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Shankerlal H. Dave Vs. Commissioner of Income-tax, Gujarat-iii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax References Nos. 57 and 82 of 1975
Judge
Reported in[1980]124ITR733(Guj)
ActsIncome Tax Act, 1961 - Sections 10(2), 37 and 37(1)
AppellantShankerlal H. Dave
RespondentCommissioner of Income-tax, Gujarat-iii
Appellant Advocate J.M. Thakore, Adv. General and; J.P. Shah, Adv.
Respondent Advocate C.N. Desai and; R.P. Bhatt, Advs. of R.P. Bhatt and Co. (Solicitors)
Cases ReferredIn Firm Bhagat Ram Mohanlal v. Commr. of
Excerpt:
- - dave was clearly in respect of services rendered to the partnership concerns in which the huf was a partner through him. if this proposition is correct, then we fail to see as to how the huf could exercise any control or management over the firms. 16. this decision, therefore, lays down distinctly two legal categories of services rendered to the huf and to the partnership firms by the karta who enters such partnership firms in a representative capacity. therefore, the ratio of their lordships does not depend upon the fact that in jugal kishore's case [1967]63itr238(sc) ,the huf had also some independent huf business as well. still this settled legal position was followed and it was held that if the karta was found to be actively looking after the business interest of the family in.....j.b. mehta, j.1. in the first reference the question which is posed by the tribunal is as under : 'whether, on the facts and circumstances of the case, the tribunal was right in law in disallowing the remuneration paid by the huf to its karta, shri shankerlal h. dave, for all the three years under reference ?' that question had arisen in this reference for the three years 1967-68, 1968-69 and 1969-70. the other reference no. 82 of 1975 is on the identical question for the subsequent two years, i.e., 1970-71 and 1971-72, and they are disposed of by this common order. we would state the facts so far as the first reference is concerned as the facts are identical for the purposes of the other reference. 2. the assessee, an huf (shri shankerlal harishankar dave) in question, was at the.....
Judgment:

J.B. Mehta, J.

1. In the first reference the question which is posed by the Tribunal is as under :

'Whether, on the facts and circumstances of the case, the Tribunal was right in law in disallowing the remuneration paid by the HUF to its karta, Shri Shankerlal H. Dave, for all the three years under reference ?'

That question had arisen in this reference for the three years 1967-68, 1968-69 and 1969-70. The other reference No. 82 of 1975 is on the identical question for the subsequent two years, i.e., 1970-71 and 1971-72, and they are disposed of by this common order. We would state the facts so far as the first reference is concerned as the facts are identical for the purposes of the other reference.

2. The assessee, an HUF (Shri Shankerlal Harishankar Dave) in question, was at the relevant time constituted of the karta. Shri Shankerlal H. Dave, his wife, Shardaben, and their son, Pramod Shankerlal Dave, and two daughters, all children being minors. The HUF was a partner through its karta in the following four firms in the first two years and in five partnership firms for the subsequent years covered by the other reference as under :

1. M/s. H. K. Dave, Bhavnagar.

2. M/s. H. K. Dave, Morvi.

3. M/s. Dave Brothers, Bhavnagar.

4. M/s. Dinkar Brothers, Bhavnagar.

5. M/s. Deesawala & Co.

3. Besides shares in the partnership firms, the HUF's assessable income was in respect of the self-occupied property to the tune of Rs. 2,500 and there was also some income relating to dividends, interest, etc. The assessee's claim for remuneration for services rendered for looking after the interests of the HUF firms in the partnership firm which was advanced under the agreement in question dated October 30, 1965, was turned down by the ITO by relying on the settled ratio in the case of Jitmal Bhuramal v. CIT : [1962]44ITR887(SC) and as there was no independent business of the HUF. In appeal, the AAC, however, agreed with the assessee's contention in view of the subsequent Supreme Court decision in the case of Jugal Kishore Baldeo Sahai v. CIT : [1967]63ITR238(SC) . The AAC, in terms observed in his order that it was not the case of the ITO that the payments were excessive or were not bona fide. He also held that considering the income of the HUF and the fact that the family interests had to be looked after in the partnership firms, this remuneration of Rs. 24,000 per year paid to Shri Shankerlal Dave could not be considered as excessive. The AAC having allowed the assessee's claim, the revenue had gone in appeal before the Tribunal. The Tribunal has allowed the revenue's appeal. The Tribunal considered the settled legal position in Jitmal's case : [1962]44ITR887(SC) and in Jugal Kishore's case : [1967]63ITR238(SC) and held it to be a settled principle that the HUF may be allowed to deduct salary paid to a member of the family if the payment was made as a matter of commercial expediency provided the services are rendered for the HUF business and such payments are genuine and not excessive. The Tribunal pointed out that the relevant controversy was not whether the salary paid to the karta of the HUF in question was excessive or not a bona fide one but whether such remuneration was paid for services rendered to the HUF at all. It observed that if the remuneration paid to Shri Shankerlal Dave was in respect of the services rendered to the HUF, then certainly, there could be no question of its being not allowable. Thereafter, the Tribunal referred to the relevant clause 4 in the agreement which was relied upon for the purposes of this remuneration and found that, as per the agreement, the karta was not to be remunerated for services rendered by him to the partnership business. Thereafter, the Tribunal observed as under :

'From the above we notice that the remuneration or salary paid to Shankerlal H. Dave was clearly in respect of services rendered to the partnership concerns in which the HUF was a partner through him. The assessee was undoubtedly entitled to deductions of remuneration in respect of services rendered by its karta to its HUF but as we shall presently show in this case, there were no services rendered to the HUF as there could be no question of the karta doing something more than rendering services to the partnership firms. Now one important factor which we have to bear in mind is that though Shankerlal H. Dave, the karta, was a partner in the partnership firms in his representative capacity on behalf of the HUF, yet as far as those partnership firms were concerned, the HUF had no place and it was the karta who was everything. If this proposition is correct, then we fail to see as to how the HUF could exercise any control or management over the firms. If the karta was serving the partnerships, though in his representative capacities, he was serving entities, which were entirely different from the respondent-assessee before us. If the coparcener has no place in the partnership in which a member or its karta is a partner, then naturally the services rendered to the partnership cannot be termed as service rendered to the HUF.'

