1. In this case, at the instance of the revenue, the following three questions have been referred to us for our opinion :
'1. Whether, on the facts and in the circumstances of the case, in view of the fact that Budhalal Amulakhdas represented the assessee-firm in dual capacity (individual and HUF), the assessee-firm is entitled to registration under the Act
2. Whether, on the facts and in the circumstances of the case, the assessee-firm could be said to have fulfilled the requisite conditions laid down for the purpose of grant of registration and is, therefore, entitled to the registration under the Act
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law, in holding that the share of profits from the assessee-firm must be assessed in the hands of Budhalal Amulakhdas in individual capacity as also in the capacity of HUF separately, and cannot be clubbed together ?'
2. The facts leading to this reference are that the assessment years under consideration are assessment years 1969-70 and 1970-71, the relevant previous years being Samvat years 2024 and 2025, respectively. The assessee before us is a firm and the firm was treated as a registered firm by the ITO for the purpose of assessment for assessment year 1968-69, the corresponding previous year being Samvat year 2023. In that registered firm the partners were Budhalal Amulakhadas-37 1/2 per cent. share, Ugarchand Amulakhdas-25 per cent, share, Vinodchandra Budhalal-25 per cent. share and Navinchandra Sakarchand-12 1/2 per cent. share. Navinchandra, according to the arrangement reached amongst the partners inter se, was to have retired from the firm from Kartik sud 1 of Samvat Year 2023. He, however, did not retire as per the agreement reached amongst the partners and hence a suit was filed, being Suit No. 1902, in the appropriate court for declaring that Navinchandra had retired from the firm. The firm thereafter was reconstituted with effect from November 3, 1967, that is, from the commencement of Samvat year 2024. In the reconstituted firm the partners and their shares were as follows :
1. Budhalal Amulakhdas, Individual 25 per cent.2. Ugarchand Amulakhdas, Individual 25 per cent.3. Vinodchandra Budhalal, Individual 25 per cent.4. Budhalal Amulakhdas, HUF 25 per cent.
3. In this reconstituted firm, therefore, Budhalal Amulakhadas was a partner in two capacities, namely, as an individual and, secondly, as representing the interest of the HUF, and in each of these two capacities he had 25 per cent. share in the profits of the partnership firm. On February 20, 1969, which would be some time Samvat year 2025, Ugarchand Amulakhdas died and after his death the firm was reconstituted with the following partners :
1. Budhalal Amulakhdas, Individual 31 per cent. share2. Vinodchandra Budhalal, Individual 38 per cent.'3. Budhalal Amulakhdas, H.U.F. 31 per cent.'
4. In this reconstituted firm which was reconstituted after February 21, 1969, Budhalal Amulakhdas was representing in his individual capacity as well as in his capacity as karta and representative of the HUF and in each of the two capacities he had 31 per cent. share. The ITO rejected the application for registration and his ground was that it was not possible for one and the same individual to be a partner in two capacities. According to the ITO the partnership was not a validly constituted partnership in law and, therefore, the firm was not entitled to registration. He, therefore, made an assessment in the status of an association of persons for both the years under reference. When the assessee-firm went in appeal against the decision of the ITO, the AAC held that the firm was entitled to registration as all the conditions necessary for the purpose were satisfied. The AAC also negatived the conclusion of the ITO that since Budhalal had entered into agreement in a dual capacity he should be treated as a single person and, therefore, it was not an agreement between four parties as described in the deed and there would be three partners alone in the assessee-firm and hence the assessee-firm could not be refused registration. Against the decision of the AAC the matter was carried in further appeal by the revenue to the Tribunal. The Tribunal came to the conclusion that there was nothing in law which prevented one and the same person being a partner in a dual capacity and hence refusal of registration to the firm on this ground alone was not correct. It held that the correct status of the assessee was that of a registered firm and as regards the shares of the profits falling to the share of Budhalal Amulakhdas, the Tribunal held that Budhalal Amulakhdas should be assessed separately in his capacity as individual so far as profits from the partnership firm were concerned and he should be assessed separately in his capacity as karta of the HUF and the share of profits in his individual capacity should be assessed in the hands of Budhalal Amulakhdas only up to the extent of 25 per cent. for one year and 31 per cent, for the other year and the share of profits to the extent of 25 per cent. in one year and 31 per cent, in the other year should be assessed in the hands of the HUF. Thereafter, at the instance of the revenue, the three questions hereinabove set out have been referred to us for our opinion.
