RASHIK LAL AND CO. versus COMMISSIONER OF INCOME TAX, ORISSA

Citation: [1997] SUPP. 6 S.C.R. 331 · Decided: 09-12-1997 · Supreme Court of India · Bench: S.C. SEN · Disposal: Dismissed
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Judgment (excerpt)

RASHIK LAL AND CO. 
A 
v. 
COMMISSIONER OF INCOME TAX, ORISSA 
DECEMBER 9, 1997 
(SUHAS C. SEN ANDS. SAGHIR AHMAD, JJ.] 
B 
Income Tax Act, 1961 : Section 40(b ). 
Income Tw.--Pwtnership finn-AY 1980-81--Commission paid-To a 
parlner as a member of HUF-Deductibility of-From income of Jinn-Held: C 
Not deductible-Furthe1; HUF cannot itself become a partner of a 
finn-Pa1tnership Act. 1932, Ss.4, 13 and 14. 
The appellant-assessee, the Karta of an HUF, was a partner of a 
firm, which was carrying on a number of businesses including mining. 
There was an agreement between the appellant and the firm th.at the D 
appellant would receive a certain amount per tonne of the mineral sold by 
the firm. In the assessment year 1980-81 the appellant-assessee received a 
certain amount as commission. The firm claimed deduction of this amount 
from its income. The Income Tax Appellate Tribunal and the High Court 
negatived the claim. Hence this appeal. 
On behalf of the appellant-assessee it was contended that the appel-
lant had not joined the firm as an individual but was really representing 
an HUF; that the real partner of the firm was the HUF; and that the 
amount of commission paid by the firm to the appellant would not fall 
E 
within the mischief of Section 40(b) of the Income Tax Act, 1961. 
F 
Dismissing the appeal, this Court 
HELD : 1.1. A firm is a compendious way of describing the in-
dividuals constituting the firm. An HUF directly or indirectly cannot 
become a partner of a firm because the firm is an association of in- G 
dividuals. [335-F] 
1.2. Even if a person nominated by the HUF joins a partnership, the 
partnership will be between the nominated person and the other persons 
of the firm. lt is not possible to hold that an HUF being a fluctuating body 
of individuals can enter into a partnership with other individual partners. H 
331 
332 
SUPR~ME COURT REPORTS [1997] SUPP. 6 S.C.R. 
A It cannot do indirectly what.it cannot do directly. If a Karta or any other 
member of the HUF joins a partnership, he can do so only as an individual. 
His rights and obligations vis-a-vis other partners are determined by the 
Partnership Act, 1932 and not by Hindu Law. Whatever may be the 
relationship between· an HUF and its nominee partner, in a partnership, 
B 
neither the HUF nor any member of the HUF can claim to be a partner or 
connected with the partnership through a nominee. [337.-F-H; 338-A] 
Dulichand Laxminarayan v. CIT, 29 ITR 535, followed. 
2.1. The Partnership Act contains various provisions regulating the 
C relationship between partners. All these provisions will apply to a partner 
who represents another body. The HUI< who has a nominee partner in a 
firm has neither any right nor any obligation nuder the provisions of the 
Partnership Act. There is no way that an HUF can intrude into the relation-
ship created by a contract between certain individuals. [338-E-H; 339-C-D] 
D 
2.2. Section 13 of the Partnership Act lays down that a partner is not 
E 
entitled to receive any remuneration for taking part in the conduct of the 
business. There, however, can be a special contract to the contrary in which 
case, the provisions of that contract will prevail. Section 40(b) of the 
Income Tax Act, 1961 will apply even when there is such a special contract. 
Any commis.sion paid by a firm to its partner will not be permitted as 
deduction from the business income of the firm. If a claim is made by a 
partner that he is representing an HUF or any other body of persons then 
the position in law will not be any different. [339-E-G] 
Blij Mohan Das Laxman Das v. CIT, 223 ITR 82.'5 and Suwalal 
F Anandi/al Jain v. CIT, 224 ITR 753, held inapplicable. 
Mulla's Hindu Law, 16th Edu., p. 265, referred to. 
3.1. Under the Income Tax Act, 1961, 'firm', 'partner' and 
'partnership' have been given the same meaning as assigned to them in the 
G Partnership Act. But the expression 'partner' has been extended to include 
any person who, being a minor , has been admitted to the benefits of a 
partnership. Therefore, th~re is no scope for any argument that even 
though under the Indian Partnership Act, an HUF not being a 'person' 
cannot be a partner, but the payment of commission to the nominee partner 
will tantamount to payment to the HUF and, therefore, such payment will 
H not come within the mischief of Section 13 of the Partnership Act or Section 
RASHIK LAL AND CO. v. C.I.T. [SEN, J.] 
40(b) of the Income Tax Act. [341-E-F] 
333
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