4. Thereafter, the Tribunal observed that the AAC has misdirected himself in relying on the Jitmal ratio for holding that the services rendered by the karta in the present case were allowable on the ground that Jitmal's case : [1962]44ITR887(SC) , laid a clear guideline that if a member rendered services to certain partnership concerns, in which the HUF was a partner through him, such services rendered could not be termed as services rendered to the HUF. The AAC's attempt to superimpose the ratio of a subsequent decision was also commented upon by the Tribunal by observing as under :

'If the reasoning and the arguments of the AAC are to be accepted, then it would follow that the services rendered by a member of the family to the partnership in which the HUF is a partner through him, must be deemed to be services rendered to the HUF but the Supreme Court in Jitmal Bhuramal's case : [1962]44ITR887(SC) held exactly to the contrary.'

5. Thereafter, the Tribunal reiterated the fact earlier set out about the figures of the assessee's income, besides its share income in the partnership concern, to show that the other incomes of the family was negligible to require any special services by any member of the family for which remuneration of the type which was claimed in this case could be paid. It was observed that the karta of the HUF, in the present case, might have rendered services to the partnerships in which the family was represented through him, but such services could not be termed as services to the HUF itself. The ratio in Jugal Kishore's case : [1967]63ITR238(SC) was correctly stated that the remuneration paid to the karta of the family for services rendered to the family was a permissible deduction. But it was held that that ratio could not apply to the present facts because the Tribunal did not find any services rendered by the karta to the family as such for which he could be remunerated. The final conclusions are thereafter recorded in para. 13 in the following words :

'After carefully considering the facts of the case we are of the clear view that the principles as laid down by their Lordships of the Supreme Court in the case of Jitmal Bhuramal : [1962]44ITR887(SC) are applicable in present case before us and that the karta's services were rendered to the partnerships which were different entities and not to the HUF and the services rendered to the firms could not be termed as services rendered to the HUF. We further do not find any services rendered by the karta to the HUF for which there was any necessity of remunerating him. Our clear findings, therefore, are that the facts of the case do not warrant any payment of remuneration to the karta and that the AAC was in clear error in directing the ITO to allow remuneration to the karta of the assessee-family before us to the tune of Rs. 24,000 for each of the three years under appeal.'

6. The Tribunal having accordingly allowed the appeal for all these three years, these references have come before us.

7. At the outset we would refer to the relevant terms of the agreement and also point out the settled legal position in connection with the allowance of this remuneration paid for services rendered to the HUF firm for looking after its interest in other partnership firms. The agreement in question dated October 30, 1965, has been entered into between Shankerlal Harishanker Dave in his capacity as karta and managing member of a joint and undivided Hindu family consisting of himself, his wife, Shardaben, and his children, Pramod and two daughters, all minors; and the wife, Shardaben, and the three children, all minors, under the age of 18, by their mother and natural guardian, the said Shardaben, wife of the said Shankerlal Harishanker Dave, all of whom were treated as party of one part, and the said Shankerlal Harishanker Dave in his personal capacity, called 'the said Shankerlal' of the other part. In the earlier preamble clauses, it is first stated that the party of the one part were the only members of a joint and undivided Hindu family of which the said Shankerlal was the karta and managing member and the said joint and undivided Hindu family was a partner in various partnership firms through its karta and managing member the said Shankerlal who looked after and managed the affairs and interest of the said joint and undivided Hindu family in those businesses. (One business which was to be started in the subsequent years was also mentioned as such). It was also recited that the said joint and undivided Hindu family also owned 200 equity shares of the face value of Rs. 100 each in Messrs. Flexicons Ltd., a public limited company having its registered office at Bombay of the aggregate value of Rs. 20,000. The said Shankerlal was a director of the said companies and looked after the interest of the said joint and undivided Hindu family in the said companies. A further reference was made to the income of the said joint and undivided Hindu family from these various businesses averaging in a year to about Rs. 75,000 at that time which was likely to rise much higher considering the contracts in hand. It was also recited that the said Shardaben, wife of the said Shankerlal, and the minors were unable to manage and look after the affairs and interests of the said joint and undivided Hindu family in the said various businesses of the said joint and undivided Hindu family and it was because of the unremitted efforts of the said Shankerlal that the said joint and undivided Hindu family had such large income of about Rs. 75,000 annually at that time. Thereafter, comes the material clause 6 of the preamble clause which states as under :

'In consideration of the said Shankerlal rendering services to the said joint and undivided Hindu family in managing and looking after the affairs and interests of the said joint and undivided Hindu family in the said various businesses of the said joint and undivided Hindu family and bringing in an annual income of about Rs. 75,000 benefiting considerably the party of the one part, the party of the one part is desirous of paying a sum of Rs. 24,000 per year as and by way of remuneration to the said Shankerlal for rendering the said services to the said joint and undivided Hindu family which the said Shankerlal has agreed to accept.'

8. Thereafter the terms of the agreement are set out and the material terms for this remuneration of Rs. 24,000 per annum are to be found in cls. 1 to 4 as under :

'1. That the party of the one part shall pay to the said Shankerlal and the said Shankerlal shall receive from the party of the one part a sum of Rs. 24,000 per annum as and by way of remuneration from and out of the annual income of the said joint and undivided Hindu family in managing and looking after the affairs and interests of the said joint and undivided Hindu family in the said various businesses of the said joint and undivided Hindu family.

2. That the said remuneration of Rs. 24,000 per annum will be the sole separate and absolute property of the said Shankerlal in which none of the party of the one part shall have any right or claim whatsoever.

3. That the party of the one part and the said Shankerlal may by mutual consent increase or reduce the said remuneration of Rs. 24,000 per annum depending upon the annual income of the said joint and undivided Hindu family and other circumstances and such remuneration as may be fixed by mutual consent shall be payable by the party of the one part to the said Shankerlal.

4. It is hereby expressly agreed by and between the parties hereto that the said remuneration payable to the said Shankerlal will not and is not intended to cover any services rendered by him to the said businesses apart from whatever he is required to do for managing and looking after the affairs and interests of the said joint and undivided Hindu family in the said various businesses.'

