1. The following question has been referred to us by the Tribunal Bangalore Division, Bangalore :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was a duly constituted partnership firm and the said entity was entitled to the benefits of registration under section 185 of the Income-tax Act, 1961 ?'
2. The Commissioner had sought reference in respect of two further questions, but according to the Tribunal, they were covered by question No. 1 which is the sole question referred to us.
3. We are concerned in this reference with the firm of Messrs. Confeitaria de Janeiro. This firm was stated to be constituted by a deed of partnership executed on December 30, 1969. However, the stamp paper was purchased on January 9, 1970. The firm was claimed to have come into existence on April 1, 1969. The firm took over the business of bakery previously run by a body of individuals constituted by Andre Mascarenhas and his wife, Smt. Maria Luise D'Souza Mascarenhas. Under the provisions of the Portuguese Civil Code, the body of individuals or the communion as it was called under the provisions of the Code, had not so far been dissolved because the communion is dissolved only by demise or divorce of the constituents or by court order in exceptional circumstances. The communion at any rate continued undissolved on the date on which the partnership was said to have come into existence.
4. The ITO refused to register the firm on the ground that the relative deed of partnership was not valid and, therefore, no valid firm was in existence. In his opinion, the business which was sought to be taken over by the firm belonged to the communion. The rights and liabilities of the constituents as regards all property including the business were as specified in the Portuguese Civil Code. These obligations and rights were entirely different from those of partners under the Indian Partnership Act. For instance, under the Portuguese Civil Code, the wife has no power of management over the assets of the communion, whereas under the Partnership Act, a partner could be excluded from rights of management only by agreement. A partner could seek for dissolution of the firm at any time subject to an agreement to the contrary whereas a communion could be dissolved only upon the happening of certain contingencies. Therefore, and according to the ITO, a partnership contract could not simultaneously exist between the constituents in respect of the communion property till the communion is dissolved.
5. The ITO further opined that under the Portuguese Civil Code, the female constituent of the communion has no power of management. Accordingly, in the opinion of the ITO she could not legally enter into any contract in respect of communion property unless duly authorised by a court. Since, in the instance case, such authorisation has not been granted by a competent civil court, the deed executed by her was in his opinion not valid.
6. Aggrieved by this order, the assessee carried the matter in appeal to the AAC. The AAC upheld the stand taken by the ITO. In his view, the wife could not a partner and carry on business without the husband's explicit authorisation. As there was no authorisation in the present case, be concurred with the conclusion of the ITO that the partnership was invalid and, hence, not entitled to registration. He also agreed with the view that the husband and wife while remaining constituent members of the communion could not, at the same time, be considered as partners in respect of the same property. He, accordingly, dismissed the appeal.
7. The assessee, viz., the firm carried the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal scrutinized the partnership deed and found that this was an agreement to carry on the bakery business with effect from April 1, 1969, in partnership to the benefits of which partnership their four minor children were also admitted. The Tribunal extracted the arguments which had weighed with the ITO and the AAC and dealt with them in paragraphs 6 and 7 of its order. In the words, of the Tribunal :
'6. We have considered the rival submissions made before us. Admittedly, the business of the firm belonged to the communion constituted by the husband and the spouse. By the partnership deed dated December 30, 1969, they brought about the partnership in question with effect from April 1, 1969, admitting into it their four minor children. By the partnership deed, the share profit of each one of the partners was fixed and it was also stipulated that the loss, if any, would be shared by the husband and wife in the ration of 6 : 4. Under section 1117 of the Portuguese Civil Code, the domain and possession of the communion assets rest both in the husband and the wife during the subsistence of the matrimony but the administration thereof, without excepting even the properties owned by the wife, rests only in the husband. Under section 1193, the wife cannot, without the husband's authorisation, purchase or alienate the assets nor acquire obligations except in cases where the law particularly permit it. Section 1196 stipulates that the authorisation by the husband to the wife to enable the latter to do business amongst others can be given only by written document, authentic or authenticated. On these provisions, the departmental authorities want to criticise the formation of the partnership as enabling the wife to manage the business as an incident of the partnership. The short answer is that the very partnership deed which gives to the wife the authority as a partner to do business must itself be construed as the written authority given to her by her husband who is signatory to it. We are, therefore, not prepared to condemn the partnership deed on the ground that it bypasses the provisions of the Portuguese Civil Code by conferring upon the wife the power to do business without any written authority as prescribed by the Code.
