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Commissioner of Income-tax Vs. Motilal Bankers - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 174 of 1969, Connected with Income-tax Miscellaneous Case No. 234 of 1969
Judge
Reported in[1973]88ITR391(All)
ActsIncome Tax Act, 1961 - Sections 184
AppellantCommissioner of Income-tax
RespondentMotilal Bankers
Appellant AdvocateDeokinandan, Adv.
Respondent AdvocateB.L. Gupta and ;Ashok Gupta, Advs.
Excerpt:
.....had been satisfactorily proved and that it was open in law to an undivided junior member of the hindu undivided lamily to enter into a partnership with the karta of the family. narendra kumar was entitled to enjoy the benefit of that separate property. whatever the view of a hindu joint family and its property might have been at the early stages of its development, their lordships think that it is now firmly established that an individual coparcener, while remaining joint, can possess, enjoy and utilise, in any way he likes, property which was his individual property, not acquired with the aid of or with any detriment to the joint family property. it follows from this that to be able to utilise this property at his will, he must be accorded the freedom to enter into contractual..........not become a partner with the karta of the family. he included the income in the hands of the hindu undivided family. the firm as well as the family appealed to the appellate assistant commissioner, and he held that introduction of the capital by narendra kumar had been satisfactorily proved and that it was open in law to an undivided junior member of the hindu undivided lamily to enter into a partnership with the karta of the family. in the result, he directed registration of the firm and excluded the income from the hindu undivided family assessment. the income-tax officer appealed to the income-tax appellate tribunal, but the tribunal affirmed the decision of the appellate assistant commissioner. 3. in the case of the partnership firm, the tribunal has referred the following.....
Judgment:

Pathak, J.

1. A Hindu undivided family, of which Motilal was the karta, carried on several businesses. One of the businesses consisted of money-lending and it was carried on under the name and style of Motilal Bankers. During the previous year relevant to the assessment year 1961-62, with which we are concerned, the karta, Motilal, entered into partnership with Narendra Kumar, an undivided junior member of the family. Narendra Kumar brought in a sum of Rs. 5,000 to the business and became an eight anna partner in it.

2. For the assessment year 1961-62, the partnership firm applied for registration under the Indian Income-tax Act and thereafter declarations were filed for the assessment years 1962-63 and 1963-64 in accordance with Section 184(7) of the Act. The Income-tax Officer declined to register the firm for these three years, holding that it had not been proved that Narendra Kumar had brought in the capital alleged, and, further, that an undivided junior member could not become a partner with the karta of the family. He included the income in the hands of the Hindu undivided family. The firm as well as the family appealed to the Appellate Assistant Commissioner, and he held that introduction of the capital by Narendra Kumar had been satisfactorily proved and that it was open in law to an undivided junior member of the Hindu undivided lamily to enter into a partnership with the karta of the family. In the result, he directed registration of the firm and excluded the income from the Hindu undivided family assessment. The Income-tax Officer appealed to the Income-tax Appellate Tribunal, but the Tribunal affirmed the decision of the Appellate Assistant Commissioner.

3. In the case of the partnership firm, the Tribunal has referred the following question :

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the partnership formed by Shri Motilal, the karta of the Hindu undivided family, with Sri Narendra Kumar, an undivided junior member of the same family, quoad his separate property was valid in law and, therefore, entitled to registration under the Income-tax Act '

4. And in the case of the Hindu undivided family, the question referred is:

' Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the partnership formed by Sri Motilal, the karta of the Hindu undivided family, with Sri Narendra Kumar, an undivided junior member of the same family, quoad his separate property was validin law, and, therefore, the share income coming to the lot of Sri Narendra Kumar from the business, Motilal Bankers, was not assessable in the income of the assessee family '

5. It seems to us fairly plain that the view taken by the Tribunal is right in law. Motilal, the karta of the Hindu undivided family, entered into partnership with Narendra Kumar, an undivided member of the family, who brought into the partnership his separate property. When Narendra Kumar entered into partnership with Motilal, karta of the family, he brought into the partnership a sum of money as his capital, and admittedly that money represented his separate property. Narendra Kumar was entitled to enjoy the benefit of that separate property. He could invest it as capital in a partnership entered into with a stranger. He could do so also in a partnership entered into with the karta of his Hindu undivided family. In the latter event, the use of separate property was a thing apart from his interest in the family property. As long ago as Lachhman Das v. Commissioner of Income-tax, [1948] 16 I.T.R. 35. 40 (P.C.) the Privy Council laid down that there could in law be a partnership between the karta of a Hindu undivided family as representing the family and a member of the family in his individual capacity who brought in separate property. It was observed.