9. The Tribunal has emphasised clause 4 at the very outset and recorded a clear finding that as per the agreement the karta was not to be remunerated for services rendered by him to the partnership businesses which is amply clarified in clause 4. Clause 4 is categorical that remuneration which was agreed as payable to the said Shankerlal was only for whatever he was required to do for managing and looking after the affairs and interests of the HUF in the said various businesses as stated categorically in clause 1, in view of the considerations which had been amply recited in the agreement.

10. If we turn to the settled legal position in this connection at the very outset, the whole controversy before us would be completely illumined. In Jitmal Bhuramal v. CIT : [1962]44ITR887(SC) , an HUF was doing business in grains and kirana and the family through its karta was also a partner in another firm where the karta had 12 annas share and one Rameshwarlal, a stranger, had the remaining 4 annas share. The remuneration in question was claimed under two separate agreements. The Tribunal had allowed full remuneration as per the terms of the agreement to two members of the family which was payable under the agreement for looking after the interests of the HUF. The controversy had arisen only as regards the remuneration which was disallowed to the other two junior members of the family who were partners in the partnership business. The Tribunal had recorded a categorical finding as under :

'The Tribunal by its order dated September 28, 1955, which is annexure 'B' hereto and forms part of the case, held that these payments of salaries to the persons who worked for the Hindu undivided family were admissible but that the payment to Gulzarilal and Madanlal, amounting to Rs. 3,850 was not, as the members did not render any service to the Hindu undivided family's business but to the firm, which was a separate entity and for services for which the liability was on the firm.'

11. Even the claim of the assessee was for services rendered by these two junior family members to the partnership firm and the finding of fact of the Tribunal was also categorical that they rendered services to the partnership firm. Therefore, their Lordships held that this finding of fact which was relied upon by the assessee made its case further more difficult. The legal principle was laid down by their Lordships that an HUF was allowed to deduct salaries paid to members of the family, if the payment is made as a matter of commercial or business expediency. But their Lordships emphasised that the services much be to the family. The decision in Dulichand Laxminarayan v. CIT : [1956]29ITR535(SC) and in other cases had been followed and it was held by their Lordships that as under the partnership law a 'person' contemplated must be a natural or artificial, i.e., legal person, and neither a firm nor an HUF can be that person, so, where an HUF became a partner through its karta, the coparcener had no place in the partnership but only the karta was everything, and, therefore, both under the Hindu law and under the law of partnership, the HUF as such could exercise no control and management over the business of a partnership, of which the coparcenary was a member through the karta. In view of the settled legal position, their Lordships laid down the crucial ratio as under (p. 890 of 44 ITR) :

'All these cases show that if the junior members of the coparcenary were serving the partnership, they were serving an entity which was separate and distinct from the Hindu undivided family. If the coparcenary had no place in the partnership, any service to the partnership cannot be described as service to the Hindu undivided family, sufficient to attract the application of section 10(2)(xv) of the Income-tax Act, because it cannot be said to be wholly and exclusively for the Hindu undivided family.'

12. Therefore, this Jitmal's : [1962]44ITR887(SC) ratio is categorical that an HUF can be allowed to deduct salaries paid to members of the family, if the payment is made as a matter of commercial expediency provided that the service rendered was to the family. The facts of that case even as per the assessee's case and as found by the Tribunal in respect of the two junior members whose claim had been disallowed was of remuneration for partnership services. The partnership was a separate and distinct entity from the HUF and, therefore, the ratio of their Lordships was that these two junior members who rendered service only to the partnership and not to the family could not be remunerated by the HUF, for the simple reason that there was no service to the HUF which would attract the application of S. 10(2)(xv) corresponding to S. 37(1). Therefore, Jitmal's : [1962]44ITR887(SC) ratio is on the special facts, as the services were not rendered to the HUF by these family members but to the partnership firm only.

13. Their Lordships themselves have explained this ratio and distinguished the same in the later decision in Jugal Kishore Baldeo Sahai v. CIT : [1967]63ITR238(SC) . That was a case where the assessee was a HUF carrying on joint family business of commission agency in cloth in the name of Jugal Kishore Baldeo Sahai, and was in addition having partnership business, in which the karta, Babu Ram, was a partner representing the interest of the HUF. The family consisted of Babu Ram, his brother, Gordhandas and the minor sons of both Babu Ram and Gordhandas. An agreement had been arrived at for this remuneration in question by Gordhandas agreeing to the proposal in Babu Ram's letter for giving this remuneration to Babu Ram who was managing all the businesses and, accordingly, this remuneration had been deducted in the HUF business account. The High Court in that case had proceeded on the footing that a karta was bound by reason of his being a karta to manage all the businesses of the family without being entitled to any remuneration for the service of management. The High Court thought on the basis of the authoritative view of the commentators of Hindu law and the decisions of the courts that it would be anomalous to consider a karta who represented the family as being an employee of himself or being entitled to remuneration for acting as such and receiving payment from his own self. It had, therefore, held that the karta, Babu Ram, was not entitled to draw any remuneration even for carrying on business of the HUF. In appeal, however, their Lordships held at page 241, that the correct legal position was that the right to receive remuneration was negatived with some qualifications as, ordinarily, the karta was not entitled to remuneration. Their Lordships, therefore, held that it was necessary that before a karta receives remuneration, it should be under a valid agreement. In judging what was a valid or proper agreement which would justify the payment of remuneration to a karta of the HUF for managing the business of the family to be deductible as an expenditure under S. 10(2)(xv) of the I.T. Act, the test which should be applied was whether the agreement had been made by or on behalf of the members of the HUF and whether it was in the interest of the business of the family, so that it could be justified on grounds of commercial expediency. That was the test which had always to be applied when considering whether a particular expenditure claimed as a deduction under S. 10(2)(xv) had been incurred wholly and exclusively for the purpose of the business.

