Dwarka Prasad, J. - (1.) THE following question of Jaw has been referred to this court by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), by its order dated April 20, 1974 : " Whether, on the facts and in the circumstances of the case, the Tribunal is justified in cancelling the order under Section 263 passed by the Additional Commissioner of Income-tax ? "
(2.) THE assessee was registered as a firm during the assessment year 1968-69, consisting of the following partners : JUDGEMENT_882_ITR160_1986Html1.htm who were admitted to the benefits of the partnership. Mirchumal entered into a partnership representing the Hindu undivided family known as Chanchaldas Sobhrajmal, of which he was the karta. Sliri Laxmandas and Udhavdas were major members of the Hindu undivided family but they joined the partnership firm in their individual capacity and were working partners. Baldeo and Devidas, as mentioned above, were minors and they were admitted to the benefits of the partnership under Section 30 of the Indian Partnership Act. THE only other partner, namely, Vasumal, was an outsider. The asses see-firm claimed registration for the assessment year 1968-69, which was allowed by the Income-tax Officer but the registration of the firm was cancelled by the Additional Commissioner of Income-tax on the ground that the firm was not validily constituted and the Income-tax Officer was not justified in allowing registration to the firm. On an appeal by the assessee, the Income-tax Appellate Tribunal cancelled the order passed by the Additional Commissioner of Income-tax and held that there was no disability for the members of a Hindu undivided family in the matter of entering into a partnership with a stranger and the fact that the two minors were admitted to the benefits of the partnership had not in any manner invalidated the constitution of the partnership firm. It was observed by the Tribunal that a partnership with a stranger and the members of a Hindu undivided family was not invalidated merely because two or more partners were members of a Hindu undivided family and represented the interest of the family. The aforesaid question was then referred by the Income-tax Appellate Tribunal to this court at the instance of the Revenue, as a question of law arose out of the order of the Appellate Tribunal dated August 3, 1973. The same question about the validity of the constitution of the assessee-firm and as to whether it was entitled to registration under Section 185 of the Income-tax Act, 1961, which arose out of the application for registration relating to the assessment proceedings for the year 1970-71, came up for consideration before this court in D.B. Income-tax Reference No. 3 of 1976 and was decided by this court on January 18, 1985 (CIt v. Murlidhar & Co. [1986] 160 ItR 885). This court agreed with the view taken by the Appellate Tribunal and answered the question in the affirmative. Although the question which has been referred in the present case is not in identical terms, yet it is substantially based on the same finding of fact recorded by the Appellate Tribunal.
(3.) THIS court in the earlier decision dated January 18, 1985 (CIT v. Murlidhar & Co. [1986] 160 ITR 885), hold that it was permissible for a karta of a Hindu undivided family, representing the Hindu undivided family, to enter into a partnership with any other member of the Hindu undivided family, who is taken into the partnership as a working partner and even if he did not contribute any separate or individual share in the capital of the firm, and a stranger. Reliance was also placed upon another decision of this court in Gulraj Poonam Chand v. CIT [1984] 148 ITR 326. In that case, the partnership was formed between the karta of a Hindu joint family and his son, in which the son was taken as the working partner. We may also refer to the decision of their Lordships of Supreme Court in CIT v. Sir Hukumchand Mannalal & Co. [1970] 78 ITR 18, which was relied upon by the Appellate Tribunal. It was held by their Lordships of the Supreme Court in the aforesaid case that the partnership will not be invalidated merely because two or more of its partners were members of a Hindu undivided family and represented the interest of the family. Their Lordships also observed in the aforesaid case that it was settled law that while considering the application for registration of a firm, the Income-tax Officer was not concerned in determining in whom the beneficial interest in the share in the partnership vested. ;