CHANDRAKANT MANILAL SHAH AND ANR. versus COMMISSIONER OF INCOME TAX, BOMBAY-II

Citation: [1991] SUPP. 1 S.C.R. 546 · Decided: 24-10-1991 · Supreme Court of India · Bench: S. RANGANATHAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
CHANDRAKANT MANILAL SHAH AND ANR. 
v. 
COMMISSIONER OF INCOME TAX, BOMBAY-II 
OCTOBER 24, 1991 
B 
[S. RANGANATHAN, V. RAMASWAMI AND N.D. OJHA, JJ.] 
Indian Income Tax Act, 1922: 
Section 26A and 66( 1 )-Registration of finn--f'artnership ~ntered into 
C between a coparcener with the Karta of HUF--Coparcener not bringing a11y 
+ -
cash asset, but contributing skill and labour-Partnership dee~ Whether 
valid. 
Indian Partnership Act, 1932: 
D 
Sei:tion 4(57)--f'artnership inter se between members of HUF-Mem-
ber contributing skill and labour instead of cash assets--¥alidity of. 
Hindu Law: 
E 
Contract inter se between coparceners of HUF-One of the coparceners 
not contributing any cash asset--Va/idity of. 
Hindu Gains of Leamillg Act, 1930: 
F 
Sections 2 and 3-<Jains of leaming by a Member of HUF-wlietlzer 
~ _ -
assets of a11 individual. 
Words & Phrases : 'Skill', 'Labour', 'Property' - Meaning of 
The business being carried on by a HUF, of which the first appellant 
G was the Karta, was converted into a part~ership between the first 
appellant and one of his sons, who had earlier joined the business on 
monthly remuneration. The deed of partnership executed in that behalf 
indicated that the son had been admitted as a.working partner, having 35 
t 
per cent share in the profits and: losses of the firm and the remaining 65 
per cent share was held by the first appellant as the Karta of the HUF. An 
H 
546 
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j 
C. M. SHAH v. C. I. T. 
547 
application made for registration of the firm was dismissed by the 
Income-tax Officer on the ground that there was no valid partners~ip • 
This was upheld in appeal by the Appellate Tribunal. However, at the 
instance of the assessee the matter was referred to the High Court for its 
opinion. The High Court also held that there was no valid partnership. 
In the appeal before this Court, on behalf of the assessee-
appellants, it was contended that the mere fact that the son had neither 
separated from the HUF nor brought in any cash asset as his capital 
contribution to the partnership but was contributing only his skill and 
labour, could not in law detract from a valid partnership being created. 
On behalf of the respondent-Revenue it was contended that Hindu 
Law did not recognise any contract among the coparceners inter se except 
in two cases, namely, where there was a partial partition and where a 
coparcener had separate property and brought in such separate property 
as capital towards consideration for becoming a partner and that skill and 
labour could not be treated as property. 
Allowing the appeal by the assessee-appellants, this Court, 
HELD: 1.1 It cannot ·be said that when a coparcener enters into a 
partnership with a karta of a HUF and contributes only his skill and 
labour, no contribution of any separate asset belonging to such partner is 
made to meet the requirement of a valid partnership. [563 F] 
1.2 The aim or business is earning of profit. When an individual 
contributes cash asset to become partner of a· partnership firm in 
consideration of a share in the profits of the firm, such contribution helps 
and at any rate is calculated to help the achievement of the purpose of the 
firm, namely, to earn profit. The same purpose is, undoubtedly, achieved 
also when an individual, in place of cash asset, contributes his skill and 
labour in consideration ofa share in the profits of the firm. (562 D-E] 
1.3 Just like a cash asset, the mental and physical capacity generated 
by the skill and labour of an individual is possessed by or is a possession 
of such individual. Indeed, skill and labour are by themselves possessions. 
"Any possession" is one of the dictionary meaning of the word 'property'. 
In its wider connotation, therefore, the m,ental and physical capacity 
genemted by skill and labour of an individual and indeed the skill and 
A 
B 
c 
D 
E 
F 
G 
H 
548 
SUPREME COURT REPORTS 
(1991) SUPP. 1 S. C.R. 
A labour by themselves would be the property of the individual possessing 
them. They are certainly assets of that individual and there is no reason 
why they cannot be contribute,d as a consideration for earning profit in the 
business of a partnership. They certainly are not the properties of the 
HUF, but are separate prope1ti~ of the individual concerned. To hold to 
B the contrary, would also be .tnicompatible with the practical, economic and 
social realities of present day lliving. (562 E-G] 
1.4 Where an undivided. memb

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