COMMR OF INCOME TAX MADHYA PRADESH NAGPUR AND BHANDARA NAGPUR IN BOTH THE APPEALS Vs. SETH GOVINDRAM SUGAR MILLS IN BOTH THE APPEALS

JUDGEMENT

(1.) The following Judgment of the court was delivered by :

(2.) These two appeals by certificate arise out of the judgment of the High court of Madhya Pradesh, Jabalpur, in Miscellaneous Case No. 63 of 1961 from a reference under s. 66(2) of the Indian Income-tax Act, 1922, made by the Income-tax Appellate tribunal, Bombay.

(3.) The question is whether on the death of Nandlal his heirs, i.e., the members of his branch of the family, automatically became to partners of the said firm. The answer to the question turns upon s. 42 of the Indian Partnership Act, 1932 (Act 9 of 1932). the material, part of which reads: 'Subject to contract between the partners a firm is dissolved by the death of a partner.' While for the appellant the leaned Attorney General contended that s. 42 applied only to a partnership consisting of more than two partners, for the respondent Mr. Karkhanis argued that the section did not impose any such limitation and that on its terms it equally applied to a partnership comprising only two partners. It was argued that the contract mentioned in the over-riding clause was a contract between the partners and that, if the parties to the contract agreed that in the event of death of either of them his successor would be inducted in his place, the said contract would be binding on the surviving member. On the death of one of the partners, it was said, his heir would be automatically inducted into the partnership, though after such entry he might opt to get out of it. This conclusion the argument proceeded was also supported by s. 31 of the Partnership Act. Section 31 of the Partnership Act reads: '(1) Subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.' Converting the negative into positive, under s. 31 of the Partnership Act if there as a contract between the partners, a person other than the partners could be introduced as a partner of the firm without the consent of all the existing partners. A combined reading of ss. 42 and 31 of the Partnership Act, according to the learned counsel, would lead to the only conclusion that two partners of a firm could by agreement induct a third person into the partnership after the death of one of them.