5. On the facts which have been hereinabove set out, it is clear that the sole question on which the ITO rejected the application for registration for the two years under reference was that Budhalal Amulakhdas could not be a partner in a dual capacity. It is true that in Hoosen Kasam Dada v. CIT : 5ITR182(Cal) , Costello J. of the Calcutta HIgh Court observed that a man cannot at one and the same time be a partner in his individual capacity and a partner in a representative capacity. However, after this observation of Costello J. of the Calcutta High Court, there has been a series of decisions of the Privy Council, the Supreme Court and the Bombay High Court, in the light of which it must be observed that what Costello J. stated in the Calcutta case is no longer good law. In Lachhman Das v. CIT  16 ITR 35, the Privy Council held that there can be a valid partnership between a karta of a HUF representing the family on the one hand and a member of that family in his individual capacity on the other. The converse case can be pointed out in the decision of the Patna High Court in Rai Bahadur Lokenath Prasad Dhandhania v. CIT : 8ITR369(Patna) . In that case the deed of partnership was drawn up between A in his individual capacity of the one part and the joint Hindu family (consisting of A and his two sons) of which A was the karta, of the other part and an application was filed for registration of the firm. The ITP refused registration of the firm on the ground that of no firm as defined in a s. 2 (6A) of the ACt of 1922 existed and the Patna High Court held that there was no partnership in law which could have been registered by the ITO. It must be observed that, on the facts of this Patna case, there was no third partner apart from the individual and the karta of the family with whom the partnership firm could be formed. So far as the Partnership Act is concerned, it would look to one individual, in whatever capacity he could become partner. It may be that he may be a partner in more than one capacity but so long as there is one or more outsiders or one more individual coming in besides that person becoming a partner in a dual capacity, there would be no objection to the constitution of a valid partnership. CIT v. C. K. Vora & Co. (Income-tax Reference No. 2 of 1950, decided by a Division Bench of the Bombay High Court on October 5, 1950) the facts were that prior to 1943 the firm consisted of three partners, Nemchand, Jagatchandra and Dholidas and the shares were 7 annas share of Nemchand, 7 annas share of Jagatchandra and 2 annas share of Dholidas. For the assessment year 1942-43, the firm applied for renewal of registration of the firm under s. 26A of the Act of 1922. Assessment was not completed till some time in 1947. In the meantime, Nemchand died in 1943. He left a will and under the will he left the residue of his estate to his grandson, Bhupendra, and he appointed his son, Jagatchandra, as his executor. Dholodas also died in July, 1945, and on the 10th of October a new deed of partnership was executed between the partners with the following shares :
1. Jagatchandra Nemchand ... 7 annas2. Babubhai Dholidas ... 1 anna3. Chinubhai Dholidas ... 1 anna4. Bhupendra Jagatchandra ... 7 annas
6. This partnership deed was sought to be registered under s. 26A but the department refused to register it holding that the partnership deed was not validly executed by the partners inasmuch as Jagatchandra had signed the agreement in two capacities, one as representing the joint Hindu family and the other as the executor of the will of Nemchand. On these facts the Division Bench consisting of Chagla C.J. and Tendolkar J. held that there was nothing in law which precluded a person from signing a partnership deed in two different capacities and the department was in error in refusing to register it on that ground. If registration had been refused on the ground that in the application for registration Jagatchandra should have specified his share as 14 annas and not as 7 annas as belonging to himself and 7 annas as belonging to Bhupendra, it might be that department might be right, but no opinion was expressed by the High Court on that contention. Chagla C.J., speaking for the Division Bench, observed :
'On the question submitted to us the only thing we have to consider is whether thee is anything in law which precludes a person signing a partnership deed in two different capacities. Jagatchadra had a seven annas share as representing the joint family. He was also the executor and represented the estate of his father and under the will, as I have stated above, his minor son, Bhupendra, was entitled to seven annas share of his grandfather; so Jagatchandra signed the partnership deed also as the executor and as representing the estate of his father. It is difficult to understand why one individual cannot execute the partnership deed in two capacities. Indeed, the Advocate-General has not seriously attempted to support this contention of the department. His contention is that as far as the partnership was concerned Jagatchandra alone was a partner having fourteen annas share; the other two partners, Babubhai and Chinubhai, having one anna share each. He contends that whomsoever Jagatchandra represented that was not the concern of the partnership and as far as the partnership itself was concerned, Jagatchandra was the only partner having fourteen anna share.'
7. This decision was followed by the Bombay High Court in CIT v. Raghavji Anandji and Co. : 100ITR246(Bom) , where a Division Bench of the Bombay High Court held that where the partnership deed of a firm consisting of eleven partners was signed by one of the partners in two capacities-as an individual and as the karta of a HUF-the partnership was valid and was entitled to registration under s. 26A of the Indian I. T Act, 1922. This decision of the Bombay High Court in Raghavji Anandji and Co. : 100ITR246(Bom) was followed by the kerala High Court in CIT v. Mandath Motors : 120ITR644(Ker) . The facts before the Kerala High Court were that one of the partners of a firm died. He had constituted by his will his three sons as representatives of his estate who were to carry on the partnership in his place along with the other partners in the original deed which provided that the death of a partner would not operate to dissolve the firm. This was permissible and quite consistent with the provisions of the partnership deed as well as s. 37 of the Indian Partnership Act. In accordance with the devolution of interest, the three heirs had constituted one of the other partners as their representative to carry on the business of partnership by their power-of-attorney. That partner had joined the reconstituted partnership in a dual capacity as a partner himself, and as representing the three heirs of the deceased partner. It was held that this could not, in the circumstances, be regarded as an invalidating factor affecting the genuineness or validity of the partnership. The reconstituted firm was genuine and was entitled to registration, and the Kerala High Court followed the decision in Raghavji Anandji and Co.'s case : 100ITR246(Bom) . The Kerala High Court held that this decision was strictly in point and even if the question of the validity of the partnership deed by reason of Krishnadas having signed twice in the document were to arise for consideration, the High Court would have been prepared to hold that that circumstance by itself, on the facts and circumstances disclosed, would not invalidate the partnership document or disclose a sufficient ground for cancellation of registration.
