M.C. Pathak, C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as the Act.
2. The following question of law has been referred by the Income-tax Appellate Tribunal:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that a genuine firm of four partners as stated in the deed of partnership dated April 1, 1960, was in existence during the previous years relevant to the assessment years 1961-62, 1962-63 and 1963-64?'
3. The facts necessary for the purpose of answering the above question of law may be briefly stated as follows :
Three brothers, namely, Daluram Agarwalla, Onkarmall Agarwalla and Dwarikadas Agarwalla, owned a tea estate called Maskara Tea Estate and their shares in the tea estate respectively was 0-6-0, 0-6-0 and 0-4-0. Some time in 1940 Dwarikadas Agarwalla sold his 0-4-0 share to his brother, Onkarmall Agarwalla. Thus, on and from that sale, Daluram Agarwalla became the owner of 0-6-0 share and Onkarmall Agarwalla became the owner of 0-10-0 share in the tea estate. Daluram Agarwalla was the karta of a Hindu undivided family, the other members being his wife, Dakhi Devi Agarwalla, and his son, Nathmall Agarwalla. Onkarmall Agarwalla was the karta of the Hindu undivided family headed by him and on his death his son, Babulal Agarwalla, became the karta of that Hindu undivided family. Subsequently, on the death of Babulal Agarwalla, his son, Durga Prasad Agarwalla, became the karta of the Hindu undivided family, the other members being Meghawati Devi, wife of Babulal Agarwalla, and Dinesh Agarwalla and Pradip Agarwalla, minor sons of Durga Prasad Agarwalla. At the relevant time we find the two above-mentioned Hindu undivided families with abovementioned members.
4. A partnership deed was executed on April 1, 1960, among Dakhi Devi, Nathmal Agarwalla, Durga Prasad Agarwalla and Meghawati Devi. The partnership was styled as Maskara Tea Estate. Thereafter, on July 25, 1960, by a registered sale deed executed by Daluram Agarwalla, Dakhi Devi, Nathmal Agarwalla, Durga Prasad Agarwalla on behalf of himself and his minor sons, Dinesh and Pradip, and Meghawati Devi, Maskara Tea Estate, which was owned by the above-mentioned two Hindu undivided families, was transferred in favour of the partnership, M/s. Maskara Tea Estate, which came into existence under the partnership deed dated April 1, 1960. The sale deed dated July 25, 1960, was registered on July 28, 1960. It may be observed here that there was no application for registration of the partnership under the Act for the assessment year 1961-62. There
was, however, an application for registration for the assessment years 1962-63 and 1963-64 and for those two years registration was allowed.
5. On the above facts, the abovementioned question of law has been referred.
6. The Tribunal has found in its order that one or more Hindu undivided families may transfer its property to a partnership firm in which some of the partners may be members of the Hindu undivided family concerned. The Tribunal has relied on certain decisions of the Supreme Court and this proposition of law cannot be assailed.
7. In the instant case, there were two Hindu undivided families. The members of the first Hindu undivided family were Daluram Agarwalla (karta), Dakhi Devi (his wife) and Nathmal Agarwalla (his son). The second Hindu undivided family consists of Durga Prasad Agarwalla (karta), his mother, Meghawati Devi, and his minor sons, Dinesh and Pradip. Of these members of the two Hindu undivided families we find four members to be the partners of the partnership in question, namely, Daluram Agarwalla, Nathmal Agarwalla, Durga Prasad Agarwalla and Meghawati Devi. Members of the Hindu undivided family may enter into partnership and there is no legal bar to that effect. So, the partnership that came into existence on April 1, 1960, may be a genuine partnership if otherwise it is legal. By the registered deed dated July 25, 1960, Maskara Tea Estate was transferred to the partnership, namely, M/s. Maskara Tea Estate, by Daluram Agarwalla, Dakhi Devi, and Nathmal Agarwalla of the first Hindu undivided family and Durga Prasad Agarwalla for self and his minor sons, Dinesh and Pradip, and Meghawati Devi of the second Hindu undivided family. Thus, all the members of the two Hindu undivided families have been arrayed as vendors in the registered sale deed dated July 25, 1960, and the vendee is M/s. Maskara Tea Estate, which is a partnership firm. There cannot, therefore, be any illegality in this transfer.
8. It has been mentioned in the sale deed that in pursuance of an agreement the vendors had delivered possession of the properties under sale to the purchaser on the 1st day of April, 1960, As aforesaid, the sale deed in question was executed on July 25, 1960, and registered on July 28, 1960.
9. The Tribunal considered the materials on record and found as follows :
'If we keep the aforesaid rulings in view we have to hold that a genuine firm has come into existence. Of course, there are no materials to show that the partnership firm was actually in possession of the Maskara Tea Estate from April 1, 1960. It cannot be doubted that immovable properties worth Rs. 1,00,000 were being transferred and so a registered deed was needed. When the registered deed was executed the valuation of the assets was determined and the firm got the capital which was ascertained on July 28, 1960, after the registration of the sale deed. Thus, it is
evident that within three months of the execution of the partnership deed the properties were transferred to the partnership firm and the assets were also partitioned. Thus, it is evident that the intention of the parties was that there should be a genuine partnership. The two joint Hindu undivided families, to prove the genuineness of the partnership, also transferred the properties and business of the Maskara Tea Estate to the partnership, It was not necessary that the assets of the Maskara Tea Estate should be divided before the execution of the partnership deed dated April 1, I960, as is evident from the rulings mentioned above. Even if there is division of the assets of the Hindu undivided family subsequent to the execution of the deed of partnership it has to be held that a genuine firm came into existence.'
10. Thus, on the above reasonings, the Tribunal has held that a genuine firm came into existence on and from April 1, 1960.
11. We have considered the reasonings given by the Tribunal and the decisions of the Supreme Court relied upon by it. Considering the facts and circumstances of the case, we find that the Tribunal did not commit any error of law in holding that on the facts and in the circumstances of the case a genuine firm of the four partners as stated in the deed of partnership dated April 1, 1960, was in existence during the previous years relevant to the assessment years 1961-62, 1962-63 and 1963-64.
12. In the result, we answer the question in the affirmative and against the department. We, however, make no order as to costs.
Baharul Islam, J.
13. I agree.