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TMI Blog1985 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... on ? " The facts leading to the present reference, briefly stated, are as under: The concerned assessment year is 1973-74. The firm was constituted to carry on business under the name and style of Messrs Achalsinhji Keshrisinhji and Company. It consists of five partners including one Smt. Manjulaben. The said firm applied to the Income-tax Officer for registration for the said assessment year. The Income-tax Officer refused registration holding that the partnership evidenced by the deed was not a genuine one. He came to that conclusion on the ground that Smt. Manjulaben had not contributed the amount that had been stipulated in the partnership deed as her contribution to enable her to join as a partner. The other ground was that no cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as Smt. Manjulaben was taken as partner only for the reason that she was to contribute Rs. 5,000 as her share of the capital of the firm and for no other reason and that she has failed to make a contribution and for none else, it was held that the agreement by which she was to be admitted falls to the ground as not supported by consideration and, accordingly, the appeal was dismissed. Mr. J. P. Shah, the learned advocate for the assessee, submits that all the authorities below have erred in holding that non-contribution of the capital by Smt. Manjulaben is to be treated as a failure of consideration and, therefore, she was not a partner and, as a result, there was no genuine partnership. Mr. S. N. Shelat, the learned advocate for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be carried on by all or any of them acting for all, that is, the element of mutual agency. It is also true that " partnership " presupposes an agreement that as required under section 10 of the Indian Contract Act, all agreements are contracts if they are made by free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and which are not expressly declared to be void by the parties. Therefore, the lawful consideration is the important ingredient for making an agreement a contract. " Consideration " has been defined in section 2(d) of the Contract Act as under : " When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the amount of capital invested at the rate of 6 per cent. Clause 9 provided that all the work in connection with the partnership was to be carried on by all partners in co-operation with each other. As the fourth partner, Smt. Manjulaben, was taken into partnership on her investing the capital and as she was to remain a dormant partner, she will have no responsibility relating to the work of the partnership. The other clauses are not material. For the purpose of finding out as to whether there was lawful consideration for the agreement of Manjulaben joining the partnership, one has to read clause 7. It clearly provides that she had given a promise to invest an amount of Rs. 5,000. She had given the promise in view of the fact that the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the amount of Rs. 5,000, that itself is consideration for the agreement. The Tribunal has, therefore, erred in observing that : " If, therefore, she does not make an investment, the agreement by which she is to be admitted falls to the ground as not supported by consideration. In other words, without the investment, she is not to be partner in the firm... " It may be stated that the Tribunal has though rightly observed that : "The contract must, thus, be founded on a valid consideration in the form of contribution of money or property towards capital or work and skill for common benefit or stipulation to share liability that might be incurred by the firm. " has failed to consider the clause with regard to the share of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct position of law and in holding that if she does not make an investment, the agreement by which she is to be admitted falls to the ground as not supported by consideration. This is the only ground which has been held to be fatal. Looking to the facts and circumstances of the case, we are of the opinion that the fact that Smt. Manjulaben did not bring capital as stipulated is not fatal to the claim of genuineness and validity of the partnership. We accordingly answer question No. 1 in the negative. In view of our answer to question No. 1, question No. 2 will have to be answered in the affirmative inasmuch as in law a partnership has come into existence and it was entitled to registration. Accordingly, we answer both the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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