8. The correct legal position regarding a HUF being represented in a partnership firm has been dealt with by the Supreme Court in CIT v. Sir Hukumchand Mannalal and Co. : 78ITR18(SC) . There the Supreme Court speaking through Shah J., observed :
'Members of a Hidu undivided family are under no disability in the matter of entering into a contract inter se or with a stranger. A partnership will not be invalid merely because two or more of its partners are members of a Hindu undivided family and represent the interest of the family.
Where two coparceners of a Hindu undivided family were two of the five partners of a firm and they represent the interest of the family : the firm was valid in law and could be granted registration under section 26A of the Income-tax Act, 1922.'
9. It was further held in the light of the earlier decisions of the Supreme Court in CIT v. A. Abdul Rahim & Co. : 55ITR651(SC) and CIT v. Bhagyalakshmi and Co.  ITR 660; that in considering an application for registration of a firm the ITO is not concerned to determine in whom the beneficial interest in the share in the partnership vests. : 78ITR18(SC) of the report, Shah J. 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 Hindu undivided family.'
10. In view of this clear legal position it is obvious that stray observations of Costelly J. in the Calcutta case which we have referred to earlier no longer represent the correct legal position and we respectfully follow the observations and the principles laid down by Chagla C.J. in C. K. Vora & Co.'s case (I. T. R. No. 2 of 1950-5-10-1950). Under these circumstances, it is obvious that the Tribunal was right incoming to the conclusion that it was open to Budhalal Amulakhdas to be a partner with others in the firm of M/s. Budhalal Amulakhdas in a dual capacity-one as representing himself and the other as representing the undivided family of which he was the karta. As regards the question of complying with the requisite conditions the Tribunal has found as a fact that the requisite conditions were fulfilled and once it is found that there was noting in law preventing Budhalal Amulakhdas from becoming a partner in dual capacity so long as there was one or more other individuals to join in the partnership, the partnership would be valid and it could be said that the requisite conditions laid down for the purpose of the grant of registration were fulfilled and, therefore, the partnership was entitled to registration under the Act.
11. The Tribunal has pointed out in its order that Budhalal Amulakhdas had in his individual capacity contributed fifty-one thousand rupees by way of gift from his individual account to the HUF and these moneys of the HUF were utilised in the partnership firm and thus there was separate capital contribution by the HUF to the funds of the partnership. The Tribunal has pointed out that gift-tax was paid in respect of this gift of Rs. 51,000 and the assessment order under the G. T. Act was passed by the GTO. Therefore, the share which fell to the account of the HUF could not be clubbed in the hands of Budhalal with his income as an individual. The ITO sought to club the entire fifty per cent. in the year and sixty-two per cent, in the other year in the hands of Budhalal, but once the gift was found to be a valid gift and it was found that it was accepted by the gift-tax authorities, it is obvious that so far as Budhalal's income in his individual capacity was concerned, it must be distinguished from the income which Budhalal received from the partnership firm in his capacity as a representative of the HUF. It has been held by this High Court in Dinubhai Ishvarlal Patel v : K. D. Dixit, ITO : 118ITR122(Guj) that so far as a partner is concerned, qua his partners, he is an individual and qua them he functions in his personal capacity. However, when it comes to a person who represents an HUF in the affairs of a partnership firm, qua the members of the HUF, he is in his representative capacity. He represents them so far as outsiders are concerned but qua them he is merely their representative. If he is a representative he is not an individual person. In neither case, qua the wife or qua the minor child, is he any one else than a representative. It is just by chance that he happens to be the very individual whose spouse is also a partner in the same firm or whose minor child has been admitted to the benefits of that partnership firm but the words 'individual' occurring in s. 64 (1) (ii) must be given the meaning as a person who is capable of having a spouse or a minor child. It was further held that an 'individual' who is referred to in s. 64 (1) (ii) can only be an assessee who is being assessed in his individual capacity and not one who is being assessed in a representative capacity, such as the karta of a HUF.
12. It is, therefore, clear that qua the HUF, Budhalal Amulakhdas was representative and he must account to the HUF for whatever share of profits he received from the partnership firm in his capacity as representative of the HUF and that money which he received was the income of the HUF and must be assessed separately as HUF income.
In the light of the above observations, we answer the questions referred to use as followed :
Question No. (1)-In the affirmative, that is in favour of the assessee and against the revenue.
Question No. (2)-In the affirmative, that is, in favour of the assessee and against the revenue.
Question No. (3)-In the affirmative, that is, in favour of the assessee and against the revenue.
13. The Commissioner will pay the costs of this reference to the assessee.