NIAMATULLAH, J. - This is a reference by the Commissioner of Income Tax on a direction of this Court on an application made by an assessee. The facts are somewhat complicated. There is a joint family in Muttra which has various firms and one of those firms is styled Parbhu Lal Pearey Lal. This firm Parbhu Lal Pearey Lal has been in existence with effect from to the year 1932-33. Previous to that there was no separation in the joint family and the joint family was somewhat loosely described as Parbhu Lal Pearey Lal. An assessment was made for the year 1931-32 on the income Tax Officer of Muttra found in the books of the joint family a certain khata called Onkar Mal Babu Lal sir account which stood as follows :-
Rs. A. P.
Credit ... ... ... ...
78,910 2 9
Debit ... ... ... ...
47,299 14 0
Profit ... ... ... ...
31,610 4 9
78,910 2 9
Enquiries were made from Bombay and it was found that the Bombay firm of Onkar Mal Babu Lal had heavy losses during the year under assessment and the Muttra join family Parbhu Lal Pearey Lal had also losses. No income-tax therefore was assessed on either the join family in Muttra or the firm Onkar Mal Babu Lal in Bombay, but the income-tax authorities have assessed income-tax on what they allege to be a firm constituted by the partners, one partner being the joint family Parbhu Lal Pearey Lal in Muttra and other partner being the firm Onkar Mal Babu Lal in Bombay. The transactions of this alleged partnership show a profit and therefore that profit has been assessed to income-tax. Objections were overruled and Parbhu Lal Pearey Lal also submitted an application to the Income Tax Commissioner to make a reference to this Court. The Income Tax Commissioner held that no question of law arose as in his opinion there was a partnership. This Bench held that the decision as to whether there was partnership was a decision on a question of law and that as a question of law had arisen under Section 60 (2) the Income Tax Commissioner was bound to make a reference to this Court. Accordingly this Court selected seven of the questions in the application of Parbhu Lal Pearey Lal and required the Commissioner to make a statement on the case. That statement has now been supplied.
The first of these questions is :
Whether the association of the firm, Messrs. Parbhu Lal Pearey Lal of Muttra and of the firm Messrs. Onkar Mal Babu Lal of Bombay in certain joint transactions in 1929-30 could and did form in law a new partnership or a new firm within the meaning of Section 239 of the Indian Contract Act or of any other law.
Learned counsel for Commissioner has taken objection to the wording of this question and he alleges that the attention of the Income Tax Commissioner was not drawn to the importance of the word 'firm' and that in fact Parbhu Lal Pearey Lal of Muttra during the year in question were not a firm but were a join Hindu family. This in fact has been stated by the Commissioner. Learned counsel desired further that enquiry should have been made in regard to Onkar Mal Babu Lal of Bombay. But we consider that it is too late now to raise any point as to whether Onkar Mal Babu Lal are a firm or a joint Hindu family as all long they have been described by an association of a joint Hindu family in Muttra with a firm in Bombay. This question of the interpretation of the word 'partnership' has been already before this Court. We may mention that in Section 3 of the Income Tax Act income-tax may be charged.
On all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and other association of individuals.
The only word in this section under which the alleged partnership could be brought is the word 'firm'. In Section 2 (6-A) it is stated that 'Firm', 'partner' and 'partnership' have the same meanings respectively as in the Indian Contract Act, 1872. In Section 239 of the Contract Act it is stated :
Partnership is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share the profits thereof between them.
Persons who have entered into a 'partnership' with one another are called collectively a 'firm'. No doubt, in the General Clauses Act which was in force at the time of the Contract Act there was a definition which is similar to the definition in the General Clauses Act, X of 1897, for the word 'person'. This definition in Section 3 (39) states that 'person' shall include any company or association or body of individuals, whether incorporated or not. If, therefore, that definition were to be applied to the Contract Act, Section 239, then the argument for the Commissioner would be correct. It is however provided in Section 3 of the General Clauses Act that these definitions should not be applied if there is anything repugnant in the subject or context. In Chapter XI on Partnership in the Contract Act there are various provisions in regard to the death of partners and matters of that nature which will clearly not apply to a firm. This matter has already been considered by a Bench of this Court in a ruling reported in Jai Dayal Madan Gopal of Benares - In the matter of [(1933) 1 I. T. R. 186]. The reference in that case was :
Whether having regard to the deed of partnership, dated April 16, 1928, and to other relevant evidence on the record, the finding that the registered firm Jai Dayal Madan Gopal of Benares is in its corporate capacity a partner in nine other firms bearing the same name was a legal and proper finding ?
Both learned judges held that one firm cannot legally be a partner in another firm. Learned counsel for the Commissioner argued that this ruling was in regard to registered firms. A firm is registered under Section 26-A of the Income Tax Act and any firm constituted under an instrument of partnership specifying the individual shares of the partnership may apply for registration. I will be observed that this provision prevents a Hindu joint family from applying for registration as a firm. But we are of opinion that the ruling in question does not draw a distinction between a registered firm and any firm. On page 1,000 (of 1932 A. L. J.) the learned Chief Justice, stated :
But if the question were asked whether one firm can legally be a partner in another firm then I would unhesitatingly proceed to answer it. There is authority for the view that one firm cannot legally be a partner in another firm.
This passage shows that no importance was attached by their Lordships to the point that the firms in that particular case had been registered under the Income Tax Act. We consider that we should follow this ruling in the present case and we therefore hold that no partnership could be legally constituted between the Bombay firm and the Hindu Joint family in Muttra. Under these circumstances the answer to the first question must be in the negative. This governs all the other remaining six questions in the case and in our opinion the income tax authorities have no power to impose a fine under Section 25 of the Act on the ground that the alleged partnership did not report its discontinuance. With these observations we direct that our opinion shall be forwarded to the Income Tax Commissioner. We allow costs to the applicant at Rs. 200 for which a certificate has been filed. This covers the present hearing and also the former hearing. We also assess for the use of the department the fees of learned counsel for Commissioner at Rs. 150.