AGARWAL AND CO. versus COMMISSIONER OF INCOME-TAX, U.P.

Citation: [1971] 1 S.C.R. 237 · Decided: 07-04-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
B 
237' 
AGARWAL AND CO. 
v. 
COMMISSIONER OF INCOME-TAX, U.P. 
April 7, 1970 
[J, C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] 
Income-tax Act, i922, s. 26A-Whether l.T.O. should register if 6ection· 
and the rules are complied witb-Whether l.T.O. can go behind partner· 
ship deed-Section 2(9)-Definltion of 'person' including Hindu Undivided' 
Family--lf could be imp-0rted into Partnership Act, 1932. 
C 
Partnership Act, 1932, s. 4-Partners, who can be-Association of 
D 
E 
F 
G 
H 
l'ersons if 'person' within meaning of section. 
Hirrdu undivided family-If can enter into partnership with others. 
A ;firm consisted of 18 partners. The partnership deed did not show 
that any of the partners joined lllle deed as representatives of their Hindu 
Undivided Families. The firm applied for registration under s. 26A of 
the Income-Tax Act, 1922 .. The Income.tax Officer, the Appellate Assis-
tant Commissioner and the Tribunal were of the opinion that some part-
m:rs of the firrn having entered into the partnership as representatives of 
their respective Hindu undivided families, in view of secti<>n 4(3) of the 
C<>mpanies Act, 1913, the adult members of these families should be 
taken into consideration for determining whether or not the total number 
of partners exceeded twenty. On that basis they arrived at the conclusion 
that the firm had more than 20 partners and the same havir..g not been 
registered as a company under the Companies Act, the partnership was un-
lawful. The High Court answered a reference made t<> it in favour of 
the revenue. 
In the appeal to this Court it was contended; (i) Section 
4(:1) of the Companies Act. 1913 proceeded on the erroneous impression 
thi.t a joint Hindu Family can enter into a partnership which in law it 
cannot as it has no legal personality; (ii) it was not open to the Income 
Tax Officc.r to go behind the deed for the purpose of registration under 
s. 26A and (iii) if the application for registration complied with the re·· 
quirements of that section and the rules made thereunder, it was not open 
t<> the Income Tax Officer to refuse to register. Allowing the appeal, 
HELD: (i) It is only partnership constituted according t<> the pro· 
visions of the partnership Act that can be considered as partnership under 
the Act. 
Under the 
Partnership Act 
only 
"persons" 
can join 
as 
partners. An 
association of persons is 
not a person within 
the-
meaning of that expression in the Partnership Act. The definition 
of 
•·per.son" in the Income Tax Act· includJng within the definition Hindu 
Undivided Family is intended for levying income.tax and other cognate· 
matters and cannot be imported into· the Partnership Act, the provisions. 
of which alone are relevant for finding as to who could join as partners. 
A Hindu undivided family cannot as such enter into a contact of Part-
nership with another person or persons. The concept of a Hindu un-
divided family joining a partnership presents considerable difficulty. 
It' 
is a fleeting body and such a partnership is likely to have a precarious. 
existence. Therefore, the assumption in s. 4(3) of the Cod\panies Act, 
1913, that a .Hindu Joint Family can be a partner in a partnership appear$ 
to be based on an erroneous view of the law. [241 H, 242 G·H] 
,. 
238 
SUPREME COURT REPORTS 
(1971 J I S.C.R. 
Senaji Kapurc/zand v, Pannaji Devichand, A.l.R. 1930 P.C. 300, Duli-
A 
-chand La.xminarayana. v. Com1nissioner of Jni:onie_-tax Nagpur, 29 -J-,T.R . 
.535 and Commissiomr of Income-tax West 
Bengal v. Ka/u Babi1 . Lal 
Chand, (1959) 37 I.T.R. 23, referred to. 
Lala Laclunan Das v. Co1nn1issioner of 
Jnco111e Tax 74 I.A. 
277, 
<iistinguished·. 
' 
(ii) For the purpose f?f finding out as to w.ho are all 
partners of a 
firm. one has only to look to the partnership deed and not to ~o behind 
it. It is well settled that when a cooparcener, even when he is the Karta, 
en.ters into partnership wi;th others the partnership that is created is a 
contractual partnership; that partnership is not between the family and ihe 
other partners; it is a partnership between the cop'arcener individually and 
his other partners, [244 B-C] 
P. K. P. S. Pichappa Chettiar v. 
Choka/ingam Pillai, A.I.R. 
1934 
P.C. 192, Kshetra Mohan-Sannyasi Charan Sadhuklran v. 
Coinmr. of 
Excess Profits Tax, West Bengal, (1953) 24 I.T.R. 488, Firm Bhagat Ram 
Mohan Lai v. Commissioner of Excess Profits 
Tax, Nagpur and Anr. 
(1956) ;!9 I.T.R. 521 and Commissioner of Income
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