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TMI Blog1988 (5) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... h is relevant to the instant writ petition, inasmuch as four partners, two of them representing their Hindu undivided families and the remaining two representing their trusts having minor beneficiaries were introduced, the petitioner (hereinafter referred to as "the firm") applied for registration in Form No. 11A under section 187 of the Act and filed its return of income in the status of registered firm for the assessment year 1986-87. Thereupon, respondent No. 2 issued notice to the firm under section 186 (annexure "1" to the writ petition), calling upon the firm to explain why the registration should not be cancelled. In the notice issued under section 148 (annexure "2" to the writ petition), the Income-tax Officer stated that during the course of the assessment proceedings, it had been noticed that a genuine firm was not in existence. He had this doubt, because the minors were the beneficiaries in the two trusts which were represented by the trustees in the firm. That was why the firm was called upon to file the return in the status of an association of persons. Thereafter, the firm made a reference to the Inspecting Assistant Commissioner under section 144A(1) seeking his dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions given by the Inspecting Assistant Commissioner revolve round the question whether the minor beneficiaries of the two trusts represented by the trustees in the firm have become fullfledged partners in the firm. It is admitted that the two trusts are represented by one trustee each of the trust in the partnership and that the beneficiaries of both the trusts are minors. The question is when the trusts are represented by one trustee each of the trust in the partnership, whether the minor beneficiaries become full-fledged partners in the firm. Under law, minors can be admitted only to the benefits of the partnership and they cannot be burdened with losses. In view of several authorities of the Supreme Court, it is no longer a doubtful proposition of law that karta can represent his Hindu undivided family in a firm and likewise trustee can represent the trust in a firm. So far as representative partners are concerned, the legal position is that they have a dual capacity : qua the firm, a karta representing Hindu undivided family is a partner in the individual capacity, but qua the strangers, i.e., qua the members of the Hindu undivided family, he is a partner in a representative c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the karta of a joint Hindu family ; he may be a trustee ; he may enter into a sub-partnership with others ; he may, under an agreement, express or implied, be the representative of a group of persons ; he may be a benamidar for another. In all such cases, he occupies a dual position. Qua the partnership, he functions in his personal capacity ; qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the other partners nor can the other partners do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the terms of the agreement, as the case may be." To the extent of the delineated portion, this authority is no longer good law in view of the Explanation to section 185(1)(b) of the Act rendering a firm having a benamidar (as partner) as ungenuine. From these authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners in their personal capacity and they are representatives qua the beneficiaries only. As a member of the Hindu undivided family, though entitled to share profits accruing to the karta, does not become a member in the, firm and only the karta remains a partner in his personal capacity qua the firm ; similarly, a trustee though represents a trust, but remains a partner in his personal capacity qua the firm and the beneficiaries, be they major or minor, cannot become, and claim to be, partners in the firm by virtue of their representative trustee becoming a partner in the firm. We do not see any force in the contention of the respondent that the firm made a device in admitting the minor beneficiaries as full-fledged partners in the firm. In no case can the minor beneficiaries be said to be partners of the firm, though they are entitled to share profits accruing to the trustees-representative partners in the firm. This being the legal position, the stand of the Department that the firm does not deserve the status of a registered firm, that the firm is not genuine and that substantive assessment has to be made in the status of an association of persons, cannot be sustained and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notices (annexures "1" and "2") or by the Inspecting Assistant Commissioner in the directions (annexure "6") indicating that factually the petitioner-firm as constituted was not in existence during the assessment year 1986-87. The position would have been different had the respondents pointed out facts showing that the firm did not function factually as per the constitution given in the partnership deed. Also, Sri Rastogi relied on Ratanchand Darbarilal v. CIT [1985] 155 ITR 720 (SC). This authority sets out conditions essential for a firm claiming registration. It is not pointed out as to which of the essential conditions is missing in the instant case. Therefore, both the authorities are misplaced. Ordinarily, we do not exercise our extraordinary jurisdiction under article 226 of the Constitution in such cases, inasmuch as, against the orders of the Income-tax Officer, the petitioner would have had the statutory remedy of appeal. Sri Upadhyaya urges that in the instant case, the directions being given by the Inspecting Assistant Commissioner under section 144A of the Act are being challenged and there being no appeal or other remedy against that, that could be challenged onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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