RAMCHAND NAWALRAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal referring for our answer the following questions of law :

(2.) IF the answer to the first question is in the affirmative and in favour of the assessee, whether the assessee is entitled to registration for the assessment year 1970-71 under Section 185(1)(a) of the Income-tax Act, 1961?"

(3.) THE definition of partnership as contained in Section 4 of the Indian Partnership Act, 1932, does not make it obligatory that the partners must combine their property for sharing profits by constituting a partnership. THE definition contained in Section 4 is in line with the English law that any consideration such, as contribution of skill and labour by a person would be sufficient to support the agreement of partnership. Indeed, it has been stated that Section 4 if at all has extended the scope of the definition as compared to the earlier definition contained in Section 239 of the Contract Act. (See : Birdichand v. Harakchand, AIR 1940 Nag 211, 212). It cannot, therefore, be disputed that the karta of a joint Hindu family can enter into a partnership with a stranger when the consideration flowing from the stranger is either his property or his skill and labour. It has also been settled by the Privy Council that the karta of HUF can enter into a partnership with a member of the family who contributes his individual property [Lachhman Das v. CIT [1948] 16 ITR 35 (PC)]. THE question before us is, however, whether the karta can enter into a partnership with a member of the family when the member does not bring in any separate property of his own but the consideration flowing from him is skill and labour in carrying on the business.