14. Thereafter, their Lordships referred to Jitmal's case : [1962]44ITR887(SC) which had settled the principle that an HUF could be allowed to deduct salary paid to a member of the family, if the payment was made as a matter of commercial or business expediency. The principle laid down in Jitmal's case : [1962]44ITR887(SC) was without any distinction between the salaries paid to karta and to junior members of the family and, therefore, their Lordships refused to give a narrow interpretation to confine the right of deducting the remuneration paid by an HUF to junior members only. Their Lordships pointed out that there was no reason why a junior member should be in a different position than a karta. It was pointed out that even though the karta had a right to manage the property of a HUF on behalf of the coparceners, there was no obligation or duty on him to carry on a particular business of the family. The settled position was referred to, that any member of the HUF including a karta could have a separate personal source of income if that income was earned independently of the HUF assets or business. It was primarily on that basis that it had been held that salary or remuneration paid to a junior member of the family for services rendered to the family business became his separate income, and, consequently, a deductible expenditure under S. 10(2)(xv) of the Act, when computing the income of the family. It was pointed out that, in similar circumstances, if a karta offered his services to the family instead of choosing an independent career to earn his separate income and received remuneration from the family, there was no reason why the remuneration so paid could not be treated as an expenditure for carrying on the business of the family and consequently expended wholly and exclusively for the purpose of the business and deductible under S. 10(2)(xv) of the Act. Their Lordships also considered the Patna decision in CIT v. Jainarayan Jagannath : [1945]13ITR410(Patna) , for evolving the principle that when such remuneration was paid, which was not excessive and was reasonable and it was not a device to escape income-tax but a legitimate deduction in computing profits of the business. Therefore, even that ground was negatived of there being any device when Babu Ram's remuneration was found to be commensurate with the services rendered by him to the HUF. Thereafter, their Lordships considered this crucial question when this alternative ground was urged that the remuneration was paid to Babu Ram not only to manage the HUF business carried on under the name of Jugal Kishore Baldeo Sahai but also for those other partnership firm's business in which Babu Ram was a partner in his own name though representing the HUF. In that context, their Lordships distinguished Jitmal's ratio in terms pointing out that Jitmal's case : [1962]44ITR887(SC) was a case where there was a finding of fact that two junior members of the HUF, Gulzarilal and Madanlal, were employed in the partnership business in which the karta of the family was a partner and had rendered services to that business. Therefore, even though the principle was recognised that an HUF is allowed to deduct the salary paid to members of the family if the payment is made as a matter of commercial or business expediency, a condition was laid down that the services rendered must be to the family and, therefore, in Jitmal's case : [1962]44ITR887(SC) it was held that the services having been rendered not to the family but to the partnership firm, the remuneration paid to those junior members was not a legitimate deduction under S. 10(2)(xv) of the I.T. Act from the income of the HUF and that it could be a valid deduction only when computing the income of the partnership business. Their Lordships referred to the agreement in question for payment of the remuneration to the karta, Babu Ram, which was categorical to the effect 'That he was to get Rs. 1,000 p. m. for looking after the businesses of the Hindu undivided family'. When relying on the word 'businesses' in plural it was urged that the remuneration given to Babu Ram was not merely for looking after the HUF business, but also for rendering services to the partnership firm in which Babu Ram was a partner. This interpretation of the agreement was in terms repelled as incorrect. Then comes the material ratio laid down by their Lordships as under - See : [1967]63ITR238(SC) :

'The agreement does not envisage any payment to Babu Ram for services rendered to the partnership firms. The language used was that Babu Ram should receive the remuneration for managing all the businesses of the Hindu undivided family, which can only mean that he was to manage the affairs of the Hindu undivided family firm and also to look after the interests of the Hindu undivided family in other businesses. Thus, the remuneration was not intended to cover any services rendered by him to the partnership firms apart from whatever he was required to do in the capacity of looking after and managing the affairs of the Hindu undivided family. The principle laid down in the case of Jitmal Bhuramal v. Commissioner of Income-tax : [1962]44ITR887(SC) is, therefore, no applicable to the case before us.'

15. The test envisaged by their Lordships was to look at the language of the agreement and to find out if the karta was to receive remuneration only for managing all the businesses of the HUF or for service rendered to the partnership business. Such a term in the agreement in question which was widely drafted by using the word 'business' was even held to mean that he was to manage the affairs of the HUF and also to look after the interests of the HUF in other businesses. Such remuneration was never intended to cover any services rendered to the partnership firm, but only for looking after and managing the affairs of the HUF.

16. This decision, therefore, lays down distinctly two legal categories of services rendered to the HUF and to the partnership firms by the karta who enters such partnership firms in a representative capacity. If the remuneration to the karta under the agreement in question is not for the services to the partnership firms but it is for looking after the interests of the HUF, even in the partnership business, that would be a distinct legal category of services rendered to the HUF, because it was for managing the affairs of the HUF by looking after the interests of the HUF in those other partnership businesses. Therefore, the ratio of their Lordships does not depend upon the fact that in Jugal Kishore's case : [1967]63ITR238(SC) , the HUF had also some independent HUF business as well. The ratio evolved by their Lordships is to make a distinction between two different categories of services to the partnership businesses and services to the HUF of looking after its interest even in the partnership businesses and that is how the earlier decision in Jitmal's case : [1962]44ITR887(SC) was distinguished because of the specific term of the agreement in Jugal Kishore's case : [1967]63ITR238(SC) , where the karta was to be paid remuneration not for attending to the partnership businesses but for looking after the HUF interests in the partnership businesses. Even the Allahabad High Court in CIT v. Raghunandan Saran : [1977]108ITR818(All) in an identical context has taken the same view of this settled legal position. In that case the assessee-HUF claimed deduction from its income of a certain sum of money paid to its karta who was managing its business by their partner in five firms in the representative capacity. The HUF consisted of the karta and his wife and minor children. In that decision, the HUF had no other business. Still this settled legal position was followed and it was held that if the karta was found to be actively looking after the business interest of the family in the firm of which he was a partner as karta of the HUF and the remuneration paid was not excessive, it was clearly an allowable deduction. The fact that the HUF was claiming the amount of salary paid to the karta was itself held to be indicative of the fact that under the agreement such remuneration should be paid to him.

