. The partnership that is created is a contractual partnership and will be governed by the provisions of the Indian Partnership Act, 1932. The partnership is not between the family and the other partners; it is a partnership between the coparcener individually and his other par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the passage surely means that even in a case in which undivided family could be said to participate "as a partner" because its karta is a partner utilising the joint family funds, the coparcenary body is not a partner in the eye of law. I think we are concerned in the case before us with the legal effect of a transaction or contract of partnership and not with a mode in which the factual position may be described. The Supreme Court was not interpreting section 4(3) of the Companies Act of 1913, in the above-mentioned case. Therefore, expressions used by it in describing the factual position in the case could not, in my opinion, be used for the purpose of finding out the legislative intent and meaning of a provision which was not under consideration before the Supreme Court at all. The above-mentioned cases make it clear that a joint Hindu family cannot be conceived of as a legal entity capable of functioning as a partner in the eye of law. It follows that where a statutory provision speaks of a partnership formed of two or more joint families the reference must he to individual members of joint families forming a partnership and not to joint families as partners or legal entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to this court under section 66(1) of the Income-tax Act on the question of law referred to above. The findings of the Tribunal, on the basis of which the aforesaid question has to be answered, are as follows : (1)that the number of partners, as mentioned in the partnership deed in question, was 18. (2)that it is common ground that most, if not all the parties, were kartas and represented their respective families in the partnership, and (3)that the total number of persons including the members of the aforesaid joint families was more than 20. As the answer to the question depends primarily upon the interpretation of section 4 of the Indian Companies Act, 1913, it is necessary to quote the relevant parts of it at this very stage. Thus stated, the section reads as follows: "4. (1) (2) No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of an Act of Parliament of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Privy Council and the Supreme Court. The leading case is that of Pichappa Chettiar v. Chockalingam Pillai AIR 1934 PC 192 , in which the Judicial Committee was called upon to consider the questions, (1) whether Virappa Pillai, who was the karta of a joint Hindu family, had entered into the partnership in question on his own account or as the karta of the joint Hindu family, and if the latter, (2) whether the result of his joining the partnership was to make the other members of the joint family also, partners in the partnership. Their lordships observed that the law on these questions was correctly stated in Mayne's Hindu Law, edition 9, at page 398, as follows : "Where a managing member of a joint family enters into a partnership with a stranger the other members of the family do not ipso facto become partners in the business so as to clothe them with all the rights and obligations of a partner as defined by the Indian Contract Act. In such a case the family as a unit does not become a partner, but only such of its members as in fact enter into a contractual relation with the stranger ; the partnership will be governed by the Act". The aforesaid view was also taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng it would have to be reckoned as partners thereof. This sub-section therefore makes a clear departure from the accepted position regarding the members of the joint families, other than their kartas , qua the partnership entered into between their joint families. The question which next presents itself for determination is whether there is anything in law or principle which makes such a departure impossible. As far as I am aware there is nothing which can be held to do so, nor was Sri Jagdish Swarup able to bring anything to that effect to my notice. The result, therefore, is that section 4(3) must be held to have created an artificial body of persons, who are to be regarded, in a loose sense, as partners for the limited purpose indicated in that section, i.e. , for the purpose of calculating the total strength of the partnership constituted of two or more joint families. That section, however, does not profess to confer on such adult members the legal status of partners qua the partnership concerned, and for that, as also for all other purposes, those partnerships remain subject to the Indian Partnership Act and the law as laid down in the authorities cited above. Thus interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statute, can be claimed only in accordance with the statute which confers it, and a person who seeks relief under section 26A must bring himself strictly within its terms before he can claim the benefit of it. In other words, the right is regulated solely by the terms of the statute, and it would be repugnant to the character of such a right to add to those terms by reference to other laws. The statute must be construed as exhaustive in regard to the conditions under which it can be claimed". The aforesaid observation was made in a case in which a duly authorised agent of the partners had signed the application for the registration of the partnership firm on behalf of the principals and as under the relevant rule framed under the Income-tax Act only an application signed by the partners can be entertained, the question arose as to whether the rule of common law which allows a person to act through a duly authorised agent could be invoked to validate the application. It was in this connection that the Supreme Court after observing, as follows : "The Indian Income-tax Act is a self-contained code exhaustive of the matters dealt with therein, and its provisions show an intentio ..... 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