Citation Codes

Equivalent Citations

citation codes

Case Number

(From Madhya Pradesh),Civil Appeal No. 1774 of 1969, decided on 20th July, 1970

Disposition

dismissed

Attorney(S)

S. Mitra, Senior Advocate (R.N Sachthey and B.D Sharma, Advocates with him) for Appellant
M.C Chagla, Senior Advocate (R.N Banerjee, A.K Verma, Advocates and O.C Mathur, Advocates of J.B Dadachanji & Co. with him) for Respondent

Judges

Justice K.S. Hegde
Justice J.C. Shah

Acts

Section 26-A of the Indian Income Tax Act, 1922
Section 26-A of the Act
Section 5, Subsection 2 of the 1983 Income Tax Act
The Indian Contract Act
Section 4 of the Partnership Act

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Smart Summary

Commissioner of Income Tax v. Sir Hukumchand Mamtalal & Co.

Factual and Procedural Background

A partnership firm styled “Sir Hukumchand Mamtalal & Company” was formed on 16 July 1948 to act as the managing and selling agents of Hukumchand Mills Ltd. Two of the five partners—Sir Hukumchand and his son Rajkumar Singh—participated in the firm on behalf of the Hindu undivided family (HUF) of Sir Hukumchand and his sons. Upon partition of the HUF property on 31 March 1950, the family’s interest in the firm was taken over by a private company, Sir Sarupchand Hukumchand Ltd.

The Income Tax Officer (ITO) granted registration to the firm under Section 26-A of the Indian Income Tax Act, 1922 for assessment years 1950-51 to 1953-54, but refused registration for 1954-55. The Appellate Assistant Commissioner upheld the refusal, holding that two coparceners could not represent an HUF in a partnership. The Income-tax Appellate Tribunal reversed that decision and directed registration.

At the Commissioner’s request, the Tribunal referred the question—“Whether, in the facts and circumstances of the case, the firm could be granted registration under Section 26-A?”—to the High Court, which answered in the affirmative. The Commissioner appealed to the Supreme Court.

Legal Issues Presented

Whether a partnership in which two coparceners of an HUF represent the family’s beneficial interest can qualify for registration under Section 26-A of the Indian Income Tax Act, 1922.

Arguments of the Parties

Commissioner of Income Tax (Appellant)

Argued that two coparceners of the same HUF are legally incapable of contracting inter se; therefore, a partnership agreement involving them is invalid and ineligible for registration.

Assessee / Firm (Respondent)

Relied on the Tribunal’s finding that nothing in law bars two or more coparceners from entering into a valid partnership with a stranger, satisfying the statutory requirements for registration.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ram Laxman Sugar Mills v. CIT	An HUF is a “person” for income-tax purposes but cannot itself be a partner; only the manager can enter into a partnership on its behalf.	The Court accepted this as the governing legal position, noting that it was undisputed by the Commissioner.
P.K.P.S Pichappa Chetiar v. Chokalingam Pillai (AIR 1934 PC 192)	If a managing member of an HUF enters into partnership with a stranger, only those members who actually contract with the stranger become partners.	Cited to show that one or more coparceners may validly partner with a stranger without the HUF as a unit becoming a partner.
Charandas Haridas v. CIT	Approved the Privy Council’s view that individual coparceners, not the HUF, become partners.	Relied on as Supreme Court authority affirming the Pichappa Chetiar principle.
CIT v. A. Abdul Rahim & Co.	In proceedings for registration, the ITO need not determine ultimate beneficial ownership of a partner’s share.	Used to emphasise that the ITO’s inquiry is limited to the existence of a genuine partnership agreement.
CIT v. Bagyalakshmi & Co.	Same as Abdul Rahim: beneficial ownership is irrelevant to registration under Section 26-A.	Further supported the limited scope of the ITO’s examination.

Court's Reasoning and Analysis

The Supreme Court held that the Indian Contract Act imposes no disability on members of an HUF from entering into agreements either with each other or with strangers. Section 4 of the Partnership Act defines partnership solely by the agreement to share profits; such a relation is unaffected by the coparcenary status of some partners. Therefore, the mere fact that two coparceners represent a single beneficial interest does not invalidate the partnership.

The Court rejected the Commissioner’s argument that coparceners cannot enter into a valid inter se contract, citing Pichappa Chetiar and Charandas Haridas to confirm that one or more coparceners may individually form a partnership with strangers. It further relied on CIT v. A. Abdul Rahim & Co. and CIT v. Bagyalakshmi & Co. to reiterate that the ITO need not investigate the ultimate destination of the partnership profits.

Holding and Implications

Appeal dismissed; the firm is entitled to registration under Section 26-A.