17. In view of the aforesaid settled legal position, in the present case, when the agreement cls. 1 to 4 were categorical that this remuneration of Rs. 24,000 per annum was aid to this karta, Shankerlal, for rendering services to the HUF in managing and looking after the affairs and interests of the HUF in the various businesses of this HUF and when clause 4 categorically mentions that such remuneration would not and was not intended to cover any service rendered by Shankerlal to the said business apart from whatever he was required to do for looking after and managing the affairs of the HUF in the said various businesses, there can be no question that as per the aforesaid settled legal position the claim for remuneration advanced under this agreement was only for services rendered to the HUF by its karta by managing and looking after the affairs and interests of the HUF only in those various partnership businesses and it was not in any sense for services rendered to the partnership businesses. If in the light of the aforesaid settled legal position and the agreed term of the aforesaid agreement we consider the conclusion reached by the Tribunal, it would be obvious that the aforesaid settled legal position has completely been misunderstood by the Tribunal. The Tribunal rightly set out at the outset the entire controversy in the present case which was not as to whether the salary paid to the karta of this HUF was excessive or not a bona fide one but the dispute was whether such remuneration was paid for any services rendered to the HUF at all because if that remuneration was in respect of the services rendered to the HUF then certainly it was allowable. In that context, if we refer to the various reasons given by the Tribunal, which we have reproduced at the outset, the whole position will be amply clarified as to how the Tribunal has fallen into an error by misconstruing this foundation document of title to this remuneration and because the legal distinction evolved by their Lordships as to two categories of services, one to the partnership by looking after and managing the interests of the HUF firms and other to the HUF in those partnership businesses, was not appreciated by the Tribunal. At the outset, the Tribunal disregarded its categorical finding regarding clause 4 of the agreement itself that as per the agreement in question the karta was not to be remunerated for services rendered by him to the partnership businesses. If this, was the whole import of the agreement in cls. 1 and 4, the conclusion recorded in the very next line is obviously erroneous and on a plain misreading of the agreement as it is in the following words :

'From the above we notice that the remuneration or salary paid to Shankerlal H. Dave was clearly in respect of services rendered to the partnership concerns in which the HUF was a partner through him.'

18. Thereafter, the Tribunal shows how it has arrived at this conclusion. The first reason given is :

'..... there were no services rendered to the HUF as there could be no question of the karta doing something more than rendering services to the partnership firms.'

19. That first reason is entirely a matter of legal inference from the settled legal position. The reason given in support is reliance on an important factor which the Tribunal had borne in mind that Shankerlal Dave, the karta, was a partner in the partnership firms in his representative capacity on behalf of the HUF but as far as those partnership firms were concerned, the HUF had no place and it was the karta who was everything. That is why the Tribunal categorically states that 'if this proposition is correct then we fail to see as to how the HUF could exercise any control or management over the firms. The two entities being distinct, if the coparcener had no place in the partnership in which a member or its karta is a partner then naturally the services rendered to the partnership could not be termed as service rendered to the HUF.' This whole conclusion is, therefore, based on the erroneous assumption of the legal proposition that when the agreement specifies that remuneration is not payable for services rendered to the partnership firms but only for looking after the interests of the HUF and managing the affairs of the HUF in the partnership firms, there could be no question of the services being rendered to the HUF because the karta was doing nothing more than rendering services to the partnership firm. But this proposition of law assumed by the Tribunal is basically erroneous because their Lordships had repelled that very contention because of the wide word 'business' used in the agreement in question in Jugal Kishore's case : [1967]63ITR238(SC) . Their Lordships noted that when remuneration was paid to the karta, Babu Ram, for services rendered to the HUF in the shape of looking after the interests of the HUF in the other partnership businesses the remuneration was not for services to the partnership firms but for services rendered to the HUF by looking after and managing the interests of the HUF in those businesses. Therefore, this part of the entire conclusion of the Tribunal proceeds on the misconstruction of the true ratio in Jugal Kishore's case : [1967]63ITR238(SC) and because the legal distinction made by their Lordships as to the two distinct concepts of services to the partnership and services to the HUF was not appreciated by the Tribunal, which led to the Tribunal misreading the present agreement, which was in almost the same terms as in Jugal Kishore's case : [1967]63ITR238(SC) .

20. Next reasoning given by the Tribunal was that the AAC had misdirected himself in relying on Jitmal's : [1962]44ITR887(SC) ratio because, according to the Tribunal, the ratio in Jitmal laid down a clear guideline that if a member rendered service to a certain partnership concern in which the HUF was a partner through him, such services rendered could not be termed as services rendered to the HUF. Therefore, the Tribunal pointed out that if the reasoning and arguments of the AAC were to be accepted, then it would follow that the services rendered by a member of the family to the partnership in which the HUF was a partner through him, must be deemed to be services rendered to the HUF while the Supreme Court in Jitmal's case : [1962]44ITR887(SC) had held exactly to the contrary. The very attack on the AAC's judgment as being misdirected in law proceeds on the same error of not making a categorical distinction make in Jugal Kishore's case : [1967]63ITR238(SC) by their Lordships between the services to the partnership firm and services to the HUF when the karta claimed remuneration for looking after the interests of the HUF even in those partnership firms.

21. The next line of reasoning considered the aspect that where the other income of the family was negligible there was nothing to require any special services by any member of the family for which remuneration of the type could be paid. The Tribunal observed that the karta in the present case may have rendered service to the partnerships in which the family was represented through him but such services could not be termed as services to the HUF itself. This reasoning proceeds on the same error to ignore the services rendered to the HUF in the shape of looking after and managing the interests of the HUF in the partnership businesses and for which purpose remuneration was claimed and agreed upon in the present case. Jugal Kishore's : [1967]63ITR238(SC) ratio is no doubt stated correctly but it was misapplied by the Tribunal on the erroneous assumption that the present is not a case where services were rendered by the karta to the family as such for which he could be remunerated, because the Tribunal had not appreciated the distinction laid down by their Lordships in Jugal Kishore's case : [1967]63ITR238(SC) between these two distinct categories of services. Therefore, the final conclusion as reached in para. 15, which we have reproduced earlier that the principle in Jitmal's case [1967] 44 ITR 887 being applicable in the present case and as services rendered to the firm could not be termed as services rendered to the HUF on services were rendered by the karta to the HUF for which there was any necessary of remuneration him by giving the aforesaid remuneration to the tune of Rs. 24,000. This finding can never be characterised as a finding of fact when it has been based on the aforesaid misreading of the agreement in question which is almost in identical terms with that in Jugal Kishore's case : [1967]63ITR238(SC) when the Tribunal has not appreciated the categorical distinction laid down by their Lordships in Jugal Kishore's case : [1967]63ITR238(SC) for distinguishing Jitmal ratio by allowing the claim of the karta for remuneration for services to the HUF in the shape of looking after and managing the interests of the HUF in the partnership businesses. The category of this finding is not one of finding of fact but of a mixed question of fact and law which is vitiated by the basic error of law pervading throughout the reasoning of the Tribunal on a complete misconception of the binding ratio laid down in Jugal Kishore's case : [1967]63ITR238(SC) . This being the only controversy as to the legal character of the services rendered whether to the partnership firms or to the HUF and as pointed out by the Tribunal there being no dispute in the present case as to whether the remuneration paid to the karta was excessive or not a bona fide one, if this finding on this mixed question of law is erroneous as per the settled legal position, the Tribunal's ultimate conclusion is clearly wrong and wholly inconsistent with the settled legal position.

