Jagdish Sahai J. - (1.) THE Income-tax Appellate Tribunal, Delhi Bench, (hereinafter referred to as "the Tribunal") has submitted a statement of the case and referred the following question of law at the instance of the assessee, Messrs. Agarwal and Co. (hereinafter referred to as "the assessee") under section 66(1) of the Income-tax Act, 1922 hereinafter referred to as the "Act"): "Whether, on the facts and in the circumstances of the case, registration was rightly refused ton the firm on the ground that it violated the provision of section 4 of the Indian Companies Act, 1913?" The assessment year in question are 1952-53, 1953-54 and 1954-55. The Tribunal submitted one statement of the case and referred one question of law because the point raised is common to all the three years. The assessee-firm was constituted in 1934. A deed of partnership was drawn up on January 24, 1936, but as some of the members died fresh partnership deed were subsequently drawn up. The one with which we are concerned in this case in dated July 7, 1950, a copy whereof has been made a part of the statement of the case.
(2.) ACCORDING to this document, there were in all 18 partners. The assessee firm applied for registration under section 26A in all the three years. The Income-tax Officer refused registration every time on the finding that the partnership consisted of more than 20 persons which was violative of section 4 of the Indian Companies Act and for that reason could not be registered as a partnership. The orders passed in each year were affirmed on the assessee's appeals by the Appellate Assistant Commissioner and the Tribunal. It is clear from the statement of the case that some of the partners of the assessee-firm had joined it only in their representative capacity being kartas of their respective Hindu undivided families. The appellate order of the Tribunal has been made a part of the statement of the statement of the case and has been marked as annexure "E" in referring order. In paragraph 4 of the appellate order the Tribunal has clearly stated that: "As already mentioned, the number of partners as mentioned in the partnership deed was 18. It is common ground that most, if not all, of them were kartas and represented their respective families in the partnership." For its finding that the partnership could not be registered the Tribunal relied upon section 4(3) of the Indian Companies Act, as it as stood the relevant time: "4. (1)................... (2) No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of an Act of Parliament of the United Kingdom or some other Indian law or some other Indian law or Royal Charter of Letters Patent. (3) This section shall not apply to a joint family carrying on joint family trade or business and where two or more such joint families form a partnership, in computing the number of persons for the purposes of this section, minor members of such families shall be excluded. (4) Every members of a company, association or partnership carrying on business in contravention of this section shall be personally liable for all liabilities incurred in such business..." The Tribunal was of the opinion that several partners of the assessee-firm having entered into partnership in their representative capacity of being kartas of their respective Hindu undivided families, the total number of adult members in such families should be taken into consideration while determining whether or not the number exceeded twenty. Mr. Jagdish Swarup strenuously contended that it is well settled and beyond all controversy that there can be no partnership between two Hindu undivided families. He contended that, inasmuch as a Hindu undivided family is not legal entity or a justice person and partnership is a contractual relationship capable of being entered into by someone who is either a sentient being or a juristic person or a legal entity it cannot enter into a partnership. He also contended that it would lead to anomalous results if two Hindu undivided families enter into partnership because the number of partners would go on varying according to the deaths and births in the two families. He has placed reliance upon the following cases: In re Ram Kumar Ramniwas of Nanpara ([1952] 22 I.T.R. 474), Kshetra Mohan-Sannyasi Charan Sadhukhan v. Commissioner of Excess Profits Tax, ([1953] 24 I.T.R. 488 (S.C), Commissioner of Income-tax v. Kalu Babu Lal Chand ([1959] 37 I.T.R. 123; [1960] 1 S.C.R. 320), Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax [1956] 29 I.T.R. 521, 526; [1956] S.C.R. 143), Commissioner of Income-tax v. Nandlal Gandalal ([1960] 40 I.T.R. 1; [1960] 3 S.C.R. 620), Jitmal Bhuramal v. Commissioner of Income-tax ([1962] 44 I.T.R. 887 (S.C.)), Commissioner of Income-tax v. Sivakasi Match Exporting Co. ([1964] 53 I.T.R. 204 (S.C.)), Commissioner of Income-tax v. A. Abdul Rahim and Co. ([1965] 55 I.T.R. 651 (S.C.)), Commissioner of Income-tax v. Bagyalakshmi and Co. ([1965] 55 I.T.R. 660 (S.C.)) and Charandas Haridas v. Commissioner of Income-tax, ([1960] 39 I.T.R. 202; [1960] 3 S.C.R. 296).
(3.) AS a bald proposition of law and in strict technical sense it is true that a Hindu undivided family cannot constitute a partnership firm but it is well settled and full recognized that, even though the partner may be the karta of a Hindu undivided family, the Hindu undivided family has a interest in the partnership business. It was clearly pointed out in Ram Kumar Ramniwas of Nanpara, In re ([1952] 22 I.T.R. 474) that when the karta acting within his right under the Hindu law enters into a partnership he makes the entire joint family liable for the debt of the partnership and entitled to receive the benefits thereof. It was also pointed out in Commissioner of Income-tax v. Nandlal Gandalal ([1960] 40 I.T.R. 1; [1960] 3 S.C.R. 620) that the coparcener (karta) is undoubtedly accountable to the family for the income received. In Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax ([1956] 29 I.T.R. 521, 526; [1956] S.C.R. 143) it was observed as follows: "If members of a coparcenary are to be regarded as having become partners in a firm with strangers, they would also would become under the partnership law partners inter se, and it would cut at the very root of the notion of a joint undivided family to hold that with reference to coparcenary properties the members can at the same time be both coparceners and partners." It is not necessary to multiply authorities because, in all the cases cited by Sri Jagdish Swarup, nothing has been said against the position that, even though the members of a Hindu undivided family as such do not become partners of a firm in which their karta has become a partner in his representative capacity representing the Hindu undivided family, they were none the less fully interested in the partnership business, are liable to pay its losses and entitled to receive it profits. In other words, in effect though not in law, they are partners.;