Immediate Effect: The High Court’s affirmative answer to the reference stands, and the firm must be registered for the relevant assessment year. Broader Implications: The judgment clarifies that multiple coparceners may jointly enter into a partnership with outsiders and obtain registration, further limiting the scope of the ITO’s inquiry to the genuineness of the partnership agreement.

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Commissioner Of Income Tax, Madhya Pradesh v. Sir Hukamchand Mannalal And Co. .

J.C Shah, J.— A firm styled Sir Hukumchand Mamtalal & Company was formed under a deed, dated July 16, 1948, to carry on the business of “managing and selling agents” of Hukumchand Mills Ltd. Sir Hukumchand and his son Rajkumar Singh were two of the five partners of the firm. They represented the interest of the Hindu undivided family of Sir Hukumchand and his sons. On March 31, 1950 the property of the Hindu undivided family was partitioned and the interest of the family in the partnership was taken over by a private limited company styled Sir Sarupchand Hukumchand Ltd.

2. For Assessment Years 1950-51, 1951-52, 1952-53 and 1953-54 the Income Tax Officer granted registration of the firm under Section 26-A of the Indian Income Tax Act, 1922. In 1954-55 the Income Tax Officer declined to grant registration. In appeal the Appellate Assistant Commissioner confirmed the order on the ground that two coparceners could not represent the interest of the Hindu undivided family in a partnership. The Tribunal reversed the order. They held that Sir Hukumchand and his son Rajkumar Singh were partners in the firm on behalf of the Hindu undivided family and there was nothing in law which prevented two or more coparceners of a Hindu undivided family representing the family from entering into a partnership with a stranger or strangers.

3. At the instance of the Commissioner of Income Tax the following question was referred by the Tribunal:

“Whether in the facts and circumstances of the case the firm Hukumchand and Mannalal Company could be granted registration under Section 26-A of the Act?”

The High Court answered the question in the affirmative. The Commissioner of Income Tax has appealed to this Court with certificate granted by the High Court.

4. In Ram Laxman Sugar Mills v. CIT this Court observed:

“A Hindu undivided family is a ‘person’ within the meaning of the Indian Income Tax Act: it is however not a juristic person for all purposes, and cannot enter into an agreement of partnership with either another undivided family or individual. It is open to the manager of a joint Hindu family as representing the family to agree to become a partner with another person. The partnership agreement in that case is between the manager and the other person, and by the partnership agreement no member of the family except the manager acquires a right or interest in the partnership. The junior members of the family may make a claim against the manager for treating the income or profits received from the partnership as a joint family asset, but they cannot claim to exercise the rights of partners nor be liable as partners.”

This position in law was not disputed on behalf of the Commissioner. But it was urged that since two members of a coparcenary represented, in the firm the same beneficial interest of a Hindu undivided family, and since they were incompetent to enter into a contract inter se, the partnership agreement could not be registered. There is no substance in that contention. In P.K.P.S Pichappa Chetiar v. Chokalingam Pillai AIR 1934 PC 192 the Judicial committee observed, approving the observations made in Mayne's Hindu Law (9th Edn.) at p. 398 to the following effect:

“Where a managing member of a joint family enters into a partnership with a stranger the other members of the family do not ipso facto become partners in the business so as to clothe them with all the rights and obligations of a partner as defined by the Indian Contract Act, in such a case the family as a unit does not become a partner, but only such of its members as in fact enter into a contractual relation with the strangers the partnership will be governed by the Act.”

It is clearly enunciated that one or more members of a Hindu undivided family may enter into a contractual relationship in the nature of a partnership with a stranger and they qua the stranger become partners. The view expressed by the Judicial Committee was approved by this Court in Charandas Haridas v. CIT.

5. The Indian Contract Act imposes no disability upon members of a Hindu undivided family in the matter of entering into a contract inter se or with a stranger. A member of a Hindu undivided family has the same liberty of contract as any other individual: it is restricted only in the manner and to the extent provided by the Indian Contract Act. Partnership is under Section 4 of the Partnership Act the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all: if such a relation exists, it will not be invalid merely because two or more of the persons who have so agreed are members of a Hindu undivided family. It is now settled law that in considering an application for registration of a firm, the Income Tax Officer is not concerned to determine in whom the beneficial interest in the share in the partnership vests: CIT v. A. Abdul Rahim & Co.; CIT v. Bagyalakshmi and Co.

6. In our judgment, the High Court was right in answering the question in the affirmative.

7. The appeal fails and is dismissed with costs.

Commissioner Of Income Tax, Madhya Pradesh v. Sir Hukamchand Mannalal And Co. .

Commissioner of Income Tax v. Sir Hukumchand Mamtalal & Co.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Commissioner of Income Tax (Appellant)

Assessee / Firm (Respondent)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income Tax, Madhya Pradesh v. Sir Hukamchand Mannalal And Co. .

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