22. Therefore, the learned standing counsel has raised various technical contentions to support the conclusions of the Tribunal. His first contention was that this was a case of pure finding of fact and unless that finding of fact is expressly challenged as being perverse or unreasonable and not supportable on the materials on record by a specific question raised in the reference, this court was bound by that finding of fact. The decision in CIT v. Madan Gopal Radhey Lal : [1969]73ITR652(SC) , where the earlier decision in India Cements Ltd. v. CIT : [1966]60ITR52(SC) had been relied upon had been marshalled in aid. In these decisions, the Supreme court had laid down that in a reference under the I.T. Act the High Court must accept the findings of fact made by the Appellate Tribunal and it is for the person who has applied for a reference to challenge those findings first by an application under S. 66(1). If he has failed to file an application under S. 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for one reason or another. Where that principle applies it is not open to the assessee to contend on the question raised that the finding of the Tribunal was not supported by the evidence. These decisions are in the context of pure findings of fact which have to be specifically challenged by raising expressly the question that the finding is perverse or unreasonable and not supported by the evidence on record. This line of decisions has no application whatever where the finding of the Tribunal raises either a pure question of law or a mixed question of law. In the two later categories of cases no such bar can be invoked that the High Court must accept even such an erroneous finding on a mixed question of law and facts or on a pure question of law. The whole distinction is so well settled that it hardly needs any elaboration but as the learned standing counsel had vehemently relied on this question in a number of cases, we would point out the settled legal position in the matter.

23. In CIT v. S. P. Jain : [1973]87ITR370(SC) , their Lordships pointed out that it is true that on the question about the finding being perverse which was raised in the application under S. 66(2) in the form of question No. 3 the Tribunal was not asked to state the case, because the High Court though that questions Nos. 2 and 3 would cover the scope and ambit of this question No. 3 as to the finding being perverse having regard to the evidence on the record. Their Lordships, however, went into this larger question, in what circumstances could the High court and the Supreme Court have always the jurisdiction to intervene by interfering with the finding given by the Tribunal or by arriving at a conclusion different from that arrived at by the Tribunal. At page 381, their Lordships held :

'In our view the High Court and this court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at the vitiated.'

24. Thereafter, the classic decision in Edwards v. Bairstow [1955] 28 ITR 579 was referred to and the two approaches of Lord Radcliffe and Viscount Simonds had been examined. The passage by Lord Radcliffe is as under :

'I think it possible that the English courts have been led to be rather over-ready to treat these questions as 'pure questions of fact' by some observations of Warrington and Atkin L. JJ. in Cooper v. Stubbs [1925] 2 KB 753 (CA). If so, I would say, with very great respect, that I think it a pity that such a tendency should persist. As I see it, the reason why the courts do not interfere with Commissioner's findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the Commissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the Commissioners are the first tribunal to try an appeal and in the interest of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that Commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by Commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado.'

25. Similarly, Viscount Simonds' passage was reproduced as under - See [1955] 28 ITR 579:

'For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained. It is for this reason that I thought it right to set out the whole of the facts as they were found by the Commissioners in this case. For, having set them out and having read and re-read them with every desire to support the determination if it can reasonably be supported, I find myself quite unable to do so. The primary facts, as they are sometimes called, do not, in my opinion, justify the inference or conclusion which the Commissioners have drawn : not only do they not justify it but they lead irresistibly to the opposite inference or conclusion. It is, therefore, a case in which, whether it be said of the Commissioners that their finding is perverse or that they have misdirected themselves in law by a misunderstanding of the statutory language or otherwise, their determination cannot stand.'

26. It is true, their Lordships pointed out that Lord Radcliffe goes further than what approach had been adopted by the Supreme Court while Viscount Simonds confined the interference upon the view which the Supreme Court had taken in references under the tax laws. Then their Lordships pointed out that whichever view was adopted, whether the extended one advanced by Lord Radcliffe or the view of Lord Simonds, what had to be safeguarded against was that any crystallization of the view of the Supreme Court and its reluctance to interfere with the findings of fact should not make the Tribunals or the income-tax authorities smug in the belief that, as the courts do not interfere with the findings which form the bedrock upon which the law would be based, they could act on that assumption in finding facts or by their mere ipse dixit that they are findings of fact wished it to be so assumed irrespective of whether they were sustainable in law or on the materials on record. Then various decisions were referred to where their Lordships made this distinction between the findings of fact which were interfered with when the finding was perverse as not supported by materials on record and the other kinds of findings which could be interfered with because they fell in the other two categories of mixed findings on questions of fact and law or on pure questions of law and in that connection the case in Sree Meenakshi Mills Ltd. v. CIT : [1957]31ITR28(SC) was referred to. That is why in G. Venkataswami Naidu & Co. v. CIT : [1959]35ITR594(SC) , the ratio in Sree Meenakshi Mills' case was reiterated and the ultimate decision was stated in the following words (p. 602) :

''on principles established by authorities only such questions as relate to one or the other of the following matters can be questions of law under section 66(1) : (1) the construction of a statute or a document of title;

(2) the legal effect of the facts found where the point for determination is a mixed question of law and fact; and

(3) a finding of fact unsupported by evidence or unreasonable and perverse in nature.''

