LexCOMMISSIONER OF INCOME-TAX, MADRAS versus BAGYALAKSHMI & CO., UDAMALPET
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.22 COMMISSIONER OF INCOME-TAX, MADRAS v. BAGYALAKSHMI & CO., UDAMALPET November 4, 1964 [K. SUBBA RAo, J. C. SHAH AND S. M. SIKRI, JJ.] Income Tax-Registration of firm-Members of Hindu undivided family representing it as partners in firm-Partition of Hindu undivided family-- Variance between the interests of the members as shown in partnership deed and as shown in partition deed-Partnership otherwise genuine-Whether registerabk-Indian Income-tax Act, 1922 (11 of 1922), s. 26A. A B G and his son V belonged to a Hindu undivided family, and as repre- C scntatives of the family were partnero in the assesee-firm holding therein shares of 7t as. and 2t as. respectively. The family thus held through them, an interest of 10 as. in the assessee-firm. On August 24, 1950, there was a partition in the family, and according to the partition-deed the IO as. interest of the family in the assessee-firm was divided in such a way between seven members that the shares allotted to G and V came to 2 as. and I anna 4 pies respectively. On November 30, 1950, a new . partnership-deed was drawn up by the partners of the assessee-firm and the D shares allotted to G and V therein were again 7t as. and 2t as. respectively. The claim of the ru;sessee-firm for Registration under s. 26-A of the Indian Income-tax Act, 1922, on the basis of the new deed, for the yean 1952-53, 1953-54 and 1954-55 wru; accepted by the Income-tax.authorities. G and V were duly assessed on their respective shares as shown in the partnership deed. But they contended that in respect of the first two years they were liable to pay tax only in respect of their respective shares E as shown in the partition-deed of their erstwhile undivided family. Their contention was accepted by the Income-tax Appellate Tribunal. Where- upon, the Commissioner of Income-tax acting under s. 33B of the afore- said Act cancelled the registration of the partnership for the three years on the ground that the partnership-deed did not show the correct shares of the partners in the partnership. The Tribunal, in appeal, upheld the Commis- sioner's action. At the as&"...ssee's instance, a reference was then made to the High Court of Judicature at Allahabad, the questions rererred bein& F whether the Commissioner's action under s. 33B was lawful, and if so, wh• ther the firm was registerable under s. 26A for the assessment yean in question. The High Court decided both the questions in favour of the • assessee and against the · Revenue. The Commissioner of Income...tax appealed to this court. It was contended on behalf of the Revenue that as the partnership-deed did not specify the correct shares of G and V in that while they )Vere G entitled only to 2 as. and I anna 4 pies <hare in ·accordance with the . partition-deed, they were shown in the partnership-deed as holding 7t as. and 2t as. shares respectively, and therefore, the Tribunal had rightly held that the said partnership could not be registered under s. 26A of the Act. HELD : A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partner- ship. It only regulates the rights and liabilities of the partners. A partner may be the karta of a joint Hindu family. he may be a trustee; he may enter into sub-partnership )Vith others; he may under an agreement express or imnlied, be the representative of a group of persons; he may be a btnamidar for another. In all such cases he occupies· a dual position. Q"" H A B c D c. I. T. v. BAGYALAKSHMI & co. (Subba Rao, J.) 23 the partnership he functions in his personal capacity; qua the third parties, in his repre.sentat.ive capacity. Third parties, whom one of the partner represents, cannot enforce their rights against the other partners nor can the other partners do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the tem1s of the agreeme:at, as the case may be. [26 E-G] The law of pa1tnership and Hindu law functions in different fields. A divided member or some of the divided members of an erstwhile joint family Cb.n certainly enter into a partnership with third parties under some arrangement among the members of the divided family, Their shares in the partnership depend on the terms o~ the partnership; the ;lrnres of the members of the divided
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