' Whatever the view of a Hindu joint family and its property might have been at the early stages of its development, their Lordships think that it is now firmly established that an individual coparcener, while remaining joint, can possess, enjoy and utilise, in any way he likes, property which was his individual property, not acquired with the aid of or with any detriment to the joint family property. It follows from this that to be able to utilise this property at his will, he must be accorded the freedom to enter into contractual relations with others, including his family, so long as it is represented in such transactions by a definite personality like its manager. In such a case he retains his share and interests in the property of the family, while he simultaneously enjoys the benefit of his separate property and the fruits of its investment. '

6. We have been referred on behalf of the revenue to Firm Bhagat Ram Mohan Lal v. Commissioner of Excess Profits Tax, [1956] 29 I.T.R. 521, 526; [1956] S.CR. 143 (S.C.). In that case, the Supreme Court merely held that when the karta of a Hindu undivided family entered into partnership with strangers, the individual members of the family could not be said to have become partners also. After referring to Lachhman Das, the Supreme Court observed.

' But in the present case, the basis of the partnership agreementof 1940 is that the family was joint and that Mohanlal was its kartaand that he entered into partnership as karta on behalf of thejoint family. It is difficult to reconcile this position with that of Chhotelal and Bansilal being also partners in the firm in their individual capacity, which can only be in respect of their separate or divided property. If members of a coparcenary are to be regarded as having become partners in a firm with strangers, they would also become under the partnership law partners inter se, and it would cut at the very root of the notion of a joint undivided family to hold that with reference to coparcenary properties the members can at the same time be both coparceners and partners.' (Emphasis ours)

7. The revenue also relies on Pitambardas Bhikhabhai & Co. v. Commissioner of Income-tax, [1964] 53 I.T.R. 341 (Guj.). In that case, the partnership consisted of the karta of a Hindu undivided family and two of the coparceners. The business was found to belong to the Hindu undivided family. No separate assets were brought into the partnership by the individual coparceners. The case is clearly distinguishable.

8. In Commissioner of Income-tax v. Sir Hukumchand Mannalal & Co., [1970] 78 I.T.R. 18, 21 (S.C. ) the Supreme Court laid down that the individual members of a Hindu undivided family, as representing its interest, could enter into a partnership with strangers for the purpose of carrying on business. In that case, the partnership firm consisted of five members of whom two were coparceners of the Hindu undivided family. The Supreme Court observed :

' The Indian Contract Act imposes no disability upon members of a Hindu undivided family in the matter of entering into a contract inter se or with a stranger. A member of a Hindu undivided family has the same liberty of contract as any other individual: it is restricted only in the manner and to the extent provided by the Indian Contract Act. Partnership is under Section 4 of the Partnership Act the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all : if such a relation exists, it will not be invalid merely because two or more of the persons who have so agreed are members of a Hindu undivided family.'

9. It will be noticed that both the karta as well as the individual coparcener represented the interest of the Hindu undivided family. It was not a case where the coparcener was present in his individual capacity.

10. Reliance has also been placed on Manilal Dharamchand v. Commissioner of Income-tax, [1970] 78 I.T.R. 96 (Bom.). Here, two of the members of the partnership firm had joined it in their individual capacity and the other members were the kartas of the Hindu undivided families of which those individuals were also members. It was found as a fact, which seems to us to be a significantfact, that the entire capital came in by way of a loan from the parent Hindu undivided family.

11. It seems to us clear that when a partnership is entered info between the karta of a Hindu undivided family and an undivided member of that family, the validity of the partnership cannot be assailed in a case where the undivided member brings in his separate property. The capacity of that member as a partner cannot be related to the assets of the Hindu undivided family, and no case can arise of any confusion between his capacity as a coparcener and his capacity as a partner with respect to the Hindu undivided family property. In our opinion, the observations of the Privy Council in Lachhman Das completely cover this case. Accordingly, the questions referred are answered in the affirmative.

12. The assessee is entitled to his costs in each case, which we assess at Rs. 200. Counsel's fee is also assessed at Rs. 200 in each case.


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