27. Having regard to the legal position in Sree Meenakshi Mills' case : [1957]31ITR28(SC) , their Lordships held that the question of benami was a pure question of fact and it could not be agitated under S. 66(1). Thereafter, the decision of the House of Lords in Edwards v. Bairstow [1955] 28 ITR 579 was in terms referred to with the two different approaches of Lord Radcliffe and Viscount Simonds, and their Lordships held in : [1959]35ITR594(SC) that in effect this decision of the House of Lords in Edwards v. Bairstow [1955] 28 ITR 579 was not inconsistent with the view which had been taken by their Lordships because, as shown by them, to avoid confusion or unnecessary complications it would be safer and more convenient to describe the question about the character of the transaction in the context as a question of mixed law and fact as distinct from one of fact, because that involved application of legal principles which was an essential part in reaching the said conclusion and was undoubtedly a matter of law and if there had been an error in the application of those principles, it could be challenged as error of law. Therefore, these two cases of findings on mixed question of law and facts or on a pure question of law as to the construction of a statute or a document of title would always have to be distinguished from the third type of cases of pure finding of fact which operate as a bar to the High Court going into that question without an express reference, challenging first the said finding as perverse, unreasonable or unsupported by any evidence on record.

28. In the present case, as we have earlier pointed out, the Tribunal had misunderstood the very basis of the refinement in law introduced over the Jitmal's : [1962]44ITR887(SC) ratio in Jugal Kishore's case : [1967]63ITR238(SC) by reading the terms of the agreement which are in pari materia the same language as in the present case, and by introducing the crucial distinction between the services rendered to the partnership firm and services rendered to the HUF in the shape of looking after and managing interests of the HUF even in those partnership businesses. Once this distinction is borne in mind between the two legal categories of services rendered - one to be partnership firm and the other to the HUF - the Tribunal clearly proceeded on a total misreading of the document of title for earning this remuneration and, therefore, the finding was both on a mixed question of law and fact and it equally involved the question of interpretation of such document of title on which the claim of remuneration had to be decided. The Tribunal had fairly stated at the outset the whole controversy which was only as to the legal character of the service rendered in the present case because there was no dispute that if this would amount to services rendered to the HUF and not to the partnership firms, the remuneration was not challenged as excessive or not a bona fide one. In that view of the matter, the objection raised by the learned standing counsel is wholly misconceived because the case falls in the category of finding on a mixed question of law and fact in the present case or on a pure question of law and not in the last category of finding on pure questions of facts, where the finding would have to be expressly challenged as being perverse or unreasonable or unsupported by the materials on record. If the argument of the learned standing counsel was extended to such cases the whole exercise of the Tribunal would be a self-defeating exercise because the answer was self-evident in the present reference, once this controversial issue was held to be a pure finding of fact as the principle of law was so stated by the Tribunal. That is why the reference was made on the question of law arising in this controversy in the present question as to whether, on the facts and circumstances of the case, the Tribunal was right in law in disallowing the remuneration paid by the HUF to the karta, Shri Shankerlal H. Dave, for the assessment years in question. The width of the question itself reveals that it was a question of law which had arisen and which was referred and which arose because the legal character of the services had to be properly appreciated, which would allow the person concerned to earn remuneration in question.

29. The second question raised by the learned standing counsel was that the finding of the Tribunal was justified on evidence and it was a reasonable possible view, would also not be tenable because that contention is also based on the same misconception that this was a pure finding of fact, which could only be challenged on the ground of its perversity as being not sustainable on the evidence on record. The finding being on mixed question of law is attacked on the ground of its basic error in law in not making the crucial distinction between the two settled categories of services. In that context, as earlier pointed out, it was immaterial whether the HUF had any independent business of its own other than these partnership businesses where the karta was acting in his representative capacity. If the crucial principle is once properly understood that the claim of the remuneration of the karta is not for services rendered to the partnership firm but for services rendered to the HUF in the shape of looking after and managing the interests of the HUF in those partnership businesses, there could be no justification in the second contention raised by the learned standing counsel, when the finding of the Tribunal on this mixed question of law is totally contrary to the settled legal position in Jugal Kishore's case : [1967]63ITR238(SC) .

30. The third contention which was raised by the learned standing counsel was an ingenious one. The learned standing counsel argued that the deduction claimed under S. 37(1) postulates that the HUF was carrying on business and in the present case as the HUF could not enter into any such partnership business except through its karta, and as it had no other independent business, the whole claim of deduction in the shape of remuneration allowance was wholly misconceived. This contention, in our opinion, in fact stands concluded albeit sub silentio by the decision in Jugal Kishore's case : [1967]63ITR238(SC) , where their Lordships had to further develop this law after the first step was taken in Jitmal's case : [1962]44ITR887(SC) , by allowing this remuneration to the members of the HUF, by making this distinction between the two separate types of services - on to the partnership businesses and the other to the HUF businesses - when the service was rendered to the HUF distinctly in the shape of looking after the interests of the HUF of its share in the partnership businesses. Once this deduction was allowed by their Lordships, the obvious inference is that their Lordships have treated this as a deduction against the HUF business income and, therefore, no contention could be raised that the HUF was not carrying on business in such cases. It is true that bearing in mind the distinction in language between the old Ss. 9 and 10 and Ss. 22 and 28, unlike the property income which was assessed in the hands of the owner, the profits and gains in business and profession are assessed from the persons carrying on business. As rightly pointed out by Mr. Palkhivala in his commentary [The Law and Practice of Income-tax] at p. 339, 1976 edn., vol. I, S. 28 does not require that a business should be carried on by the assessee personally. The owner of the business would be chargeable under this section though he may carry on the business not personally but through a manager or other servant or agent who is remunerated by a share of profits or otherwise. The tax is leviable on the person to whom the profits accrued or by whom the profits are received. No tax can be levied on a benamidar in whose name the business transactions are effected and who is not really entitled to the profits. This settled legal position clearly emerges from this relevant scheme.

