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TMI Blog2005 (6) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... said Hindu undivided family? 3. Whether, on the facts and in the circumstances of the case, the assessee-firm was entitled to renewal of registration for the assessment year 1979-80 and grant of registration for the assessment year 1980-81 on the basis of the decision that may be given by the High Court in R.A. No. 1440/Bom/83, pending before the said court?" The aforesaid questions of law arise out of the order of the Income-tax Tribunal dated January 21, 1986 in I.T.A. Nos. 2612 and 6213/Bom/81. The assessee which is a partnership firm filed an application for continuation of registration for the assessment year 1979-80 and for obtaining registration for the assessment year 1980-81. The said two applications were dismissed by the Income-tax Officer. The first application was dismissed on the ground that no registration had been granted for the assessment year 1978-79. The second application was rejected on the ground that the partnership was not valid. The appeals filed by the assessee before the Commissioner of Income-tax (Appeals) against the said orders were dismissed on the basis of the order of the Tribunal in the appeal for the assessment year 1978-79. The further appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in CIT v. Gupta Brothers [1981] 131 ITR 492 and the decision of the Madhya Pradesh High Court in Ramchand Nawalrai v. CIT [1981] 130 ITR 826. Alternatively it was urged that the Income-tax Officer having exercised the option of assessing Shri I.P. Barot Hindu undivided family on January 20, 1979 in respect of his share of profit from the asses-see-firm for the assessment year 1978-79, was precluded from treating the assessee-firm as an unregistered firm on March 20, 1981. The Tribunal following the decision of the Bombay High Court in Shah Prabhudas Gulabchand v. CIT [1970] 77 ITR 870, confirmed the decision of the Income-tax Officer. No finding was given on the original contention of the assessee-firm. For the assessment year 1979-80 the assessee-firm filed Form No. 12 for renewal of registration as there was no change in the constitution of the firm for the assessment year 1979-80. The renewal was not granted because the registration had not been granted for the assessment year 1978-79. For the assessment year 1980-81 there was a change in the constitution of the partnership during the previous year relevant to the assessment year 1980-81. Two more partners, viz., Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits and losses of the firm and the remaining 65 per cent. share was held by C as karta of the family. N did not contribute any cash assets towards the capital of the firm but was contributing only his skill and labour. The Income-tax Officer rejected the firm's application for registration under section 26A of the Indian Income-tax Act, 1922, on the ground that there was no valid partnership, and the Appellate Assistant Commissioner and the Appellate Tribunal, on appeal, upheld the decision of the Income-tax Officer. The High Court, on a reference, affirmed the decision of the Tribunal, holding that there was no valid partnership." The Supreme Court in the said case reversed the decision of the High Court and observed that the mere fact that N had neither separated from the family nor brought in any cash asset as his capital contribution to the partnership but was contributing only his skill and labour, could not in law detract from a valid partnership being created. The partnership between C, as the karta, and N was valid and the firm was entitled for registration. The apex court further observed that it is not correct to say that, under Hindu law, there can be no contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relationship can validly come into existence, the 'natural family relationship must be brought to an end.' This erroneous view appears to have coloured his and the subsequent decisions of the income-tax authorities. In this view of the Hindu law, it is clear that if a stranger can enter into partnership with reference to his own property, with a joint Hindu family through its karta, there is no sound reason in their Lordships' view to withhold such opportunity from a coparcener in respect of his separate and individual property." The apex court in Chandrakant Manilal Shah [1992] 193 ITR 1, noted that the above principle has been applied by several other High Courts to uphold the validity of a partnership between the karta of a Hindu undivided family and an individual member of the family where the latter is taken in as a working partner. Specific reference is made by the apex court to the decision of the Mysore High Court in the case of I.P. Munavalli [1969] 74 ITR 529, wherein it was held by the Mysore High Court, after referring to the decision of the Privy Council in the case of Lachhman Das [1948] 16 ITR 35 and of the Supreme Court in the case of Firm Bhagat Ram Mohanlal v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by learned counsel for the respondent in the cases of Pitamberdas Bhikhabhai and Co. v. CIT [1964] 53 ITR 341 (Guj), and Shah Prabhudas Gulabchand [1970] 77 ITR 870 (Bom), of the Gujarat and Bombay High Courts, respectively, turned on their particular facts and, if read as laying down a contrary rule, do not lay down good law. In this view of the matter, it cannot be said that, when a coparcener enters into a partnership with the karta of a Hindu undivided family and contributes only his skill and labour, no contribution of any separate asset belonging to such partner is made to meet the requirement of a valid partnership..." In the present case it is not disputed that Mahesh S/o Shri I.P. Barot was inducted as a working partner. He was contributing his skill and expertise in running the partnership business and therefore it cannot be said that he was not a genuine partner and/or was merely a name-lender. In view thereof the orders of the lower authorities need to be set aside. Accordingly, questions Nos. 1 and 2 of the reference are answered in the negative and in favour of the assessee and consequentially question No. 3 has to be answered in the affirmative, in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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