9911796707
TMI Blog1969 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ewal was refused by the Income-tax Officer for all these assessment years on the ground that the number of partners exceeded 20, and the constitution of the firm was illegal in view of the provision contained in section 4 of the Indian Companies Act, 1913. That decision was upheld in appeal by the Appellate Assistant Commissioner. But the firm succeeded in the appeal before the Appellate Tribunal. The Tribunal directed that the firm be registed for all the five assessment years from 1954-55 to 1958-59. At the request of the Commissioner of Income-tax, U.P., the Tribunal has referred the following question of law to this court : "Whether, on the facts and in the circumstances of the case, the assessee-partnership was entitled to registration ?" The department relies upon section 4 of the Indian Companies Act, 1913. Section 4 of the Companies Act contains a prohibition against exceeding a certain number in a partnership. Sub-section (2) of section 4 of the Companies Act lays down that no partnership consisting of more than 20 persons shall be formed unless it is registered a company under the Companies Act. Admittedly, the firm in the instant case was never registered as a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner of the firm of the managing agents by virtue of paragraph 6 of the deed of partnership dated 26th November, 1948 ; and as such he automatically became a partner in the said firm.. Paragraph 6 of annexure "A" runs thus : On the death or retirement of any partner his nominee or in the absence of such nominee his heirs, executors, administrators or legal representatives shall automatically become partner in the place of the so dying or retiring partner and shall be entitled to all the powers and be liable to all the liabilities of the partners so dying or retiring provided that in cases there be more than one heirs, the heir, executors, administrators or legal representatives shall nominate one of them to be the partner in place of partner so dying or retiring." Annexure "A" concluded thus : "...all the partners 1 to 18 who were alread partners...and partners Nos. 19 and 20 who have become automatically partners...hereto set and subscribed their respective hands..." On the face of the document, there were only 20 partners. But according to Dr. Misra appearing for the department, a careful examination of the transaction indicates that there were many more partners. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Chiranjilal has little bearing on the question of total membership of the partnership. In paragraph 28 of his order (exhibit 8) the Appellate Assistant Commissioner observed : "It is obvious that the following partners entered into the partnership, not for their individual benefit but for the benefit of his Hindu undivided family or firm which he was really representing." Dr. Misra contended that this is a finding of fact, and this finding is binding on the High Court. We are unable to accept the suggestion that the finding that certain partners represented their Hindu undivided families is a pure question of fact. Whether a partner acted in his individual capacity or represented his undivided Hindu family is a mixed question of fact and law. It is, therefore, open to this court to examine this finding recorded by the Appellate Assistant Commissioner. In Commissioner of Income-tax v. Nandlal Gandalal it was explained by the Supreme Court that 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 well-settled. The partnership is not between the family and the other partners. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r capacity as kartas representing their respective families, the adult members do not become partners of the firm, yet for the purpose of determining whether the total number of persons constituting the partnership exceeds 20 and the partnership contravenes section 4(2) of the Indian Companies Act, 1913, and is therefore illegal, the adult members of the families must also be taken into account, and if the total number of persons including the adult members of the families Exceeds 20, the partnership cannot be registered under section 26A of the Indian Income-tax Act, 1922. In that case it was common ground that must of the partners were kartas and represented their respective families in the partnership. There is no such common ground in the instant case. The partners all along have been insisting that they entered into partnership in their individual capacity. In pursuance of a remand order passed by the Appellate Assistant Commissioner, the Income-tax Officer submitted a remand report on March 12, 1958. It was mentioned in that remand report that all the partners gave their status as individual. Thus, the facts of the present case are different from those in Agarwal Co. v. Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are the partners. If several persons are partners and one of them agrees to share the profits derived by him with a stranger, this agreement does not make the stranger a partner in the original firm and in no way affects the other member of the principal firm and is no ground for not registering the firm. These decisions clearly show that the fact that Banari Lal and certain persons shared their profits with certain strangers, who were their partners in sub-partnership, has no bearing on the question of total number of persons in the assessee-firm. It may be that some of these persons shared their profits with members of their families. But this circumstances has little bearing on the number of persons in the assessee firm. There is no indication in the various deeds of partnership that any partner was entering into partnership as karta of his undivided Hindu family. Throughout these documents there is no reference to any undivided Hindu family. There is no indication that the contribution made by any partner was from funds received from his undivided Hindu family. Although the number of partners varied from time to time the number never exceeded 20. It seems that the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