31. The learned standing counsel marshalled in aid the decision in Saifudin Alimohomed v. CIT : [1954]25ITR237(Bom) by the Bombay High Court. It was in the context of the business which was run by two guardians appointed by the court for the two minor daughters of the deceased Mahomedan. The question had arisen as to whether the guardian can be assessed in respect of this business income as an association of persons under S. 40 as the guardians ran business on behalf of the minors. In that context, their Lordships held that under S. 10, unlike S. 9, it was the person who had carried on business who was liable to pay tax. Therefore, what was emphasised was not the ownership of the business but the fact of the business being carried on by the assessee. Their Lordships had, however, stated that it was not necessary that an assessee should physically or with his hands carry on a business before he became liable to pay tax. But he must have the right to carry on the business and the business must be carried on in the exercise of that right. If the owner of a business was incapacitated from carrying on the business and he had no right to carry on the business, then although he might be the owner of the business he would still not be liable to pay tax because he was not carrying on the business. The court having deprived the minors of their right to carry on the business and having authorised the guardian to carry on the business for them, in such a case the person who would be carrying on business would not be the minor owners but the guardian appointed or authorised by the court. Whether a double option was open to the department was the matter of controversy in the subsequent decision of the Bombay High Court in CIT v. Balwantrai Jethalal Vaidya : [1958]34ITR187(Bom) , where the earlier decision was distinguished by holding the provision of S. 41 to be mandatory. But the whole basis of these two decisions is summarised at page 197 that a person liable to pay tax on business income was the person who carried on business. The difference in language used in Ss. 9 and 10 clearly brought out that distinction that whereas S. 9 imposed tax upon the owner of the property, S. 10 imposed tax upon persons who carried on the business. Further, proceeding on that distinction, it was held that it made no difference so far as vicarious liability under S. 41 was concerned. These decisions, therefore, could not be used for building further on that ratio as was done by the learned standing counsel. If there is no prohibition in the Hindu law or the general law on the HUF to carry on a business and the prohibition only comes from the Partnership Act which required a partnership contract between natural persons, the HUF would have no inherent incapacity to run a business if it carries out the restrictions of the Partnership Act as well. For the purposes of the Partnership Act, a member of the HUF who enters a contract of service, whether in his individual capacity or in a representative capacity, may alone be a partner but that does not mean that the HUF has any inherent incapacity to carry on business or that the HUF looking after and managing its share is various businesses could not be said to be carrying on business activity because it does not carry on that activity in its personal capacity but only through a representative person like a karta or other family member, for complying with the provisions of the Partnership Act.

32. The learned Advocate-General rightly relied upon the decision of the Bombay High Court in CIT v. Hind Commission Agents : [1963]48ITR615(Bom) in this connection. In that case, the assessee-firm was appointed by the Hindustan Sugar Mills as their selling agents and the assessee-firm appointed several sub-agents and brokers and requested the sugar mill to give instructions to other agents for delivery. The firm held itself responsible for any loss sustained by the sugar mill for the non-fulfilment of any contract or non-realisation of money in respect of goods sold through the sub-agents and the brokers. The registration of the firm was refused under S. 28A both on the ground that this was a mere device of diverting a part of the selling commission and also on the material ground that the assessee did not carry on business activity as all the transactions were carried out by the commission agents and brokers who know the nature of the business and kept detailed books of all transactions and the assessee maintained only small note books and registers prepared from the entries contained in the books of the sugar mills and the sub-agents and none of the partners had attended to the work of selling the product of the mills. In this context, their Lordships held that, even though the assessee-firm was not itself doing any transaction and the work of selling products was carried out through the sub-agents and brokers, it was a continuous business activity which was carried out on behalf of the assessee by sub-agents and brokers. Therefore, the assessee-firm was held to be engaged in business and the income received by it was held to be income from business under S. 10 of the Act. It was emphasised in this decision that it was not necessary that, in order that a business activity may be carried on by a person, he has to carry on transactions by himself only. He may as well carry them out through agents or servants or employees appointed by him for the purpose, himself remaining inactive. The transactions, however, carried out by the agents on behalf of the principal will be business transactions of the principal. On the same analogy, if the HUF carried on these businesses by entering into various partnership firms through its karta, it could not be urged that merely because the HUF was not personally carrying on those transactions it had no business activity as such. The nature of the business activity does not change its character as such, although for the purposes of the Partnership Act, the assessee could not be treated as a partner carrying on the business of each partnership. It could not be gainsaid that the karta who was a partner in a representative capacity represented the HUF. He carried on business in partnership with the family assets and he ploughed back the profits in the till of the HUF, rendering even the HUF assets liable for being proceeded against for recovery of the debts of the firm. The business activity of the HUF was only carried on through its representative. In substance and reality it was the HUF which carried on a business, though on account of legal disability arising out of its inability to enter into a partnership contract as it was not a juristic person, it would not become a partner, actually participating in the business of the partnership firm. That is why it has to act through its representative but that does not change the legal character of the business activity being indulged in by the HUF when there was no prohibition whatever under the Hindu law or under the general law against the HUF undertaking in any such business activity, of course, through such representative so as to conform to the provisions of the Partnership Act. This legal position is completely well settled as their Lordships in a number of decisions have examined this aspect of the case by going through the impact of the various branches of law, Hindu law, Partnership Act and Income-tax Act and other provisions of the Companies Act.

33. In Firm Bhagat Ram Mohanlal v. Commr. of EPT : [1956]29ITR521(SC) , a question had arisen before their Lordships as the Excess Profits tax Officer set off the profits of the firm for the year ending 1943-44 and for the year ending 1944-45 under S. 7 of the Excess Profits Tax Act and directed refund of the excess profits tax. The partnership in that case consisted of a karta of the HUF B and C, their shares being respectively 8 annas and 4 annas each, and the joint family disrupted and the firm reconstituted on October 17, 1944, and a new partnership was entered into where the partners were A, B, C, D, and E of whom D and E (Chhotalal and Bansilal) were members of the same joint family of which A was the karta. A, D and E were each entitled to 2 annas share each and B and C to 5 annas share each. That is why their Lordships had to consider the question whether there was a change on October 17, 1944, in the persons who carried on the business and the provisions of S. 8(1) of the Act applied. Their Lordships answered the question by having recourse to the provisions of the Hindu law that when the joint family firm was disrupted, at least after their disruption, the HUF ceased and, therefore, the erstwhile joint family of which all these persons were members, not being partners in the new firm, there was a change in the persons who carried on business although, in fact, these same five persons remained. The question was then examined from the principles of Hindu law, general law of partnership with special reference to the provisions of the tax law. Their Lordships had to look at the registration certificate which made no mention of either of the coparceners, Chhotalal or Bansilal, as partners and, therefore, that conduct of their being partners in individual capacity was found to be an after-thought. Then their Lordships also considered, even apart from this crucial question, at page 526, that it was difficult to visualise the situation of a joint Hindu family entering into a partnership with strangers through its karta and the junior members of the family also at the same time becoming partners in the same capacity. The case of Lachhman Das v. CIT [1948] 16 ITR 35 by the Privy Council was reli


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