7. We are also not satisfied that in respect of communion properties, it is not open to the constituents to bring about a partnership admitting into its benefits their own children. No provision of the Portuguese Civil Code which prohibits the constituents of a communion from giving up or forgoing their legitimate share in favour of their own children by admitting them to the partnership has been brought to our notice. In fact by the partnership that we have before us, what the husband and the wife have agreed to is a new kind of profit sharing conceding for the benefit of their children who are admitted to the partnership what they had by mutual consent forgone or themselves. We are not able to see how by this mutual arrangement there can be any dissolution of the communion or contravention of its legal implications. The ratio of the decision in Firm Bhagat Ram Mohanlal v. CEPT : 29ITR521(SC) , as far as we are able to see, can have no application to the facts of the case here for the reasons that it related to a Hindu coparcenary, incidents of which are far different from those of a communion. It was only pointed out that it would cut at the very root of the nation of the joint undivided family to hold that with reference to a coparcenary business, members can at the same time be both coparceners and partners. In the case of a communion, there is no question of any undivided family as each of the spouses has definite claimable share and is only a statutorily recognised unit made up of such distinct shares. In fact, in Lachhman Das v. CIT  16 ITR 35 , it has been held by the Judicial Committee that the karta of a joint family can well enter into partnership with an individual member of the coparcenary as a separate party. It has also been held by the Privy Council in Sundar Singh Majithia v. CIT  10 ITR 457, that there is nothing in the Income-tax Act to prohibit a member of a joint Hindu family from dividing some property while electing to remain their joint status and carrying on business as partners in respect of those properties treating them as his capital. It must then follow that in cases where properties are held as tenants-in-common, as against properties held in a joint tenancy, there in nothing prohibiting the making use of the same to constitute a partnership. In this view we take, we feel that the refusal of registration in this case was without justification. We, hence, allow the appeal and direct the registration of the firm, as applied for by the assessee.'
8. We are in almost total agreement with the approach as well as the ultimate conclusion of the Tribunal. It would be hyper-technical to insist that the authorization of the husband could not be in the vary partnership deed and has to be by a separate document. We, accordingly, agree with the Tribunal that the partnership deed does not seek to bypass the provisions of the Portuguese Civil Code by conferring upon the wife power to do business without any written authority as prescribed by the Code.
9. We have also applied our mind to sections 1117, 1193 and 1196 of the Code referred to by the Tribunal in paragraph 6 of its judgment as also to other sections to which our attention was drawn by the learned advocate for the Commissioner. In our opinion, no provision of the Portuguese Civil Code which will prohibit the constituent members of communion from giving up or forgoing their interest in any communion property in favour of any other party has been brought to our notice. In the instant case, the two constituent members of the communion, viz., the husband and wife, have in respect of the bakery business, which was communion property, transferred the same to a new assessable entity, viz., the partnership. The fact that to this entity their four minor children were admitted to the benefits thereof does not later the situation. Nothing has been brought to our notice which precludes alienation or transfer of communion property and it is not possible to agree with the view that so long as the communion subsists, the communion property may not be alienated or transferred. Once the position is accepted, viz., that communion property can be transferred, then, indeed, the creation of the partnership may be accepted to be one such possible transfer. We are not aware of any other bar; we must hold further that by reason of execution of the deed by the husband, the wife was authorised by the husband in writing to enter into the agreement of partnership. Thus, the two spouses converted communion property into a partnership property and our attention has not been drawn to any provision of the Code which will preclude such a course. This was the only point of substance which had weighed with the ITO and the AAC. The Tribunal found that the point was without merit and we fully concur with the said conclusion of the Tribunal. In the result, the question is required to be answered against the Commissioner. We, accordingly, answer the question referred to us in the affirmative and in favour of the assessee. The Commissioner will pay the costs of the reference to the assessee.